Chris Anderson, author of The Long Tail, has stirred the pot again with his book, Free. You can get a free copy here. (Thanks to Jay Ehret, TheMarketingGuy on Twitter.) Chris has stirred it with an egg-beater this time, enough for Malcolm Gladwell to chime in with an excellent rejoinder at the New Yorker: Priced to Sell.
Chris. I don’t think what you describe is free. Sorry. I think what you describe is another way for companies to A. Add value; B. Differentiate their brand based on that added value; C. Hide the costs to the consumer for that added value.
I was prepared to be swept off my feet, in a veritable swoon of abject adoration, with the logic of Chris Anderson. But I wasn’t. Maybe the problem was my expectation. Like that of going to see an expected great movie, maybe I created unrealistic expectations.
But while the writing was great, the examples fun to read (and remember) and the anecdotes illustrative, I thought....what he’s talking about isn’t free. It’s merely a way of adding value to the experience while hiding the corresponding costs to the consumer of those experiences.
By Chris’ logic, shipping costs for our groceries is free. We’re not charged for it. The grocer’s...give it to us for free. But we all know the costs for shipping grapefruit north from Texas or Florida during winter are not free. They’re not absorbed as an act of generosity by the grocers or shippers. They’re passed on to consumers in higher retail costs. Grapefruits during winter are very expensive.
Maybe it’s called bundling. Companies, especially in media and telecom, bundle services. Cable offers ...300 free channels, charges you for the 10 ‘premium’ channels you want, 4 of which are ESPN. Everyone nods and winks at each other like blind horses to the ‘free’ stuff being offered. You can claim the consumer gets something for free. But they don’t. You just hide the ala carte itemized cost to the consumer.
Some companies also bundle their costs for these products and services. In effect, they hide these costs from prying eyes, even their own. But that only feeds the delusion that they have somehow outwitted market dynamics, creating a truly new business model, one based on free stuff and the freedom it offers to avoid boring things like accounting and cash-flow reports and unpleasant decisions like which stuff is generating profits and which isn’t, given the costs associated to deliver it.
Giving stuff away for free makes everyone like you. It also makes you broke and oddly no one remembers your name, then. And remember the dotcom bubble? Lots of companies thought a revenue-free business model was quaint.
Back to Chris. He starts with examples on page 2 that include Monty Python’s site on YouTube and free wifi at coffee shops selling $3.00 lattes. Let’s look at the first one:
Monty Python’s site on YouTube.
The members of Monty Python noticed their videos being shared for free on YouTube. The members of Monty Python decided to join this conversation with a public notice they were building their own site to stop the ripoffs, the poor quality of the videos shared by their fans in desperate fealty to Monty Python. Monty Python would share the highest quality videos and in return they wanted their fans to buy their videos.
The results were surprising. Monty Python rose to No. 2 on Amazon’s movies and bestseller’s list, saw 23,000 percent increase in their sales and as chris Anderson wrote:
So there. Free worked and worked brilliantly.
Not so fast, Chris, I think. The videos Monty Python provide for YouTube viewing had been paid for long ago in a galaxy far away when television ruled the day and Monty Python’s show was one of the few original programs available...on PBS (or any network). Their syndication fees had been paid not by individual viewers unless they donated to their PBS affiliate but by the affiliate itself. The viewing experience then was as free then, via PBS, as it was now via YouTube.
Monty Python was smart enough to not charge their most fervent fans, their customer evangelists, for the opportunity to be a loyal and volunteer sales force for Monty Python. Had Monty Python found any other effective means to market their services over that 3-year period, clearly they would have continued to ignore this community of devoted fans for another 3 years or until a more effective means to market was offered, whichever came first.
And in return, they asked their customer evangelists for :
None of your driveling, mindless, comments. Instead, we want you to click on the links, buy our movies and TV shows and soften our pain and disgust at being ripped off all these years.
Only Monty Python and its fans could have this conversation with tongue firmly planted in their cheeks.
Why?
Because their fans and their dedication had kept MP’s brand alive in their hearts and were now sharing it with their family and friends in an act of true evangelistic devotion.
MP’s disgust, such as it was, was misplaced. The disgust was either at themselves for not recognizing this for 3 years or at their ad agency for deluding them into thinking yet another ad campaign would work.
That aside, none of this was free. The costs were minimal and easily absorbed by the resulting 23,000% increase in sales. If I had the time, I would look back to see if there was a slight increase in their retail prices at/or about the time of the launch of their YouTube site for their fans. Regardless, a 23,000% increase in sales and you don’t own Australia means any costs to digitize your existing content and create a custom site for your brand would be easily absorbed in the resulting sales.
Free ? No. They absorbed the costs. They hid them, as grocers hide the costs of shipping in either higher unit prices or more units sold or as cable companies hide the costs of the channels you want to receive. Or, they redirected their existing ad/marketing costs from their previously unproductive, but traditional and safe, strategies into this new strategy, the strategy that worked. And finally, their marketing matched their brand and connected with their audience. And they saw 23,000% increase in sales. And no one noticed the relatively miniscule costs for digitizing existing content and building a site around it.
FREE WIFI.
Yes. It’s free at least if you define free as a feature/service/product whose costs are not itemized as part of the retail price for it or any part of another service where it's included.
And, it’s good. It may even offer higher speeds than your landline DSL.
But, Mr. Anderson, it ain’t free. The daily cost of that wifi to the shop owner is about the cost of one patron’s cup of coffee, latte or not.
It’s not free to the customer. $3.00 cups of coffee aren’t free. Nor are the over-priced pastries. It’s cost to the coffee shop patron is bundled in with the cost of the coffee and the over-priced pastries and assorted juices and cups.
These costs are no less free than the cost for the patron to drive and park, walk to the coffee shop, wait in line...then walk back to their car and drive home or to the office.
No. All these costs are disassociated from the experience of that cup of java, hot and steaming.
Shop owners (and smart hotels) no longer charge for wifi any more than they charge for clean bathrooms. The expense is bundled in the price of the products and services delivered. The hotel doesn't charge for a clean bathroom anymore than coffee shops, except Starbucks, charge for their Wifi. Offering ‘free wifi’ at coffee shops is now considered a standard part of the experience as are clean bathrooms in hotels. Neither choose to itemize the costs to their customers. Instead, they bundle it into a single cost for a cup of coffee or a night at a hotel with a clean bathroom.
Claiming free wifi creates the illusion of freedom for the consumer. It’s free...like butterflies, free from the constraints of gravity and the reality that it would be far cheaper, and we’d be far more productive if we either stopped drinking coffee or had an espresso machine in our homes or offices.
Chris. Creating your ebook for your fans to share for free is the same plan that Monty Python offered. Give your devoted fans a means to share your product with their fans. And we’ll do it for free. I’ve done it for free here in this post, except for my opportunity costs of writing about something else. Nothing’s free.
But tip of the hat to you for writing so eloquently and inspiring me to encourage others to read your book and comment. We disagree. While I doubt it matters to you, for what it's worth, I only disagree where I find articulate, passionate, clear and concise writers. But ain’t it great that we can disagree. ( It’s still not free. But, it’s great.)
I think most folks who follow the freemium business model wouldn't say there isn't cost associated. It's the marginal cost (not the investment) that is driven to 0 as the supply of the good approaches infinity. The marginal cost is what determines price in a competitive market.
Posted by: Kenneth Younger | July 07, 2009 at 02:42 PM