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The Economics of Free
Posted by
kdawson
on Tue Feb 26, 2008 01:30 AM
from the nada-zip-zilch dept.
from the nada-zip-zilch dept.
Wired's editor-in-chief Chris Anderson is working on a new book, to be published next year, about the idea of "free" in the old and new economies. Wired is running a long excerpt from the book and some sidebars about the economics of giving away, e.g., CDs and directory assistance. Techdirt has a few quibbles about Anderson's ideas — mostly areas in which he may be shading the argument to sell more books — but mostly buys that the equations of economics continue to work when zeros are plugged in in judicious places.
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Well.. (Score:5, Insightful)
Lets see what he says when his book ends up on Piratebay. He is giving away the book for free, right?
Re:Well.. (Score:4, Funny)
Parent
Lessig's 'Free Culture' on pirate bay? (Score:3, Informative)
credible? (Score:5, Insightful)
He also wrote the book The Long Tail, which was a New York Times best seller. He made a lot of money from that, despite the fact that he wrote the book in public view and with public input on his blog thelongtail.com. In fact if you go to that blog right now you will see him discussing the monetary benefits of giving away books.
I don't think it hurts his credibility that he sells the book, actually I think it helps him. Lawrence Lessig's book has a higher purpose of promoting free culture, while Chris Anderson's book is simply observing the changing state of economy. Mr. Anderson is already using the techniques he outlines by giving a long excerpt, and blogging about the contents of his book.
Parent
Re:Well.. (Score:5, Insightful)
He's not giving away the book for free, he's making money on a handy paper version that looks nice in a bookshelf and is easy to bring on the train. At the same time, he is strengthening the Chris Anderson brand.
A good author will manage to get paid no matter how rampant piracy gets. JK Rowling sold a handwritten book for 1.95 million pounds.
Parent
Re: (Score:3, Informative)
And then gave the money away to charity [bbc.co.uk], 'cause she didn't need it.
Re:Well.. (Score:5, Informative)
Actually, yes: [mediapost.com]
Parent
Re: (Score:3, Interesting)
I have yet another site that hosts some 20+ million pages that are all available for free, monetized by Google ads.
Yet another site that I'm responsible for was built for free, because of their tremendous pagerank and my option to include my backlink in the site template, theoretically raising my pagerank (eventu
WiReD, dead tree edition available free. (Score:2)
The DTA mentions that you can get the dead-tree edition of the mag for free by going to www.wired.com/free [wired.com]. First 10,000 only, though, so better get crackin'!
Free, huh? (Score:2, Funny)
To get it, you must live in the USA. That's a heavy burden [dhs.gov] to get a 'free' magazine.
Hope you guys can fix everything with your election.
Public Mindshare (Score:5, Interesting)
I really don't see the big statement he is trying to make.
tech advances (Score:3, Insightful)
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as long as there is value in society, it will be offset by cost. you may be able to write off some cost, or make it so minimal that it is insignificant, but cost will always coincide with value...it will almost certainly always exist.
his book should be called "offset value". free is worthless.
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Revolutionary occurs when the authorities cannot enforce the market system at an acceptable cost. This is essentially what is happening with the online sharing of music. Musicians and music publishers can try to make a virtue of necessity, but they can no longer exercise any control over distribu
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Nothin
Re:Public Mindshare (Score:5, Interesting)
Over the past decade, however, a different sort of free has emerged. The new model is based not on cross-subsidies -- the shifting of costs from one product to another -- but on the fact that the cost of products themselves is falling fast. It's as if the price of steel had dropped so close to zero that King Gillette could give away both razor and blade, and make his money on something else entirely. (Shaving cream?)
Second, how the fuck is Gillette making money off shaving cream not a cross-subsidy?
2 paragraphs later, he has this to say:
Those are all cross-subsidies.
Bands* are trying to drive sales of CDs, merchandise & concert tickets.
Ad-supported gaming... the advertisers are subsidising it. My instincts say "not free"
free-to-try MMOG. "to try" being the operative words. the "try" is subsidized full cost customers.
Google... see ad-supported gaming. We pay for it by looking at advertising & hopefully making a purchase.
If "free to consumers" is TFA's definition of free... I guess I have to disagree. Costs are being lowered & shifted around, but they are still there, someone is still paying and I'm still looking at advertisements.
*NiN actually is a good example of free, they've literally given away the raw audiomixes for most of their Year Zero album.
Parent
Re: (Score:2, Interesting)
::Sigh:: Those are all cross-subsidies.
Mod parent up.
