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Book Review: Free – The Future of a Radical New Price

Free: The Future of a Radical New Price is the most recent book from Chris Anderson, the author of The Long Tail. It explores a relatively modern phenomenon: free products, services, and content. As he describes it:

I’m typing these words on a $250 “netbook” computer, which is the fastest-growing new category of laptop. The operating system happens to be a version of free Linux, although it doesn’t matter since I don’t run any programs but the free Firefox Web Browser. I’m not using Microsoft Word, but rather free Google Docs, which has the advantage of making my drafts available to me wherever I am, and I don’t have to worry about backing them up since Google takes care of that for me. Everything else I do on this computer is free, from my email to my Twitter feeds. Even the wireless access is free, thanks to the coffee shop I’m sitting in.

And yet Google is one of the most profitable companies in America, the “Linux ecosystem” is a $30 billion industry, and the coffee shop seems to be selling $3 lattes as fast as they can make them.

Therein lies the paradox of Free: People are making lots of money charging nothing. Not nothing for everything, but nothing for enough that we have essentially created an economy as big as a good-sized country around the price of $0.00. How did this happen and where is it going?

That’s the exploration he makes in Free. How do you make money without charging? And what are the consequences for us as consumers, us as business owners, and us as citizens?

Why you shouldn’t read Free

Starting back with my very first book review (Rich Dad, Poor Dad), I always start my reviews with the negative aspects of the book. And, like Rich Dad, Poor Dad, Free has had its share of angry detractors. I summarize here from Malcom Gladwell’s review of the book.

    1) Information doesn’t want anything
    Many a young hothead has justified piracy, wikileaks, and violations of non-disclosure agreements with the rather vacuous “Information wants to be free.” Their opponents point out that information doesn’t want anything. But Free puts the quote in context. As originally stated by Stewart Brand:

    On the one hand information wants to be expensive, because it’s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other

    Free is a book about those two dynamics: should information be priced according to the cost of reproducing it, or according to its value? Which one is better for your business? If free is better for you, how can you leverage it? If charging is better for you, what are your options?

    2) Free is just another price
    Technically speaking, yes. Free is a price of $0.00. But people respond differently to $0.00 than they do to $0.01.

    Free has a discussion of the reasons for this phenomenon, and situations that illustrate it, but suffice to say that we don’t analyze our options as carefully when there’s no money involved. Which means you can spread your message farther and faster with Free than you can with Very Low Cost. And that makes it worth analyzing.

    3) Free often doesn’t work
    YouTube is losing money for Google (as Gladwell points out, at a rate that would qualify it for a bailout, were it a bank). Lots of artists and authors are giving stuff away and not becoming famous. Therefore free doesn’t work.

    I don’t expect that there’s anyone out there surprised that giving stuff away doesn’t always make you money. And no one ever claimed that giving stuff away would work every time, for every person.

    On the other hand, I expect there are some people who are surprised that anyone has made any money giving stuff away. It’s an interesting phenomenon, and it’s worth learning more about when and how and why it works.

Anderson is a bit of an academic. He’s certainly a geek. And his writing tends towards the analytical and theoretical. He’s looking for first causes and underlying reasons, and that may not be your cup of tea. So you may prefer to absorb this information through the (free) audiobook, or through Wikipedia, or through the videos I hope to someday make.

That being said, you need to absorb this information somehow, if you intend to make money in the upcoming decades. As it says in rule 7 of Abundance Thinking:

Whether through cross-subsidies or software, somebody in your business is going to find a way to give away what you charge for. It may not be exactly the same thing, but the price discount of 100 percent may matter more. Your choice: Match that price and sell something else, or ensure that the differences in quality overcome the differences in price.

Note that you don’t have to give away your value (although you can), just that you have to be prepared to handle competitors who give away theirs. And to do that, you’ll want to know all of your options.

Why you should read Free

So let’s move on to why you should read Free, since — as I’m sure you’ve guessed — I believe you should.

Free Works
Not always. The book is full of examples of “failed” free.

