“In 2006, Chris Anderson introduced the concept of the Long Tail. His soon-to-be released book will talk about the power of free. Will his theories stand up to the tough questions of venture Silicon Valley venture capitalist Guy Kawasaki?”
Guy: What would you do if you were Twitter and needed to make money?
Chris: I’ve been dreading two questions. This is one of them. The other is how to fix the New York Times. There’s the monetary economy, and the non-monetary economy. Your options were to exit or throwing advertising at it. Now, we’re talking about making money now. So there’s the Freemium model (have a portion free, a portion paid for). So, who’s going to pay? Consumers or advertisers? The ability for Twitter to raise some brands in standing is actually worth it. Maybe that’s where advertisers can come in. For Twitter, I think charge companies somehow, and build from there. How do you create the version of the product that people will pay for without crippling the base product? How much loyalty and stickiness do you have?
Guy: How would you change Wired Magazine if you could?
Chris: Paper still matters. I believe in books. What content adds value to the internet is the question. Paper that is high productive value, 8000 words, high-quality photos… that works better on paper. But that’s not all we do. We have multiple forms.
Guy: I tried to get my editor to offer Reality Check for free in .pdf form, and it was like hitting a wall.
Chris: My editors are great, and they knew what they were signing up for when we started working together. I wanted to be able to experiment in publishing.
Guy: Conceptually, most entrepreneurs think that, now, monetizing popularity is hard. Do you think monetizing popularity or achieving popularity is harder?
Chris: Monetizing. I also think that the user has their own problems with monetizing their popularity. Give your audience value, and then getting money from there… there’s no one way. Everybody is trying new things and experimenting. One of the key problems in publishing is misalignment of goals. In the music industry, the only thing not working is the publishing portion. The labels decided they needed to align their goals with the industry. Seeing the world the same way that the artist will see it. Books have a similar problem. Publishers want to sell books, and doesn’t participate in all the other ways in which you’re selling yourself (speaking, different forms etc). Maybe the publishers can align their interests with those goals and do something like offer full consulting services for an author.
Guy: Tell me about the book.
Chris: We have a love hate relationship with free. 20th century free is a world where the products have real costs. Now we have a new kind of free. The ability to produce this content at such a low cost makes it, basically, free.
Guy: I was in Shanghai the other day, and I bought your book already for 50 cents. What can we learn from China where there are no copyright laws?
Chris: China is the future of free (and Brazil). Free is the force of the digital era. We have he first market where the marginal cost is close to zero, so the economic theory of bringing down price to marginal cost. What is piracy? It’s the animal force of Bertrand’s theory, it’s forcing you to bring down your price to free. If you’re good, you use piracy to benefit you. It’s produced and distributed for you, and creates a celebrity for you, and that’s where you monetize.
Chris: You’ve described Wall’s Drug. The people who bought this store in the 1950s, they needed to get people there, so they gave out free water to bring people in. People would then buy other things. You have to calibrate it. You don’t want a bunch of free-loaders. So you’ve have to do it so you get the appropriate conversion. Free is very powerful. Think about Zappos, they offer free shipping, and they take the risk out of experimentation, encourage you to try out shoes etc.
Guy: Why is free so much more attractive than something like 10 cents?
Chris: The penny gap. There is a huge difference between zero and one penny. There is a cognitive flag of realizing what money means in terms of value. Offering zero doesn’t even raise that flag. It’s not about the money, it’s about that flag and the fact that it makes you really analyze what you’re purchasing.
Guy: Is there any scenario, in the upcoming generation, that people will pay for digital music?
Chris: Sometimes, it’s easier. It’s easier to get music off iTunes right now and pay 99 cents.
Guy: Is there any scenario where the fact that “cheap means it isn’t good” will come into play?
Chris: In general, no. We’ve internalized that fact that there’s no excuse of sucking. If something sucks, we will leave. It’s not the metric we use in the digital worlds. When dealing with you competitors, some of which might be paid-for, you have the issue of people importing their thoughts of the original service onto your product, with skepticism about the fact that you’re claiming to be them.
Guy: Psychologically, do you think people are more motivated by the fear of losing something they had, or the fear of not getting something that they could?
Chris: Great question. We’re generally motivated more by thing that are negative. Things that you don’t have are looming issues, that’s what traditional marketing deals with, but they never follow up by asking how you felt about it. Free is great with this. They let you decide how you feel about it before you commit the resources, and by the time you’re ready to pay, you (hopefully) love the product where you don’t even hesitate. You don’t have the scenario of fearing losing something or not getting something.
Question: Do you really think “free” is healthful for our industry?
Chris: I don’t prescribe. I’m observing and describing the economic conditions and trends. I’m not saying that everything should be free. It will be out there. The book is about business models that are based around free.
Question: How does this apply to the luxury brand market and the non-profit sector?
Chris: You have two ends of the spectrum. Luxury is an interesting space. It’s a classic Long Tail model, where the smallest percentage of the population pay the highest portion of the price. Free exists here, you can get the cheap version or the expensive version. And the existence of the cheap version makes the luxury brand more desirable.
How do you feel about the free model?