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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

Opportunity cost: more is not always better

Every Easter, my fiancĂ©’s family goes to Grand Junction, which is out on the western edge of Colorado and shares a climate zone with the deserts of New Mexico.

The city doesn’t have any snowplows because (contrary to your vision of Colorado) they get less than two feet of snow a year, and what they do get melts within a day or two because it’s a desert, and snowy days are followed by hot, dry days.

Except last year.

Last year, when we arrived on Good Friday, all the roads were icy, snow-packed or both. It seems they’d had a pretty heavy snowfall — 6+ inches — and then a string of cold days. And all that frozen water was sitting in the roads, because Grand Junction has no snowplows.

What does it cost?

You could tell that the citizens of Grand Junction had been grumbling rather loudly, because the entire back page of the newspaper was a letter from the City explaining that this kind of thing happens only 4 times a century, and that Grand Junction doesn’t spend taxpayer money on snowplows that would only be needed once every 25 years.

Is Denver’s snow removal better than Grand Junction’s? Kind of. Denver’s snow removal is faster. But Denver spends a lot of money buying snowplows, maintaining snowplows, hiring snowplow drivers, buying salt/gravel/magnesium chloride and distributing it, then cleaning the groundwater that has salt and mag chloride contamination.

Grand Junction doesn’t pay for any of that. They spend the money on textbooks and school lunches, public playgrounds, firefighters and policemen, or really nice wide sidewalks and a beautiful pedestrian mall. And for 9124 days out of 9131, it’s a great deal. On the other 7 days, getting around town is kind of a pain.

Both cities have snow removal that’s appropriate to their situation.

What’s appropriate to your situation?

It’s common for people to beat themselves up because they don’t keep “good records” — not like that gal down the hall who has every receipt, every transaction, every bill, all filed in alphabetical order.

But do you need all that? What does it cost you when you can’t find a receipt? And what is it costing her to alphabetize every single one?

Software companies fall into this trap all the time: they add on as many features as possible so that the back of the box has lots of bullet points on it.

How often have you been frustrated by software that seems to do everything except the one thing you want it to do? And how many sales is the company missing by not releasing the software early?

I don’t have a “good” laptop. I have a laptop with a tiny screen (13″ diagonal), a tiny keyboard, a tiny processor, a terrible sound card, and a hard drive that is considered small by the standards of the industry. But the tiny hardware fits in my tiny backpack, I don’t do anything that requires an awesome processor, and I’m using just over 1/3 of my hard drive. Oh, and it came at a 66% discount off a “good” laptop.

More != Better (More does not equal better)

Especially here in the US, we tend to associate bigger with better. More is better. Stronger, more powerful, more detailed, more thorough. But “bigger” and “more” come at a cost. And very often that cost is not worth it.

What can you do less?

If your house was a little messier, would you have time to create a blog?

If your DVD or shoe or gizmo collection was a little smaller, would you have the money to start a business?

If your product had fewer bullet points, could you ship it right now?

What can you do with less?

You’re great at sales

It is an oft-repeated tenet of Sales Gurus that “everyone is in sales”.

Oft-repeated, but seldom explained, reinforced, or justified. I can, after all, make a pretty strong argument that I’m not in sales: my business card quite specifically says Marketing/Operations/Technician/Accountant.

So defend your claim that I’m in sales.

What Is Sales?

Well, let’s take a step back. When we say “sales”, what do we actually mean?

Well, one perfectly legitimate definition is “people in the sales department”. This is a very useful definition for many purposes, like HR reports, business cards, planning your day, and figuring out whether you want to talk to that guy across the room.

But it’s not a useful definition when you’re trying to decide if someone is good at sales. (Is he in the sales department? Yup, he’s good!). For that purpose, we need some idea of what sales involves, and what its end goal is. So in that case, you want a definition that looks more like “the process of persuading prospective parties to engage in a specified, desired transaction” (a definition that includes nonprofit sales teams, who are actually looking for donations, and startup sales teams, who are actually looking for venture capital). That’s the definition being used by books teaching sales techniques: they’re trying to help you improve your ability to persuade others to engage in whatever transaction you’re supposed to persuade them to.

But looked at that way, there’s really nothing to distinguish it — really — from any kind of persuasion (as I noted in an earlier post on using counterarguments to strengthen a sale.) There’s not necessarily any point in distinguishing between a person who makes their living by selling stuff, and a person who makes their living by persuading people. And since there’s a word for the former, you may as well lump everyone in the latter category into “salespeople”. This means that people who persuade voters to elect their candidate are salespeople (as, I’m sure, many would tell you themselves), lobbyists are salespeople (ditto), and diplomats engaged in peace negotiations are, at least sometimes, salespeople, and none of those really offend our sensibilities about what constitutes a “salesperson”.

You are, at least sometimes, a salesperson

So with that definition in hand, let us point out that everyone persuades people to engage in specific, desired transactions. You persuade your parents or your date to buy you a meal. You persuade your date to go out with you in the first place. You persuade your partner to attend the opera or ballet, and they persuade you to attend monster truck rallies. You persuaded your employer to hire you. You persuaded a teacher to extend a deadline, or grade more leniently.