But that’s rather the point. If it were as simple as

    give stuff away -> Profit!

then you wouldn’t need any help figuring out how to make use of this “radical new price”. It’s because there are failures that it’s worth discussing the method.

There are also examples of successful free — Google loses $700 million on YouTube, but still makes $23.6 BILLION overall. Xiang Xiang wouldn’t charge for her songs even if she could. Skype has become a word in the Oxford English Dictionary.

If someone can make free work, wouldn’t you like there to at least be a possibility that it’s you?

Free is more complex than you’d think
Leaving aside that the English word “free” covers two distinct concepts (freedom, liberty, aka “free like speech” vs no charge, gratis, aka “free like beer”), Anderson still identifies four different methods of generating “free” value.

    1) Direct Cross-Subsidies
    This is the kind of “free” that we’re most familiar with: the one where they offer you a free lunch if you buy a drink, or a free kids’ admission if you buy an adult’s ticket, or a free laptop if you sign up for 2 years of Verizon’s data package.

    Sometimes this is a fancy version of bait-and-switch (that laptop ended up costing you more than $1400, for which you could have gotten a really nice laptop). Sometimes it’s really a good deal for both the business and the consumer (like when the museum still makes money on the adult admission, but you still get a nice outing with all the kids at an affordable price). But when Heinlein fans say “TANSTAAFL” (There Ain’t No Such Thing As A Free Lunch”) this is the kind of hidden cost they’re usually thinking of.

    2) Three-Party Market
    We’re all familiar with this one too: it’s the “free” of television and radio. The stations produce content and broadcast it for free. Advertisers pay them for the right to interrupt the content and market to us. We pay advertisers by buying their products.

    TANSTAAFLists are still happy, since we’re paying more for our consumer goods than we would in a world without TV advertising.

    3) Freemium
    A contraction of “free” and “premium”, freemium products are anything that are free to basic users and have a premium paid version. Skype is freemium: Skype-to-Skype calls are free, and you pay for Skype-to-Phone. Almost all smartphone apps are freemium: there’s a basic free version, and a version that costs $1.99 with more features (or takes away the annoying ads). Most video games will let you play a couple of levels for free, and charge you for the whole game.

    4) Non-monetary Markets
    Wikipedia, a lot of the blogosphere, and MIT’s OpenCourseWare are all examples of this: the value is free because its creator values something (reputation as being an expert, self-expression, or the opportunity to show off) more than they value money. In many cases the artists could charge for what they’re producing, but they’ve made a conscious choice to take their payoff in wider distribution, reputation, or whatever.

Free is changing
Anderson notes that as he was researching and writing the books, he found two very different opinions of “free”. As a broad generalization, those over 30 were generally TANSTAAFLists — when someone starts talking about “free”, it’s time to make sure your wallet is protected. These are the people who grew up with the 20th Century Free, which was almost always of the direct-cross-subsidy type, and very often of the bait-and-switch type. Since the “free” samples cost the companies money, the companies had to more than make up that cost in the cross-subsidized products.

Again as a broad generalization, the under-30 crowd was so comfortable with the idea of free economy that they were surprised anyone would write a book on it. These are the people who grew up with the 21st Century Free, which includes some really high quality stuff at the cost of some ads, some reputation, or the understanding that you’ll subsidize it if you’re able. Because these “free” samples really are costing the company nothing (or next-to-nothing), they’re not as determined to make their money back from genuine customers, and so there’s more room for genuine win-win arrangements.

Summary

The fact that we now can distribute information and digital products for free has a profound effect on how we can make money. It means you can try business models for very low risk: $10 or less. It means you can reach millions of people for very little money. It means you can help hundreds of thousands of people, even if only a tiny percentage of them pay you back.

The same factors that Anderson analyzes in this book are the factors that make it possible for you to monetize your hobbies and passions. It’s worth knowing what they are.

Buy Free: The Future of a Radical New Price while simultaneously helping African children get an education. (Learn More).

