Category Archives: Chris Anderson

FriendFeed and the dance of the Free



You may have missed the news that FriendFeed, a free online aggregator that lets you manage updates from multiple social networks, was purchased recently by Facebook. Ad industry observer Bob Knorpp pondered what the acquisition meant for free business models in general, so we responded:

Bob,

Regarding free, all this hyperbole is really just ornamentation on the basic “cross-subsidy” economic model. Television and radio have done this for decades giving away content in return for advertisers funding access to eyeballs (3-party exchange). Google gives away search to attract an audience to attract advertising bids (another 3-party exchange). USPS delivers mail to Alaska for 44 cents because it is subsidized by more profitable routes in urban cities. It’s all so simple — if you draw a circle around all the parties involved in any supposedly free business, someone pays to offset the costs for a profit. People get confused by free because they often only look at 2 of the 3 parties directly involved.

A is free to B as long as B attracts dollars from C that are paid to A.

Cross-subsidies can also pull payment from the future. So any startup — Facebook, Twitter, FriendFeed — can burn in the red and be “free” when really it is pulling payment from a future IPO or acquisition. Sure, burn $20 million today, but if you’re bought for $50 million next year, that’s cool. The funding model is simply tied to confidence in the exit strategy.

One future form of cross subsidy is also new products or services. Twitter, for example, could be building up to 1 billion users in hopes of creating the world’s largest database of the now, in which that data could be sold to marketers. The exit strategy could be replacing Experian. Advertising may never rear its head in that Twitter model, because the third-party subsidy comes from an entirely new business. Marketers could use that data to serve you addressable TV ads or send direct mail to your home. But again, A is free to B because B will attract dollars from C that are paid to A.

Free doesn’t exist. Chris Anderson’s elegant argument is really just an articulation of cross-subsidies. His idea that falling data costs will make everything free is false, because as Porter has explained, three things flow in any economic exchange — information, value, and products. Information may get cheap, but products still come in three dimensions and have costs. And while information could approach free, the ideation of that information still costs money. Trust me, I do this for a living 😉

Now, finally, re FriendFeed — hey, that was a nice portal play for all of social media. I could aggregate my content from everywhere else and make FriendFeed the center of my universe. If I were Facebook, I’d be messing my pants. “Those guys are stealing our social graph!” Facebook bought it for several reasons, but if nothing else, to take a social media portal competitor off the table.

Nicely played, FriendFeed. Looks like your cross-subsidy from the future finally arrived.

Image: Ana Cotta

Less than zero: How ‘double-free’ killed the Danish newspapers


Wired and “freemium” guru Chris Anderson had dinner recently with Jon Lund, chief of the Danish Internet Advertising Bureau, and learned about a free business model gone sour. It seems in fall of 2006 a new newspaper called Nyhedsavisen entered the Danish market with a “double-free” model — the paper cost nothing, and it would also be delivered to homes for free. It was a foray by the Icelandic media group Dagsbrun to capture the Danish ad market but ended up decimating the nation’s newspaper industry, as other publishers tried to match the double-free model. In the end, three papers went bankrupt and the industry lost $150 million.

What’s intriguing about the tale is how demand plummets when oversupply swamps consumers, even if the goods are free. Local accounts say Danes got fed up with six newspapers a day. Reminds us a bit of all the social media and mobile free apps competing for attention in the U.S. … or worse, the advertisers trying to buy their way into social media conversations with paid posts that no one welcomes. If supply saturates and prices can’t move lower than free, demand is going to run away.

A BeanCast debate: Cutting out the middleman


Damn that Chris Anderson. He’s been talking for more than a year about the trend of services being priced for free, and now big companies like Coke are taking notice.

Last night we recorded a podcast debate with the brilliant Joseph Jaffe, Bill Green and Bob Knorpp on tectonic shifts of disintermediation rocking the communications industry. Coke is going directly to marketing results, telling its agencies they must now work on a pay-for-performance model and risk having their fees cut if they don’t hit targets. The Current Network, a television project launched by Al Gore, undercut agency hunters by sending out an RFP for advertising work directly on Twitter. And the Chuck television show undercut Nielsen ratings via a groundswell of loyalists demanding the show be saved, tipping their hat to the advertiser Subway.

Cut, cut, cut. Suppliers and consumers finding each other more efficiently, squeezing the people in the middle who used to connect them. Chris Anderson, you’re taking all the joy out of business.

Download the podcast debate for free here, and don’t miss us all interrupting Mr. Jaffe. 😉

Photo: Dr. Craig

Life.com’s glossy take on freemium


What would you do if you owned an old, tired brand and also about a million photographs? Why, give the photos away for free.

That’s what Life.com is doing in its latest incarnation. The magazine, which had several lives starting in 1883 as a Puck-type entertainment vehicle, died as a photo mag in 1972, died again as a monthly in 2000, and finally really, really died as a newspaper insert in 2007. Life has now partnered with Getty Images in a beautiful web site that makes it easy for people to email or share photos from the vast collection of shots of celebrities, animals and news.

It’s a perfect case study of Chris Anderson’s “freemium” concept — you get a lot for free, but Life will also sell glossy custom magazines or books from $6 to $89.99. And the photos are only free if you don’t mind the ghostly Life watermark at the bottom of each image.

Well-played, Life. Browsing the images of history may tempt us to buy a book. Via WSJ.

Free at last, business, you’re free at last


Chris Anderson’s blog just posted an overview of “free” business models, or ways your firm can make money in the coming crunch where prices are pressed lower by digital commoditization. Despite Anderson’s eloquence, we still wonder if all business models are being pushed to the free — digitization isn’t going to reduce demand for solid goods to the point where margins become zero for things made out of sheet metal. Still, if you’re running a small shop or startup, the list may provoke new thoughts on how to make money while passing along lower perceived costs to customers.

