Greatest Hits Blog

I've previously posted summaries of both Free and The Long Tail by Chris Anderson (see Anderson).  This week's podcast is on Free.

Download Free by Chris Anderson

The one-sentence summary

Endless choice is creating unlimited demand so you probably need to re-think your business model: make everything available and help customers find it easily (online).

WHAT THE BOOK SAYS

• Endless choice is creating unlimited demand.
• Traditional business models suggest that high-selling hits are required for success. These are at the high-volume end of a conventional demand curve.
• But in the Internet era, the combined value of the millions of items that only sell in small quantities can equal or even exceed the best sellers.
• Modest sellers and niche products are now becoming an immensely powerful cumulative force. In this respect, many “mass” markets are turning into millions of aggregated niches.

WHAT’S GOOD ABOUT IT

• This is a very original and thought-provoking book. It takes a while to get into, but it’s worth it.
• It introduces reasonably complicated mathematical theory in a user-friendly way, particularly micro-analysis of the very end of a very long tail. This is where helpful truths about the economics of your market can be seen properly.
• Contemporary examples from music (radio and album sales), books and films lend a populist slant to the theory, which should appeal widely.
• Old theories such as the 80/20 rule receive a thorough going-over. It’s never exactly 80/20, and the percentages can apply to different things (products, sales or profits). And they don’t add up to 100.
• The nine big rules of the Long Tail are:

WHAT YOU HAVE TO WATCH

• The model works best with true Internet and digital products that do not take up any storage space. For example, Amazon books still require storage space that has a cost. I-tunes do not. So careful thought is required as to the nature of the market you are analysing.

The one-sentence summary

The Internet has turned traditional economics upside down by making many things free, so look carefully at your reputation and the time you demand from your customers.

WHAT THE BOOK SAYS

• Old economic certainties are being undermined by a growing flood of free goods. This has become possible because production and distribution costs in many sectors have plummeted to unthinkable levels.
• The flexibility of the online world allows producers to trade ever more creatively, offering items for free to make real or perceived gains elsewhere.
• As an increasing number of things become freely available, our decisions to make use of them are determined by the popular reputation of what’s on offer and the time we have available for it.
• In the future when we talk of the money economy, we will really be talking about the reputation and time economy.
• The loss leader concept is giving away one thing to get another: the internet has taken this to a new level.
• The economics of atoms is based on tangible items. The economics of bits is based on storage space and is intangible, leading to ‘freeconomics’.
• There are three prices: something, nothing (free) and less than nothing – this is negative price, where you get paid to use a product. There is a gym in Denmark where you pay nothing as long as you go at least once a week.

WHAT’S GOOD ABOUT IT

• Compare with Seth Godin’s Unleashing the Ideavirus: 20 years ago the top 100 companies either dug something out of the ground or turned a natural resource into something you could hold. This is now only 32 – the others sell ideas.
• The demand you get at a price of zero is many times higher than at a very low price – the ‘penny gap’ identified by Kopelman.
• Modern business models should: 1. Build a community around free information. 2. Use it to design something that people want. 3. Let those with more money buy more polished versions of the product. 4. Keep repeating the process.
• Learning curve was invented by Ebbinghaus in c.19 to describe improvements when people memorised tasks over many repetitions.
• Information wants to be free: 1. Access to computers should be unlimited. 2. All information should be free. 3. Mistrust authority. 4. Computers can change your life for the better.

• Ten principles of Abundance Thinking:

1. If it’s digital, sooner or later it’s going to be free.
2. Atoms would like to be free too.
3. You can’t stop Free.
4. You can make money from Free.
5. Redefine your market.
6. Round down.
7. Sooner or later you will compete with Free.
8. Embrace waste.
9. Free makes other things more valuable.
10. Manage for abundance, not scarcity.

WHAT YOU HAVE TO WATCH

• Not much. There is much to ponder here about modern markets.