Resources for Further Reading
Monetize Yourself Media: share your expertise for free
Distillery Tours and Alternate Monetization

Never Eat Alone Metrics

In my last post, I reviewed Never Eat Alone, a book about making connections with other people and its relationship to success.

As you may know, my new year’s resolution is to improve my networking skill, since I will never get ahead in life if I remain the shy introvert that I currently am. But how do I do that?

Never Eat Alone is a great start: it’s got a lot of good information, and is very helpful when I’m wondering how-to or should-I. But a good portion of the book — half of the chapters — are about things you should always do when you meet people. How do I keep all of them in mind while I meet with my three-new-people-per-week?

Networking Metrics Sheet

This sheet is for people who’ve read Never Eat Alone, and want to see how well they live up to its instructions. If you haven’t read the book, some of the terminology may be a bit odd, but you should be able to figure out most of it.

At the top is some basic information: who are you meeting, when and where, and who is your point of contact (mutual friend, networking group, class you’re taking together, etc. How did you find out about this person in order to want to meet them?). And finally, why did you want to meet with this person in the first place?

Then a space for questions you want to ask them (letting them talk about themselves is a great way to impress them), and notes you take when you ask.

And finally, a scorecard (whose first point, ironically, is “Don’t Keep Score”. But that pertains to the relationship between you and the other person; this scorecard is to measure yourself.) For the skills or attitudes that Mr. Ferrazzi thinks are critical, how did you do? Rate yourself on a scale from 1-5, and fill in the appropriate number of bubbles. (Or answer the question posed, obviously. You’re smart — you can figure this out.)

Awesome Links

Get your Never Eat Alone free download.

Buy Never Eat Alone while simultaneously helping African children get an education. (Learn more).

Book Review: Never Eat Alone

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I came across Never Eat Alone many years ago, but I ignored it. It had been recommended to me as a good book for salespeople, and I could clearly see how never eating alone would be helpful for salespeople… but I wasn’t a salesperson, and never would be, so why bother? (I’m pretty sure the recommendation came from Sales Dogs, which had just convinced me that everyone’s in sales, but what can I say? Sometimes I just don’t catch on very quickly.)

It’s not just for salespeople

Never Eat Alone will certainly be useful for salespeople (whether your business card says “sales” or not), but it is, as the cover says, “secrets to success, one relationship at a time”.

The fact is, success anywhere requires relationships. Any investor will tell you of the importance of building your team. Social intelligence is one of the three key tenants of being an iconoclast. More people get jobs through personal connections than through all other job-searching methods combined. Suppliers and assistants are more helpful, linchpin-y, and willing to bend the rules if they like you. Henry Ford famously demonstrated the benefits of having team members who are smarter than you. Jeffrey Gitomer sums it up: “All else being equal, people prefer to do business with their friends. All else being not quite so equal, people still prefer to do business with their friends.”

Having a strong, solid network can get you jobs you would never have heard of, get your business contracts, sales, or investors that you would never have a chance to meet, and warn you of investment opportunities before it’s too late to take advantage of them. No matter what your monetization plan, you need a network.

But I don’t want to be a sleaze-ball!

We have many pre-conceived notions of what it means to network, from the pit-bull salesperson who forces his business card into your hand to the boot-licking brown-noser who flatters her way into the corner office. I suspect that’s part of the reason Keith Ferrazzi avoids the verb “network”, preferring instead “connecting” “building relationships”, or similar, because of the negative connotations we associate with “networking”.

Rest assured, this book is not about being aggressive, dishonest, or sycophantic. In fact, there are entire chapters about how not to be the networking jerk.

This book is about honestly making genuine connections with people, and using those connections in a way that is kind, respectful, and helpful to both parties.

What could be improved

The margins are too narrow.

I traditionally start book reviews with the bad parts of the book, but there’s really nothing (apart from the lack of note-taking space) that I feel is sub-par. Oh, he recommends a lot of things that make me want to cry — I’m a shy introvert, and hosting a dinner party or cold-calling someone with a secretary is my idea of torture. But that’s my problem, not his.

