by
Rob Corder on Tuesday, 8 September 2009 at 02:52 UAE time.
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.