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26 February 2008

Chris Anderson + Wired explain the business of free.

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In the last few years, Wired Magazine has transformed itself from the best magazine about obscure geeky technological shit that might one day make people rich into the best magazine about obscure business concepts that are already making people rich (but that most people don’t know about). Wired is the magazine that lets the wider world in on the secrets of these forward-thinking capitalists. For example, editor-in-chief Chris Anderson’s celebrated article about The Long Tail made everyone understand the secret of Amazon.com’s success (i.e. that it has a bigger selection than any single record or book store on earth). It was also a notion I have toyed with in print.

And that notion is? That in our increasingly wired world, small is the new big; that the future is not about the mass market, but the niche which you control; that blockbusters are a thing of the past; and finally, that benefiting from many small transactions is the wave of the future.

Now, Anderson has done it again, with Why $0.00 is the Future of Business in Wired‘s March issue. (You can click here to download a free PDF of the article or here to read it on the web. Yes, here’s a case where a publisher is putting their money where their mouth is.)

Anderson will publish a book-length explanation of this phenomenon in 2009 and as befits a longer work, his new article hints at a detailed taxonomy of how free functions in our day-to-day economic life — as advertising, as “freemiums,” as cross-subsidies, et. al. My favorite passage in his piece, however, is BIG IDEA graph wherein he provides a clear explanation of the major difference between the winner-take-all markets of the 20th century, and the “free” markets of the future:

To follow the money, you have to shift from a basic view of a market as a matching of two parties — buyers and sellers — to a broader sense of an ecosystem with many parties, only some of which exchange cash.

The most common of the economies built around free is the three-party system. Here a third party pays to participate in a market created by a free exchange between the first two parties. Sound complicated? You’re probably experiencing it right now. It’s the basis of virtually all media.

In the traditional media model, a publisher provides a product free (or nearly free) to consumers, and advertisers pay to ride along. Radio is “free to air,” and so is much of television. Likewise, newspaper and magazine publishers don’t charge readers anything close to the actual cost of creating, printing, and distributing their products. They’re not selling papers and magazines to readers, they’re selling readers to advertisers. It’s a three-way market.

After the jump, I start making weird allusions to communism and explain why Anderson unfairly disses the music industry.
Read more »

Posted by Alec Hanley Bemis  

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