The primary difference is that salespeople know, have names for, and study all the techniques that you kind of use instinctively.

The “Just look through the list of shows this season, and we’ll talk about it tomorrow” method? There’s a name for that.

The “Go on one date with me, and if you don’t enjoy it, I’ll never ask again” technique? There’s a name for that.

The “I can turn in something now, but I really feel that I would learn a lot more from the assignment if I can have another three days” line? There’s a name for that.

You are, usually, a great salesperson

If you look over those transactions, you see that, actually, you’re pretty good at convincing people to see things your way. It helps, of course, if you and your partner both like opera AND monster trucks, at least a little bit (there’s a name for that, too, it’s called “qualifying the prospect”), or if the teacher already likes you (that’s called “building the relationship”). But sales isn’t as hard as you think: you’ve been doing it for years, through thousands of transactions, and you’ve gotten pretty good at it; you just called it “convincing” instead of “sales”.

You are, sometimes, a lousy salesperson

But we all have our favorite techniques, and we often overuse them. It’s easy for me to get carried away with the blast-them-with-data approach, and people’s eyes glaze over. My ex-husband used the if-you-don’t-I’ll-be-sad technique so often that I divorced him.

Different techniques work better in different situations, and the more ideas you have, the better off you’ll be.

You may or may not “be in sales”

Is everyone in sales? Not necessarily. Many people don’t spend a lot of time doing any negotiation and persuasion, and a lot of people don’t make a living from it.

But it’s clear, from the examples above, that everyone can benefit from learning more about sales. It can help you get better grades. It can help you get more raises. It can help you get better jobs. It can help you get more attention, reputation, and credit.

So when the sales gurus say “you’re in sales”, they may be wrong. But what they mean is “You can benefit from reading my book, because it can help you be a better persuader”. And in that, they are absolutely correct.

Resources for Further Reading
My favorite sales book:
Sales Dogs: You do not have to be an attack dog to be successful in sales
Jeffry Gitomer’s Sales Bible
Can I Have 5 Minutes of Your Time?

OK, I have to confess that these are actually the only sales books I’ve read. And after writing all of that, I’m thoroughly convinced that I should read more. So please leave a comment with your recommendations.

The above product links are affiliate links. If you enjoyed and appreciated this information, you can give me monetary reward by buying products through those links. Learn More.

This article was cross-posted on my business blog, NeoAgora Marketing. You browse there for more information small business marketing if you’re interested.

Is Marketing & Sales Unethical?

I’m writing in response to a blog post on SEOMoz by randfish, discussing whether SEO is immoral. (Search Engine Optimization, or SEO, is the process of modifying the layout, structure, and content of your website in ways that will make your site more likely to appear high in search engine results.)

The question, as posed:

    We search for relevance via the search engine. By learning and manipulating the system to accomplish its goal, SEO makes it more likely that you will come upon a target that is irrelevant. Thereby, wasting the user’s time and resources. It could be considered advertising in the form of a search result.

    Is this misleading and counter to the public welfare?

Randfish argues that in fact, SEO is almost always used to make you come upon search results that are more relevant, and that it’s no more misleading and counter to the public welfare than any other form of marketing and advertising.

Is Marketing Unethical?

While I agree completely, I’m not sure that his argument helps much, since a good number of people feel (at least vaguely) like all marketing and advertising is “misleading and counter to the public welfare”. So that’s what I’d like to discuss here.

Lying is Unethical

So let’s start with a basis on which we can all agree: advertising that states or implies untrue things is unquestionably misleading and counter to public welfare (and also illegal).

Lying by omission (“Well, you didn’t ask if this car would explode when rear-ended”) is also immoral (although it has more of a gray area based on what you might reasonably expect a customer to ask about; it is also more frequently legal).

So I am assuming, for the purposes of this discussion, that all the ads, all the marketing ideas and sales pitches and SEO techniques that we’re discussing are accurate, true, and disclose all important negatives (indeed, I’ve argued that you’re better off disclosing all negative features when you’re trying to make a sale).

Putting forth good arguments

In that case, marketing or sales both come down to making good arguments in favor of buying. Any type of persuasion can be done on an unethical basis (persuading voters to elect a new politician by spreading lies about the incumbent, for example), but barring those, sales is simply a matter of making your product look as attractive as (honestly) possible, using facts, analogies, lighting, testimonials, placement, and so on. (SEO is, in most cases, simply working to make the customer aware of the product at all).

Our question then: is that unethical?

The Moral Obligation to Look Bad

Turn it around: if making your product look good is immoral, than morality must lie in making your product look bad. For example, Ford Motors must not say

    Our trucks don’t last as long as many cars, since most of our customers use their vehicles so hard that they’ll need to get a new truck every few years anyway. They have a lot of power for hauling heavy loads and moving quickly, although you pay for that with lower gas mileage. And they look great.

But is morally obligated to say

    Sure, our trucks look good and have a lot of power, but the gas mileage is terrible and they’ll only last a couple of years

    (Honda would presumably be reciprocally obliged to say “Our cars get great gas mileage and they last forever, which means you’ll have to spend 20 years in the slowest, weakest, dinkiest car on the road”)

Should politicians be banned from using pictures of themselves in suits & makeup, and be required instead to use pictures with uncombed hair in their bathrobes, taken with a cheap disposable camera?

