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Why does online information “want” to be free?

June 30th, 2009
http://www.longtail.com/.a/6a00d8341bfb6353ef01157189920d970b-pi

(via New Yorker)

This week, there has been an interesting debate going on between Malcolm Gladwell and Chris Anderson, both authors of bestsellers, surrounding Anderson’s new book, Free: The Future of a Radical Price, which tries to explain why online information has a tendency toward being offered for free and proposes some remedies for traditional publishers to cope with that trend.  (Gladwell is the author of Blink and The Tipping Point and Anderson The Long Tail.  Anderson is also Editor in Chief of Wired Magazine.)

Gladwell first posted a review on Free to New Yorker and basically argues that Anderson is fundamentally missing the point and that not all information “wants” to be free.  Or to be more exact, Gladwell’s idea is there is a proven willingness to pay for high quality content, online video and Wall Street Journal being his example.  In addition, Gladwell also pointed out Anderson’s proposal of a new business model involving paying for a manager to run a team of free writers is fundamentally flawed.  Gladwell wrote:

…it is not entirely clear what distinction is being marked between “paying people to get other people to write” and paying people to write. If you can afford to pay someone to get other people to write, why can’t you pay people to write?

Almost immediately, Anderson fired back with a post, titled Dear Malcolm: Why So Threatened, on Wired Magazine’s Epicenter blog.  However, Anderson’s counter argument only focused on providing his own experience with GeekDad as an example to back his new business model proposal without touching much on the key question surrounding “free or not free.”  (Interestingly, Anderson later shared on Twitter that the dispute is actually orchestrated by a PR firm. It’s an insider joke!)

To better answer Gladwell’s question, I feel we need to go back to Economics 101, which states prices in a free market are decided simply by supply and demand.  In other words, in today’s Web 2.0 world when there are countless blogs providing an abundance of news info (and let’s not forget Twitter on top of that), it is only natural that this over supply would eventually drive price down to near zero.  This trend can also be proven by another Economics rule — in a market with excess competition, the prices will be driven down to near or below cost, which is also close to zero in today’s cloud computing world.   Thus, it’s not incorrect for Anderson to say online information actually “wants” to be free.

That said, however, it also does not mean individual publishers cannot choose to charge for the content they produce.  Keep in mind that even though in an aggregated market, the final prices will be zero.  Economics also taught us every buyer has a different willingness to pay and suppliers can use ways to segment the market to capture that “consumer surplus,” which is the benefits buyers receive when paying at market price, which is less than their original willingness to pay.

Therefore, from the view of Economics, both parties are correct in describing the different phenomena that are happening in today’s news industry.  Personally, I think the future of journalism will be largely online.  Because with the help of ever improving technology, people will only consume more and more information digitally while online content providers will only get an increasing share of both consumer’s and marketer’s pockets.  Therefore, a future publisher’s online strategy should be consist of a mix between “freemium,” free to use but pay for premium content/features, and ad-supported models, of which Flickr is a good example.

Books mentioned in this post:

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