Open Source is another example of (dare I say it) not free. It takes labor to create and maintain. The difference is that, to some extent, the consumer is putting in the labor. The consumer becomes the vendor.
In fact open source doesn't obliterate economic theory, it exemplifies it. Software exhibits economics of scale, the bigger you are the cheaper it is to produce. Traditional companies have to make significant investments to make a good product. Open source makes considerable invest
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Very insightful, but Gillette making a profit off of shaving cream alone (and giving away razor/blades for free) doesn't smell like a cross-subsidy because you don't have to buy the shaving cream first to get the free stuff. I guess you could think of the razors as advertising for the shaving cream.
As for the rest of the stuff... ad-supported MMOGs being the new wave of "free"? NetZero, AT&T, etc. did that crap to my parents with "free" ad-supported dial-up that always crashed full-screen games lik
Even NiN cross-subsidizes (Score:3, Informative)
Despite all the pretense (Score:4, Interesting)
Re: (Score:3, Informative)
Silicon Valley makes most of its money from hardware. [google.com] That was just a short list off the top of my head. Notice that they're all valued in the billions, 10's of billions, and 100's of billions.
Re:Despite all the pretense (Score:5, Insightful)
Basically, whoever is rich is someone who's smart enough to figure out how to get other people to perform labor for him. The pyramids were built without money, (as far as we know,) yet we would consider the pharaohs very rich.
In a free economy, the rich person is whoever can figure out how to get the most people to labor his benefit. One becomes rich by organizing labor so that everyone benefits. The challenge is finding a motivation technique that can satisfy laborers more then money.
Parent
Re:Despite all the pretense (Score:4, Insightful)
Parent
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Furthermore, I can imagine a series of fabrication technologies, for example, that make mp3 players so cheap as to be essentially free. There's no imaginable (currently) technology whi
Re:Despite all the pretense (Score:5, Insightful)
Spread all around the economy, ranging from Google to mom'n'pop shops. The linux billionaires are those who _use_ linux and save money. Coincidentally, the very same are often those who invest time back to solve their own problems, as the money they save far, far outweighs the money it'd cost to roll their own from scratch.
The fact that someone is making money from monopoly protections does not mean that it's good for the economy as a whole. We could hand out monopoly rights for air, and you'd get a huge AirCo, developing amazing technology for measuring how much air each person was using and charging for it. They'd certainly make money, but we'd all be poorer by paying for a resources that would have been produced anyway.
Linux, BSD, and all Free Software proves that software would be produced anyway.
If anyone could just copy chips we'd get the same economy there. There are many 'open chip' projects around.
The purpose of the economy isn't about 'making money'. The purpose of the free market economy is to maximize the creation of wealth by encouraging competition in overcharging sectors and constantly lowering the costs of production. When the cost of production reaches zero we've all won; we've got infinite wealth.
Parent
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Do they really save billions of dollars? Does every company have to become a Linux specialist to "invest time back to solve their own problems"? Or were you going to argue that "that's
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The purpose of the economy isn't about 'making money'. The purpose of the free market economy is to maximize the creation of wealth by encouraging competition in overcharging sectors and constantly lowering the costs of production
That, and to distribute scarce goods efficently (as in letting the consumer decide which scarce products he wants/needs the most).
One thing that is often ignored in economics is the fact that in a free market, the price of the product has more to do with the cost to produce it than it has to do with the value of the product itself. As long as there is healthy competition (something needed for a free market to function) and the consumer are informed (another needed thing), the producers will never be able t
You are working backwards... (Score:2, Insightful)
Silicon Valley has and continues to derive the vast majority of its income from intellectual property protections for its software.
It could be true. Do you have numbers backing up that claim, or are you just assuming it must be true because that is how your world looks like?
Regardless, Microsoft (which is no longer a Silicon Valley firm, I know) would make no money today if XP and Vista were free.
I believe Microsoft Office would continue to sell well even if XP and Vista were free. I also believe that the vast majority of businesses and many home users would pay for a subscription to "Windows Update", even if the underlying operating system is free.
Intel would make no money if anybody could just copy Intel chips.
You mean, if anyone had a billion dollar fab in their backyard? Technically true, as you can interfer any
Re: (Score:2)
The only academic research I know of that has been done into this came to the conclusion that patents made little difference to semiconductor R & D: the main incentive was to get products out before the competition.
Like a lot of pro-patent arguments, your turns out to be an unfounded assertion.
