Criticism of Chris Anderson’s Free
He posits that “everything that becomes digital becomes free.” [or presumably closer to free] Is he suggesting a world in which Apple, Microsoft, and Sony give their products away for free? Even if prices decline, doesn’t each new product development yield a still higher price point that only fades due to sales and ever newer and more sophisticated products that compete. Further, as the world wakes up to globalization, the wages that drive this (radically imbalanced) system may be increasingly harder to maintain. Also, it seems clear (err….it would seem logial) that in the digital securities sector, particularly in the military security sector that there is no way this hypothesis could hold true.For more about Chris Anderson’s new book check out Wired.Thoughts?
While I haven’t read the book, I am familiar with Chris’s arguments. Quite honestly, it isn’t that revolutionary of an idea.
I think there are few things you kind of misstated here, or brushed over.
1. Digital, specifically here, means “approaching zero marginal cost.” This has really been the rule in the IT sector for the last two decades or so, where the trend for any class of product tends to go like this:
I. Development and sales to high utility users ($$$)
II. Commoditization and product penetration into SMBs and homes ($$)
III. Open sourcing or free availability (0x$)
Microsoft is, of course, an exception to this rule. However, looking at Apple specifically, this trend is clear.
Take, for instance, Apples use of open source for basically every part of their OS that isn’t still in the I or II stage: the browser (Safari) was cribbed from Linux, they ship OpenLDAP for auth services, Apache for web services, GCC as their development infrastructure. What you are really paying for when you shell out $100 for the next MacOS is their UI layer and iLife. Moreover, unlike Microsoft, because of this use of III products in the OS, the Apple OS price has fallen over the years. Certainly not at a Moores law level, but unlike Microsoft, who can exercise their monopoly to increase the cost of the operating system relative to new system prices over time, they follow this rule.
For the products they are selling that aren’t III products, they of course, still have a higher marginal cost as the cost of market penetration is factored in. Assuming the continued growth of Mac OS because of the iPod Halo, I expect this to continue to go down. Mostly because Apples industry-coveted profits on computers come from the products that carry a higher marginal cost — hardware.
They follow this exact pattern with the iPod as well. Though there is now an over-under pool on whether iTMS will overtake Wal-Mart as the #1 music retailer in the US this year, Apple makes near 0 money on sales from iTMS. Indeed, the whole strategy surrounding it is to provide a 0 marginal cost motivation to sell more iPods, iPhones and Apple TVs.
If there is a counter argument to the “Free” thesis, I think it comes from Schwartz at Sun. He sees much of the world moving to the Cell Phone model where the digital products or services remain “non-Free” but subsidize the cost of the products that continue to have a high marginal cost, encouraging artifical economies of scale to reduce that marginal cost — that is, pay for the cell phone service (which approaches free at scale) and get a ‘free’ cell phone (which has a higher marginal cost). The question is, given the rules of software business above, can this realistically be sustained. Google’s Android OS looms as a potential deal breaker for Sun, since it has moved into the III stage, and therefore takes a chunk of that cell phone unit revenue stream out of the pool.
Google’s business motivation, on the other hand, is to provide even more “Free”. They want everyone to have a top-tier operating system on even lower-end cell phones, because they know that improving accessibility — making the client software ‘free’ — increases the value of their other ‘free’, because it increases the user base, lowers the marginal costs closer to 0, and applies a Metcalf’s Law scalar to the value of their ‘free’ products.
I agree. But, we are entering the hardware generation now. Software has gotten cheap, and so has digital media. Developing smaller laptops, brighter displays, more powerful PDAs, etc. is what it’s all about now. How about a powerful computer the size of an iPod that can store 250GB? You just hook it up to your HDTV when you get home, grab your wireless keyboard and mouse and sit on the couch and surf the net, post to your blog, call your mom, play some music, watch that new movie that your friend copied over to your computer from theirs while you were at the coffee shop yesterday, check your stock prices, pay your bills, or whatever. Then, you can carry it with you and do those things anywhere the internet is available.
During the Microsoft era, it was all about the software. Now they can’t give away Vista because Ubuntu is damn near better and free. But, I’ll buy a cool gadget that helps organize my life, my media, and anything else digital. Now, it’s all about the hardware, the newer the better.
But, which PDA to buy? The Sony, Apple, or HP one? Which one connects me to my content the best? Are they all the same, just look different? What are hardware vendors going to do to persuade me to buy their product? Free digital content and media? Probably.
I think both Robert and James raise some important points.
However, I think James’ analysis may miss the boat to the extent that computers still range from $1,000-$1,400. I realize todays computers are more powerful than 20 years ago–however its expected that you have the latest version so that you can watch the latest YouTube or execute important tasks in a productive way.
In particular, the internet and online video make us dependent on the speed of execution of microprocessors for productivity and efficiency and ROI in the workplace.
I think everyone has missed the point as to where this incredible gap of income goes. When a music file (example: radiohead) becomes free, obviously the band doesn’t make money on record sales… however they were very successful in producing income (performance art is priceless).
So what happened to the millions of dollars that would have been in the hands of executives and advertisers? Its in your pocket, it is re-distributed to the consumer.
As for advertisers, they still pay top dollar for the best venue… which is free media.
Free gadgets are next, they will come loaded with advertising and engineered software. Free media is obviously dominating pay media.
As for speed and quality, that completely depends on the impact monetarily to the consumer. People are inclined to prefer little to no cost over premium services. Youtube’s poor quality of video is offset by their cost and content. Free is better for the consumer and very good for most businesses so who needs the middleman?
Hawksbill.
Interesting. I think that if you see too much commericialization, people will pay slightly higher prices to avoid hyper-commericialization (.25, .50, or even a couple bucks to avoid the cost)
What do I know, sadly doctors will watch 15 minutes presentations for $1.50 hot dogs. A trend that is disturbing on sooooo many levels.