What’s Awesome

The book starts with his explanation of why he thinks building a network of personal relationships is important — how it got him out of factory work and into CEO-level work, how it got him job promotions, sales, and opportunities, as well as making him lots of friends.

From there, each chapter focuses on a particular skill, concept, or attitude that he thinks is crucial for building, maintaining, and using a strong network. He tells a (frequently embarrassing) story about how he learned this skill or how he applies it, highlights the important steps or underlying ideas, and — in many cases — ends with a “Connector’s Hall of Fame Profile”, discussing someone who is particularly good at networking.

Recommendation: Buy It

I borrowed Never Eat Alone from my cousin, and it was well worth the time I put in to reading it. But the book is also a how-to manual of some depth, and you’re going to want to refer back to it fairly regularly. In the end, my cousin bought me a copy for my birthday so that I would give her copy back.

Buy Never Eat Alone while simultaneously helping African children get an education. (Learn more).

The 4-Hour Workweek Book Review

The Cover of Timothy Ferriss' The Four Hour Work WeekYou need to read this book. Go to the library, bookstore, or whatever source you prefer to use. Get this book. Read it. Then read it again. If you are serious about monetizing yourself without working 40 hours/week, this book is the single greatest resource towards that end. (Other than me and my website, obviously.)

And if you’re just looking for the summary of the review, you can stop reading. But I’ll go into more detail, in case you’re interested.

Why you should read this book

Because it helps explain the whole monetizing-yourself concept
I posted a while back about resources for self-monetization fundamentals, and included The 4-Hour Workweek in that list. Timothy Ferriss is well aware that what he’s advocating is not normal. There’s a significant section on how to accept not being normal, realize that “normal” actually is really pretty awful, how much work it’s going to be, and why it’s worth the work. In fact, about half of the book has nothing at all to do with money, and instead talks about the actions and ideas that you’ll have to incorporate into your life to make this transition.

Because it’s specific
There’s still a lot of stuff you’ll have to figure out on your own, don’t get me wrong. It’s the nature of this new world — if you make the decision to be in charge of your monetization, then you have to accept that you no longer get your tasks spoon-fed to you in idiot-proof sound bytes. But each chapter ends with specific actions to take that will help you implement the ideas in that chapter.

Because it helps you build courage
I explained a while back why I focus on courage so much– because you’ll need it in many different aspects of your new, non-employment life. Ferriss is also aware of this need, and so each chapter also has “Comfort Challenges” to help you get comfortable with being uncomfortable, starting with the fairly low-risk “Look someone in the eye until they look away” and becoming progressively more scary, although no more dangerous.

Because it’s inspiring
Monetizing yourself is a lot of work. Consider the amount of work you know you’ll have to put in — finding a niche, learning new skills, implementing your plans — and consider that there are probably some things you don’t yet know about. Then consider that the amount of work you have to do in the world is 50% – 90% less than the amount of work you have to do on the inside to develop your strength, courage and tenacity to the point where you can do the “outside work”. It’s a lot of work.

The 4-Hour Workweek includes stories, ideas, and descriptions of what else you could be doing with your life, if you didn’t have to spend 2/3 of it working. Stories from Tim, stories from people he’s helped, or just ideas of things you might like to do. It can be a nice reminder when you are feeling overwhelmed and frustrated.

Read this book

That is all.

Rich Dad, Poor Dad Book Review

There are a lot of critics that dislike Robert Kiyosaki, some of them quite vehemently. So before I begin my (overall positive) review, let me address some of the most common concerns.

He’s a bad writer
He’s a terrible writer. To his credit, he recognizes and admits it. I can think of dozens of ways his writing could be improved. But the fact that his message is jumbled, poorly explained and obscure does not make his message less valuable.

He just says the same thing over and over
This is also true, and it relates to objection #1. He couldn’t really figure out how to say what he wanted to say, so he kept reshaping his words and trying again. Subsequent books in the series, rather than reading like sequels, read like second drafts. So, if you get to the end of the book and think you’ve really understood his message, don’t feel obliged to read the rest. BUT, if you find his message intriguing yet elusive (very possible, since he’s a terrible writer), reading the other books will help you “get it”. The local library is a great resource for this, so you don’t have to buy them all.

