Free, The Future of a Radical Price, by Chris Anderson
Random House Business Books
$14.55 (hardcover) at amazon.com

What happens when advances in technology allow many things to be produced for more or less nothing? And what happens when those things are made available to us for free?

This is the question posed by the latest book on global business trends by Chris Anderson, editor of US new economy magazine Wired, and author of The Long Tail, which considered the impact of unlimited digital shelf space on how goods are bought and sold.

Anderson argues that as computer processing speed doubles every 18 months (Moore’s Law) and internet bandwidth trebles every year (Gilder’s Law), the cost of anything made of bits and bytes will reduce in cost so far over time that you might as well round it down to zero.

He then explores a host of other business models that survive by making it possible to offer one product or service for free, by charging for other related products or services.

A quick trip through history finds the obvious example of Gillette razors, where the reusable razor was virtually given away because customers would buy disposable blades forever.

Or the budget airline model where seats on flights can be sold for free because money is made in other ways: advertisers paying to reach the passengers; credit card handling fee; charging for check in bags, even charging cities who want the airline to land there because it boosts tourism.

The book rambles a little as it compares different business models and illustrates their strengths and weaknesses with examples from the past and present. Most readers will draw inspiration from only a handful of these examples that chime with their thinking or directly relate to their current businesses.

The central idea - that free is a price that touches ever-expanding parts of our personal and business lives - is woven throughout.

Perhaps the most insightful moment in the book comes from research by behavioural economists who compared the reaction of people to buying a chocolate bar at a very low price, to their reaction when given it for free. Even though the chocolate with a low price tag was so cheap it made little difference in people’s wallets, the psychological barrier of parting with any money at all was enormous when compared to the instant uptake of the free offer.

In summary, any business that is able to offer something for free will find a much larger customer base than a business that charges. That hardly qualifies as the greatest innovation in business thinking this century, but finding ways to exploit a price of zero, and make money elsewhere for a business, is a challenge that is increasing day by day.

The glamour of owning an English Premier League club might soon lose its lustre for Suleiman Al-Fahim, who completed a takeover of Portsmouth FC this week.

The team is currently second bottom in the league, with three losses from the first three games of the season.

British bookmakers have made Portsmouth odds-on favourites to be relegated at the end of the 2009-10 campaign.

Having reportedly paid £60 million ($100m) for the club, Al-Fahim stands to lose around £30 per year if the club is relegated to the second tier Coca Cola Championship.

Since Arabianbusiness.com is a business site, not a sports site, I will spare you my pub punditry on the quality of the squad, but will instead look at the mathematical likelihood of Premiership survival based on the evidence to date.

The decision Al Fahim has to make now, or more likely in the January transfer windows, is whether to invest in new players. The cost of luring players is inflated for teams in relegation trouble, and typically teams in the lower reaches of the league opt for loan players who are not playing regular Premiership football elsewhere.

But before January, one key person can be replaced: the manager, Paul Hart. In the 16 game tenure at the end of last season, his record was a tolerable played 16, won four, lost seven, drew five - 1.06 points per game.

Having lost the first three games of the season, Mr Hart now has 35 games left to reach what is commonly reported as a safe number of points for survival in the Premier League: the magic 40 point mark.

If Portsmouth continue to average 1.06 points per game, they will reach 37.1 points this season, a tally that most people would expect to see the club relegated.

But, hang on. Conventional wisdom on the points required to survive in the Premiership is wrong. It is true that every club that has scored 40 points or more in the past six years has survived, but it is also the case that 37 points would have been enough to stay up for every season but one since 2003.

Should Paul Hart remain the manager of Portsmouth for the whole of this season? The statistics suggest that it would not be a disaster.

But football is a game played on grass, not paper and, if I were a Pompey fan, I would not enjoy the season if the target was 37 points.

British bookmakers not only have Portsmouth favourite to be relegated, they also have Paul Hart as strong favourite to be the first Premiership manager to lose his job. Who am I to argue?

Transparency looks set to be the only winner in the fallout from the Algosaibi and Saad groups.

Exactly what has happened at the Saudi firms at the centre of a corporate scandal rocking Saudi Arabia is still not clear.

What is clear, however, is that it has changed how family owned companies in the region will be able to do business.

The practice of “name lending” has been widespread in the Gulf, where companies have been able to borrow money based solely on their name recognition and reputation.

But as the dispute between Algosaibi and billionaire Maan Al-Sanea moves into a New York court room and banks brace themselves for losses amid debt restructuring at the two companies, privately held firms are going to have to become more open or face having their financing cut off.

Friday’s move by Algosaibi to pursue its claims against Al-Sanea through the courts marks a departure from the private culture of the region’s family owned companies.

So private are they that many Gulf firms do not even have a public relations department for media professionals or other people seeking information about them. (A well known retailer recently fired its entire media relations team – tellingly, without informing the media about it.)

That privacy has extended to the debt markets, where the same companies have been unwilling to communicate key financial information to banks, credit rating agencies and other financial institutions.

Banks across the region are now feeling the effects of that secrecy, as names that were previously thought unsinkable default on bank loans and bonds.

The UAE central bank has said the country’s lenders have “significant” exposure to the Saudi companies, and has asked all banks operating in the country to inform it of the size of any loans extended to them.

Omani banks are the only ones in the GCC to have publicly announced their exposure to the beleaguered conglomerates.

Other banks would do well to follow their example and provide the market with some of that transparency their borrowers seem to lack.