Should artists assembling a portfolio be required to include only their bad works, and none of their good? Should a band applying for a record contract be required to use uncut tracks made on cheap mono-feed recorders, preferably on a day the lead singer had laryngitis?

Neutrality isn’t usually an option

The simple and obvious answer is to avoid making your product look good or bad: simply put it out there neutrally and let people make their own decisions.

But how do you go about making a neutral presentation? As you can see, simply reversing the order in which data is presented can have a huge effect on whether it looks good or bad, and you have to present it in some order.

And it’s easier to lie with huge reams of data, anyway. Think Enron: all the data about their business was in their SEC reports, which you would think is as neutral a document as you could desire. But ALL their business data was in that report, making it easy to hide the few bits of incriminating data.

Is it immoral to look good?

So in most cases, neutrality is not possible, and we’re back to two choices: Are you morally required to make yourself look bad? Or may you, within the bounds of accuracy, truth, and legality, make yourself look as good as possible?

I cannot answer this question for you, of course. Many people through history have decided that looking good is a sin — some sects of Judaism, many of the Puritans that immigrated to North America, and some parts of Islam — and dictate a hunched posture and shapeless clothing. Every person must make their own ethical judgement.

But I stand on the side of presenting yourself well.

This article was cross-posted on my business blog, NeoAgora Marketing. You can browse there for more information onsmall business marketing if you’re interested.

Use the bad points to sell the product

In my high school English class, I learned how to write (as we call it here) bullshit. I can now, reliably and without much effort, spout off minutes or pages of words with almost no meaning at all. It’s a very useful skill, and I’ve used it often, especially in graduate-level classes when I realized that my professor wasn’t reading our papers anyway.

But it was in my high school history class that I learned how to write. That is, how to write analytically, clearly, and persuasively. And one of the lessons I remember best was from Dr. Carter in sophomore or junior year. He insisted that, when we write a persuasive essay, that we include all of the counterarguments that would seem to defeat our main thesis.

Confusion. Outrage. (How dare this doctoral professor tell us 15-year-olds that our way of writing was wrong?)

Doing so, he said, provides two benefits:

    Credibility No one believes that your argument is clear-cut and that there’s only one side. (If it was, why would you have to write an essay to persuade people of it?) So if you try to claim that there are no counterarguments, all you do is convince people that you’re lying, or ignorant, or both. By including the counterarguments, you establish that you are an intelligent and thoughtful person who is aware of the larger picture.

    Rebuttal If you’ve selected your thesis wisely (and assuming that you are an intelligent and thoughtful person who is aware of the larger picture), then you must be aware of the potential counterarguments, and there must be some reason that you believe your thesis in spite of them. By including the counterarguments in your essay, you have the opportunity to explain those reasons.

Using counterarguments to boost sales

Since sales is simply a matter of persuasion, your sales and marketing methods can use the same technique. You know all the reasons someone might hesitate to buy your product; include them and explain why customers should buy anyway. Doing so reassures your customers that you’re being honest (sales copy claiming that a product is perfect is automatically dishonest), and helps them work through any objections they may have.

    Example: Board Games When I worked at a board game store, I would mention the downsides of any given game to a customer that was considering buying it; and if they didn’t ask, I would look for a way to work it into the conversation.

      Me: Now is it normally just the two of you, or will you usually have others to play with you?
      Customer: No, we have two boys, 13 and 16
      Me: Oh, OK. In that case, it’s great. Bohnanza sucks with just two players, but it’s awesome with three or more.

    Or, to a customer looking at Descent:

      Me: Now the downside to any Fantasy Flight Game is that it’s going to take you a couple of hours the first time to learn how to set it up and play it. But once you’ve gotten through that, you can play it forever and never get tired of it, because it will be new and different every time you play.

Your product isn’t for everyone

Someone in my Twitter feed (and I’m so sorry that I don’t remember who!) recently said “You can’t make a product that anyone will love without making a product that someone will hate.”

Fantasy Flight Games are a good example of this: they have a very devoted following, and I know several people who buy everything they put out. They’re the people who don’t mind taking a few hours to read through a rulebook and learn how to play. They’re the people who hate hate HATE to have any element of a game repeat ever. And they are more than enough to keep FFG in business. But they are less than 5% of the population.

Odds are good that your product has downsides. Your target market doesn’t care.

As long as they don’t know what the downsides are, they’ll be too scared to buy. But if you tell them what your product’s weak points are, many of them will say, “Oh, is that all?” and hand over the money.

Summary and Action Steps

Telling your customers about your products’ downsides can make them feel a lot more comfortable about buying from you.

What are the bad points of your product? In what situations do you feel that your product is worth buying anyway? Why?

Are the people in your identified target market in at least one of those situations? If not, how can you change your product or your target market to bring them into alignment?

This article was cross-posted at my business blog, NeoAgora Marketing, where you can find more information on marketing if you’re interested.