If you’re new to the Freemium idea, here’s an overview of Anderson’s speech at SXSW in Austin.

Playboy, like Chris Anderson, flows to the free


Wired editor Chris Anderson spoke at SXSW this week, arguing again that pricing on all products and services will flow to the free as the internet matches supply and demand more efficiently.

As evidence, we give you Playboy. The publishing empire, which has been severely threatened by free online alternatives, announced today it will post 53 issues from 1954 through 2007 at a free Playboy Archive web site, unedited, with no age restrictions. Now — if you’re still reading and haven’t clicked through, stay with us, people — this is a perfect example of Anderson’s freemium model, where a large portion of your services are given away in exchange for a small group of customers who pay. Marketers could learn from this move; rather than fight online competition or piracy, learn to coexist with free models while building future demand for paid services.

As if you’re still reading this.

What you can learn from the North Face iPhone app. Hint: Think free.


See the red logo above? Notice how small it is?

Dirk Singer, chief of the London-based Cow PR shop, has a nice review of the North Face iPhone app, which gives skiers free information on snow conditions. “Though it contains a link to the nearest store, North Face knows better than to interrupt users’ ski holidays with constant brand info,” Dirk writes.

This reminds us of the recent Bud.tv failure, which by comparison pushed the brand hard and made it difficult for users of the entertainment site to derive any content (Bud.tv had an extensive registration/log-in process that required your driver’s license). Unlike North Face, Bud.tv failed because it didn’t offer enough free value first before trying to identify (or sell) you, the user.

Wired editor Chris Anderson has been making rounds talking up his new book Free, filled with the concept that the rapidly diminished costs of data transfer and storage mean prices for many services are also approaching zero. In this competitive arena, marketers need to provide some level of service for “free” … while in reality they hope to make money by selling goods to a fraction of the users. As Chris has noted, even if you sell to only 1% of your audience, if your audience is big enough, 1% of a large number can still be a large number. North Face has gotten the free-vs.-selling balance right. Next time we head north to ski, we’ll check out their iPhone app … and then maybe buy some gear along the way.

Why everything won’t be ‘Free’ tomorrow


If you want to know why everything won’t be free within a few years, just think about your airport luggage.

Wired editor Chris Anderson is about to publish “Free,” a look at how the proliferation of free media online is expanding into other business dynamics. The über-designer David Armano explains the entire book in one graphic, above: Either you give something away by subsidizing it with sales of something else (either cross-sales of other products, or third-party advertising for free media), or you give something away while charging a small portion of your customers for premium service.

It’s a simple get-this-but-pay-for-that trade-off. And it seems to make sense; consumers have put up with advertising-supported free radio and TV for years, so why wouldn’t free expand?

Trouble is, when you push “free” models that work online to real-world goods or services, people rebel — because in the real world you see what other people get, and transparent cross-subsidies tick you off. The perfect example is the U.S. airline industry. When fuel prices skyrocketed, airlines had a big problem — they could either raise ticket prices or pass the extra charges along in other fees. Raising travel prices in a day when any consumer can shop for the best deals on Travelocity.com is suicide; if you jump $25 on your ticket price to Vegas, consumers flow easily to a competing carrier.

So airlines did what Chris Anderson recommends — move to Free Model 1, where the price of one good is subsidized by sales of others. Airlines held ticket prices steady but tacked on a range of surcharges, for baggage check-in, food on planes, etc., to cover their higher operating costs.

And people screamed.

The problems were many. First, surcharges forced lower-income consumers to bear a disproportionate share of the fuel increases; families going on vacation with four kids and 10 bags where walloped with high baggage fees, while affluent business travelers waltzed aboard with a single carry-on bag. Second, the perception of unfairness abounded as everyone in the real world could compare what others were paying; if you bring bags, you get charged, and your fellow passenger may not. And third, each surcharge created yet another negative touchpoint in the travel experience — a bump here, an unexpected fee there, a series of unfortunate events.

In theory, someone always has to pay and “free” models that move the cost around can work on many levels. But in reality, consumers going through a customer service experience do not like surprises, and they hate any perception of unfairness. A utility could reduce your electric bill by 30% and then charge you $350 every time a serviceman comes to check your electric meter. In this new model you’d pay the same amount every year, but the fact you pay so much for a home visit would probably be infuriating.

The online media world is moving to the free. Just don’t expect the offline world to meet it there anytime soon, because in the real world, the costs transfers are much more visible.

As Letterman slams McCain, CBS seeds the viral net

No, we’re not here to tell you how David Letterman, miffed that John McCain cancelled an appearance with two hours’ notice to save the economy and then appeared on CBS news with Katie Couric instead, fought back by slamming McCain and running an in-house CBS video feed of McCain getting his makeup applied.

Instead, we’re noting that CBS thought Dave’s attack would be so popular that it posted the clip on YouTube.

What’s intriguing is how major networks are flirting with free. On one hand, they struggle with maintaining control by limiting access to off-network channels (note how the beautiful new site Hulu still doesn’t have ABC, CBS, CW and WB aboard); on the other, they seed content on sites for free hoping it amplifies the buzz on their core programming.

In a few months Chris Anderson’s book Free will be published, and we look forward to hearing his thoughts on how giving up control ends up improving brand power. Scott Adams did exactly that recently when he gave his fans the ability to search for any of his comic strips online for free and even re-edit the jokes. Profit models are threatened; but the new model is if you want to see if someone loves you, first set them free.