I always pay cash. You know where you are with cold hard cash. You know instantly whether you can afford something or not – if you haven’t got the readies you can’t pay for the goods – put the merchandise down, step away from the shop.

Parting with the folding stuff is psychologically more traumatic than handing over a piece of plastic and putting a squiggle on a receipt, so you think twice about spending so freely. Using cash, therefore, actually saves you money.

If you start paying with a debit card it becomes a full time job keeping track of what you’ve spent; if, that is, you keep track at all. One day you decide to check your balance and you have a heart attack because all your money has disappeared.

Surviving the heart attack is a mixed blessing – you’re alive, but you have no money left on which to live. It is worse still if you don’t realize that all your money has been drained from your account and you go out on a date, have a romantic meal for two, try and pay the bill and your card is rejected. Then, inevitably, so are you.

Credit cards are even worse. They can make Stig of the dump feel like King of the castle, but it’s an illusion. I know this well but then those pesky marketing gurus at Emirates get involved. And they’re good. They’re very good…and so it came to pass that last year my defences were breached and, with the promise of 40,000 free air miles, I signed up for a credit card.

My shiny new card felt a bit like having a Rottweiler as a guard dog – it was comforting to know that it was there but I just hoped that it was never called into action, being well aware, as I was, that it could do far more harm than good.

After a year of straining at the leash I decided to have the Rottweiler put down and cut up the card. The reason, as is the way with such things, is that a younger, fitter version has come along. It is a different company, offering more goodies.

This is a difficult concept to grasp in the age of the credit crunch but the banks are literally shoving air miles down my throat and showering me with credit. I am assuming that in their attempts to stimulate consumer activity the bank see me as a negligent fool who will rack up huge debt, forget to pay it off and then they can charge me billions of dirhams worth of interest which will, in one fell swoop, rectify their balance sheets.

Naïve, I think is the word. Still, banks didn’t get where they are today without being more than a little naïve.

Frankly the banks are the least of my worries. For the last 20 years I have berated friends and family for using cards instead of cash and when I am spotted with my new flexible friend I suspect that I will end up with credit-card-egg all over my face.

Indeed, it has started already and I’ve had my new card for less than a week. I was enthusing to a friend about a meal the other day where I was told by the waiter that if I paid by Visa I would receive a 30% discount. So obviously I paid by Visa.

My friend just looked at me, and, with disbelief in her eyes, 20 years of abuse ringing in her ears and a slight shake of the head, muttered with incredulity, “You paid by card?!”. It was the same tone that I imagine she would use if I had told her that I had just boiled her family and eaten them for breakfast.

In my defence, not only did I get a 30% discount but I also earned a few air miles to boot. In these troubled times you’ve got to take what you can get. I remember the days when cash was King – you paid cash, you got a discount. Now, despite reports to the contrary, it seems that credit is the new force in town. The King is dead; long live the King.

At the time of writing, shares in Emaar Properties are down 10 percent in the first five hours of trading since it announced it would be acquiring Dubai Holdings companies Sama Dubai, Tatweer and Dubai Properties Group.

Investors are trying to absorb the complexity of the deal and, in the absence of hard facts about the future of the business, they are taking the obvious course of action: clear out of the stock until reliable information emerges.

Sama, Tatweer and DPG are private companies without published accounts. In essence, all three are holding companies - subsidiaries of the daddy of all holding companies: Dubai Holdings.

As such, they are the sum of their assets, rather than assets in their own right. To illustrate the intangible role of these companies, you only have to read their mission statements. For example, on Tatweer’s web site, it has a frequently asked question section that provides the following insight:

Question: What is Tatweer’s main strategy?

Answer: Tatweer will focus on leadership development to achieve business excellence and world class quality standards for all of its subsidiaries.

Tatweer will become a world class enterprise through value generation, customer focus and excellence for our people and stakeholders. In addition, it will focus on developing and diversifying the business portfolio by capitalising on market opportunities in existing and new sectors.

If anybody can find a statement with less meaning than this, please send it on a postcard to Arabian Business.

The assets under management by these holding companies are considerably more meaningful, but no easier to value.

Emaar has said that the combined companies will have assets worth a total of $52.85 billion. Not $52 billion, not $53 billion, exactly $52.85 billion - precision that suggests real mathematics and accounting is involved.

In its current trading statement, Emaar says that its assets are valued at $16.5 billion. The combined total for Sama, Tatweer and Dubai Properties is therefore $36.35 billion.

The value of Sama, Tatweer and Dubai Properties assets are therefore priced at more than double the value of Emaar’s assets.

Judge for yourself whether that calculation seems reasonable, by comparing the value of these assets:

The first thing that strikes me when comparing these lists of projects is that Emaar is considerably more diversified in terms of its geographic spread. Between Sama, Dubai Properties and Tatweer, only three projects are outside the UAE. For Emaar, the majority are non-UAE.

Real estate values are falling all around the world, but nowhere faster than the UAE. Emaar’s asset value should therefore be more robust than those of its new businesses.

The real question for investors is how to value these assets, what are the business plans of each project (cashflow, revenues, profits), and what will be their impact on the overall profitability and growth prospects of the group.

This would require a full time team of forensic accountants and researchers several years to evaluate.

Which makes it all the more surprising that a value of $52.85 billion has been established only moments after the news was released that these companies would be merging. I’m not saying that it isn’t $52.85 billion, but I expect I could make a case for $52 billion or $53 billion just as easily.

You do the maths, and let me know what you conclude.