He doesn’t give you enough information to actually do anything
He doesn’t. But he also never claimed that he did. He specifically said that if you were interested in doing the things he described, you should go check out books, do some research, or find a mentor. The point of the book is not to teach you how to become an investor or business owner, it’s to explain to you why to become an investor or business owner. It’s to let you know that being an investor or business owner is a possibility.

He ruins people by encouraging them to try investments that they’re not qualified for
Please see above. When you finish Rich Dad, Poor Dad, you’ll hopefully be excited about learning how to develop passive income. But you do still need to learn it. The book contains nowhere near the level of detail you would need to actually get into this stuff and be successful. So don’t do anything stupid, ‘kay?

He has no idea what the definition of an asset is
Mmm… it would be more accurate to say that he uses a different definition than most people. What he calls an asset is what accountants call an “appreciating asset” or an “income-producing asset”.

On the one hand, it is kind of obnoxious to make up your own definition and then insist that everyone else use it. But on the other hand, I think we can all agree that accounting jargon is complex and confusing, and we’d rather have a simpler terminology. Kiyosaki’s definition cuts through the clutter and jargon, and leaves just the heart of what an asset means to you.: an asset is something that puts money in your pocket.

    If you’re filling out your tax return, use the government’s definition of asset
    If you’re filing for a bank loan, use your bank’s definition of asset
    If you’re trying to develop passive income and get out of the rat race, use Kiyosaki’s definition of asset.

On to the good stuff

In my first post I said that the idea of not having a job had begun to enter my consciousness about 10 years ago. I can actually peg that to a specific event: when my mother gave me Rich Dad, Poor Dad and said I should read it. I had not much interest in finance at the time, but we were on a road trip to California, and I was grateful for the distraction (I’d finished my fantasy novel by the time we got to Vegas).

The title of the book comes from Robert Kiyosaki’s experience growing up in Hawaii. When, at the age of 9, Robert asked his dad how to be rich, his dad admitted that he had no idea. But he suggested that Robert ask his best friend, Mike, whose dad was going to be rich someday. So he and Mike went to Mike’s dad, who agreed to teach them how to be rich. And so Kiyosaki got money advice from two sources thereafter — his “rich dad” and his “poor dad.” This gives Kiyosaki a unique opportunity to see exactly what the rich teach their kids about money that the poor and middle class do not — the subtitle of the book. And one of the things they teach their kids is how not to have a job.

As I said, there’s not a lot of technical detail in the book. In fact, that lack of technical detail is one of the reasons I’m writing this blog. But Rich Dad, Poor Dad does provide one thing that no other book I’ve found can offer to you:

He explains the concept of being rich. The necessary requirements for not having a job, and the attitudes required to achieve that state. What passive income is, and that it’s possible for you to get some of it.

My upbringing focused entirely on getting a job. What I wanted to be when I grew up. Getting good grades so I could go to college so I could get a good job instead of flipping burgers. Determining my strengths so I could pick a career that fits me. That I would have a job was never in doubt; the only question was whether I would have a “good” job or a “bad” job. The only problem was… they all seemed like bad jobs to me.

What this book said to me, for the first time ever, was “You’re right. They are all bad jobs. Jobs suck. And there is an alternative. Here’s another option.”

The you-need-a-job mentality is hard to break; it’s so pervasive in our culture. My mother keeps asking me when I’m going to get a real job, and she’s the one who made me read Rich Dad, Poor Dad! But nothing on this blog will help you until you understand and believe.. until you grok.. that money without a job is possible. Not easy. Not quick. But possible.

If that concept seems too strange for you to wrap your mind around, then read Rich Dad, Poor Dad. It’s worth the terrible writing.

Resources for Further Reading
Rich Dad, Poor Dad
10 Reasons You Should Never Get A Job
The Cashflow Quadrant
Outliers

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