Free: The Economics of Zero Prices

Chris Anderson's new book, Free, is actually subtitled, "The Future of a Radical Price," but he does a great job of explaining the economic concepts related to Free. And he does not sound like a dry economics textbook while he's doing it (at least not to me).

The Free concept at its best is shown by Google, which gives away search but learned to sell ads alongside the search results. This is a very old concept, actually. Radio, and then television, gave away content but sold ads. Some of the new tools, such as YouTube and Twitter, have mastered the free part, but are still struggling with the pay part.

Here are a few of the gems from this book:

"… it doesn't take a PhD to understand why Free works so well online. You just have to ignore the first ten chapters or so of your economics textbook."

If I ever go back to teaching, I'll use Free to teach about complementary goods, in about chapter 3.

"The way to compete with Free is to move past the abundance to find the adjacent scarcity. If software is free, sell support. If phone calls are free, sell distant labor and talent that can be reached by those free calls (the Indian outsourcing model in a nutshell). If your skills are being turned into a commodity that can be done by software (hello, travel agents, stockbrokers, and realtors), then move upstream to more complicated problems that still require the human touch."

"… Free is not enough. It also has to be matched with Paid. Just as King Gillette's free razors only made business sense paired with expensive blades, so will today's Web entrepreneurs have to invent not just products that people love but also those that they will pay for. Free may be the best price, but it can't be the only one."

I recommend this book highly. For listeners, there's a free abridged audio file available here.

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