Free for all brawl

In this column:

* Free a money-making business model?
* Gladwell says free is a Ponzi scheme
* Anderson says Gladwell doesn't get Google
* Seth Godin supports the free debate

When Chris Anderson launched his book Free - The Past and Future of a Radical Price, it sparked a 'clash of the titans'. The world's top intellects thrashed out the 'freeconomics' debate in what was little more than a civilised brawl. A lot was at stake given that the debate centred on the Internet and its influence on economics as we know it.

The debate centred on the Internet and its influence on economics as we know it

Mandy de Waal, ITWeb contributor

The Wired editor and author of New York Times bestseller The Long Tail believes giving consumers something free can be a great moneymaking business model. In Free, he supports this by advising that anything digital is on a direct glide path to being free.

“In many instances, businesses can profit more from giving things away than they can by charging for them,” says Anderson, who adds: “Google offers nearly a hundred products... almost all of them are free of charge. Really free - no trick. It does it the way any modern digital company should: by handing out a lot of things to make money on a few.”

Malcolm Gladwell didn't agree and delivered a very public blow in his book review for The New Yorker:

“There are four strands of argument here: a technological claim (digital infrastructure is effectively free), a psychological claim (consumers love free), a procedural claim (free means never having to make a judgment), and a commercial claim (the market created by the technological free and the psychological free can make you a lot of money). The only problem is that in the middle of laying out what he sees as the new business model of the digital age, Anderson is forced to admit that one of his main case studies, YouTube, 'has so far failed to make any money for Google'.

“Why is that? Because of the very principles of free that Anderson so energetically celebrates. When you let people upload and download as many videos as they want, lots of them will take you up on the offer. That's the magic of free psychology: an estimated seventy-five billion videos will be served up by YouTube this year. Although the magic of free technology means that the cost of serving up each video is “close enough to free to round down”, “close enough to free” multiplied by seventy-five billion is still a very large number. A recent report by Credit Suisse estimates that YouTube's bandwidth costs in 2009 will be three hundred and sixty million dollars. In the case of YouTube, the effects of technological free and psychological free work against each other.”

The spat played out in the media, with Anderson striking back at Gladwell through his blog at Wired Magazine and on The Charlie Rose Show. Here Anderson flat out said that Gladwell didn't understand Google's business model:

“Malcolm would say it's all a Ponzi scheme, it's all a bubble, and that sooner or later, bandwidth bills are going to come in and all these companies are going to go bust.

“Malcolm doesn't understand that Google doesn't buy bandwidth retail. They have wholesale, they're buying dark fibre. They have server farms the size of printing plants. They're massive... They're losing a lot less money than people think and I suspect they'll break even with YouTube this year.

“So, not only is it not a bubble, but I think that as the advertising industry learns to take the video ads that work so well on television and fine slice them so they're super granular, the way the video is on YouTube, that we're going to see an economic engine that's powerful.”

Seth Godin added his weight to Anderson's camp with a blog called “Malcolm is wrong”, saying that "like all dying industries, the old perfect businesses will whine, criticise, demonise and, most of all, lobby for relief. It won't work. The big reason is simple: In a world of free, everyone can play.”

So who's wrong and who's right? The Times Online declared Gladwell the overall winner, but said Gladwell's review was more of a demolition job. The media then astutely stated that both men are journalists, successful authors and are vying for the same audience. Gladwell and Anderson are the storytellers for our time, and have captured the popular and business imagination to make them the world's leading theorists.

Regardless of Gladwell's attack and apparent subjugation of Anderson, Free is worth the read.

Get a gratis abstract of “Free - The Past and Future of a Radical Price” from Learn2Think. Simply go to this link, fill in the form and Learn2Think will e-mail you and abstract of Freefor free. You can also get Free at no cost in various formats (iTunes audio, Kindle and Google Books) by going to Anderson's blog The Long Tail.