Chris Anderson is in the “propagating ideas business.”
The idea that he is propagating now is that “if the unitary cost of something is approaching zero, sell it for zero and make your money in something else.”
Fundamentally, he says the Internet will be a zero-priced economy, an idea he first put on a Wired cover this year in an article called “Free! Why $0.0 is the Future of Business.” He is working on a book on the subject, coming out next year.
Driving this is the incredible cheapness of the three main raw materials of the Internet: processing power, storage and bandwidth.
“Today on the Internet, we’re basically building a country-sized economy built on giving away products and services to consumers for free. We’ve never seen this before,’’ he said at a breakfast gathering organized by his magazine in Manhattan Wednesday morning. “Almost everything on the Internet's free and yet this is, depending on how you want to calculate it, a $600 billion or a $1 trillion economy, built on free.”
Well, not quite. When Yahoo unveiled an “unlimited disk space, unlimited data transfer, unlimited email storage and 1,000 email accounts” storage and communications service, it did come with a price: $11.95 a month. And, sure, a terabyte of storage now costs about $120, in a physical hard drive. But these are quibbles. The direction is clear. Products and services delivered over the Net are becoming, in Anderson’s phrase, “demonetized.”
Which is not quite the same as saying you can’t make money on the Web. There are four models that will move business away from the 20th Century “Atoms Economy” and into the 21st Century’s “Bits Economy.”
The ethos in the age when you sold stuff made of atoms: There is no such thing as a free lunch. You have to fork over some bucks before we give you the atoms.
The ethos in the age of bits, which have no weight, can’t be held and can’t be eaten: “The best things in life are free.”
The four ways to make it in the Bits Economy? Free Model #1: The marketing trick. Buy one, get one free.
Free Model #2: Advertising support. The media model.
Free Model #3: Freemiums. Give away 95% of your service for free, charge your best customers 5% for upgrades and extra features.
Free Model #4: Gifts. Deliver a service just for the attention or from a non-monetary motivation. Think Wikipedia.
You can see different routes being taken by different digital companies. Microsoft, Anderson notes, recently launched a BizSpark service that allows companies with less than $1 million in annual revenue to use essentially all Microsoft’s business software online for free. The figuring: When the companies get bigger, they’ll be able to pay and will pay.
In Apple’s App Store for the iPhone, prices of downloadable apps sold for a rough average of $4.50 a piece in July. Now the average is down to $2.50, according to a chart Anderson put together. The store seems headed to the “freemium” model, he contends.
Meanwhile, everybody and their mother is becoming a videographer, in a “collective experiment in inventing the future of TV” on YouTube. With most everyone experimenting for free (but not all).
But Wired – and Anderson – are not ready to jump with both hands, feet and heads into the Bits, aka ‘free,’ Economy.
When his new book comes out in the middle of next year, Anderson says he plans to give it away. A book about the free economy should be free, right?
Up to a point.
The audio version will be a free, downloadable MP3 file. The file for electronic book readers like Amazon’s Kindle will be free. The version that appears online that will be readable on a personal computer screen will be free. The paperback? Maybe underwritten by a sponsor who buys space inside the cover.
The hardback? “24.95, thank you very much,” he says.
All the “free’ distribution in the Bits Economy goes toward making Anderson and his publisher bucks in the Atoms Economy. Is this Free Model #5? Regard bits as marketing tools and make money … some other way.
Wired itself is also still firmly planted in the Atoms Economy. Even though, if memory serves, its HotWired site was the first Web site anywhere to sell an ad, more than a decade ago, the Web accounts for online about 20% of Wired’s revenue, at the end of 2008. When his book comes out, even Wired will still be making about 80% of its revenue from the Atoms Economy, from selling words on ink on paper and sending it out through the mail.
Wired’s sister publication in the Conde Nast publishing house, Portfolio, this Fall even stripped its Web site to the bone, in order to keep the biggest source of revenue and income alive, the magazine.
And Wired itself is trying to extend its print advertising and print subscription revenues by selling still more atoms: glittering devices somehow associated with being “wired” for the world of a ‘free’ economy of bits when all of us are really still living in an “atoms” world.
Anderson’s presentation was held in The Wired Store, a physical embodiment of its online merchandise-selling outlet. The store, at 15 W. 18th St., is almost like a Neiman Marcus store aimed just at the digerati or people who only buy the coolest of objects.
There’s the Derringer fat-tired hybrid vehicle for $3,500, that is a cross between a bike you pedal and a motorcycle that you gas up. There’s the $3,300 Conmoto Travelmate Portable Fireplace, with the smokeless fire, for $3,300. Never be without it when you go on that globe-girdling trip.
In back there’s even a 2009 Lincoln MKS, for $43,380, promoting a lot of voice-activated features. And, oh, sure, there’s the Google Android phone, the Hewlett-Packard touchsmart computers and the eco-sensitive stuff recharger.
But the Bits Economy still relies heavily on the ethos of the Atoms Economy. Anderson duly noted that the first home computer to be marketed in this country appeared in the 1954 Neiman Marcus catalog. There was even a built-in cutting board. You could manage recipes with it, even though you had to know hexadecimal code in order to put data in and read it, once you got a result out. “Needless to say, not a single one sold,” Anderson said.
Now, the Wired Store has come full circle. It is selling stainless steel see-through teapots ($200 for the brushed finish), die-cast two-slice toasters ($129) and Nespresso machines from DeLonghi ($799) to make ends meet. The modern kitchen. Just like Neiman Marcus.
And the appliances are not there just for show. If anyone propagating ideas today is going to make it in the Bits Economy, that person or that company still needs to look to the Atoms Economy for every bit of help it can get.
In the end, there is no such thing as a free economy.