That is a red herring. It does not matter how much money people make, as long as the products are developed. The ex
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Because, as a rule, people don't mind paying for something they perceive to be worth the expenditure of money. You can use any product you want; cars, movies, books, knives, all are measured both in number of units sold as well as how much money was generated by their puchases. Statistics are kept on the best selling products as well as the most profitable products. One can use those statistics to show that product
What would Steve do? (Score:2, Interesting)
A real use for Free (Score:2)
When I come to
Re: (Score:3, Funny)
Yeah, you're right. GOOG [yahoo.com] isn't worth anything anymore and doesn't make any money.
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Nothing new (Score:5, Insightful)
- give some X for free so they buy more X later
- give X for free and sell supplies for X
- give X for free and sell advertising on X
All done for many years by such a diverse group as drug dealers, razor manufacturers and magazine publishers. There is not a single example in the article that doesn't fall into one of those three categories.
It may be true that the Internet is a making that kind of marketing much easier and more common, and it may be an interesting subject for a book. However his approach is needlessly sensationalist: "$0.00 is the future of business", "free changes everything", "freeconomics" etc. It's worth remembering that the same laws of economics (and laws of nature) still apply as they always have. A business can only survive if it sells its products for more money than they cost to produce. The rest is just marketing tactics.
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A business can only survive if it sells its products for more money than they cost to produce.
wrong. A business can only survive if it makes more money than their products cost to produce. It is not necessary to make the money selling the products. The point is that it isn't even feasible to sell products if they can be made extremely cheap, because people don't like using their credit card for 1 cent. But since you can reach a huge public with a product that cheap, you can find other way to make money, based on reputation/ mindshare / attention or however you want to call it.
Is this new? Maybe
Re: (Score:2)
1. Create X that you and some other people need.
2. Make X freely available.
3. Watch people helping to make X better do what you and some other people need.
Re:Free as in beer? (Score:5, Insightful)
The sheer elation that you get from the freedom provided is definitely not worth the ignorance lost. So remember folks, don't use free stuff because you might learn something, and that would be terrible.
Parent
Re: (Score:2, Funny)
The amount of knowledge in the world is essentially infinite.
It's best to stop trying to learn everything after you figure out that Grimace is the big purple dude.
Re:Free as in beer? (Score:5, Insightful)
Yeah, see... Most people don't use computers to learn more about them any more than they (sorry in advance) drive cars to learn about them. They do both to solve problems in their lives. Linux solves basically none of my problems and meets none of my requirements of a computer.
I respect playing with things to learn. I play with Linux, too. But I work with OSX and Windows.
You're not better than people who don't care to learn about computers; you just have different interests. I know a lot about tuning 50cc scooters to go way faster than they should (and have, unfortunately, the 30-day suspension on my license to prove it). But I don't denigrate people who just want to hop on one and go to the store and back. They're not dumb or lazy; they just don't care.
So, while I'm glad you enjoy editing .conf files, I encourage you to explore the possibility that people who don't just... don't.
Parent
They are not mutually exclusive (Score:2, Insightful)
I have spend years playing with Emacs, and as a result, I can do stuff in seconds that others spends hours on with lesser tools. Seconds compared to hours sounds like a great win, but only if you ignore the years mentioned earlier in the sentence.
Basically, learning your tools does wonders for pr
Re:Free as in beer? (Score:5, Interesting)
This statement needs a bit of clarification before I can argue with it. As it would be too slow to ask for clarification I'm going to assume the following:
- stuff the people don't care to learn is stuff like intermediate and advanced levels of configuration, programming, CLI and the like, but also set theory, theory of data, theory of communication etc.
- the better you are referring to is not ethical, but mainly economical, societal and utilitarian.
First off, I would want to agree with you that people do need to make decisions about what to learn. Even though you will spread that learning throughout your whole life there's just too much stuff to know. However, it a dangerous self-deception to think that you can ignore computers and not have negative consequences to yourself in terms of your economic prospects, your fitness to society and your personal happiness.
It is really hard say what level of knowledge with computer should be considered a citizen skill(*), but it is more than basic OS usage and knowledge of specific applications. I think people should be able to command their computers. To this logic and set theory are most important, although any specific formalism unimportant and those used by experts of the particular fields are probably counterproductive. A working knowledge of a general command language is probably a must, although you may be able to get by with GUIs. A general command language is of course also a programming language, but don't let that fool you. Programming (i.e. building computational systems) isn't part of the operational ability to command a computer.
For better or worse, computer skills aren't just another technical skill that might be fun to have. Computers are the foundations of our current and future prosperity. They are the means of production and communication of our societies. Computer knowledge is power. Computers can't be just a purview of engineers.
(*) A skill nearly every citizen has or is expected to acquire. I know this is a very Finnish concept, but I'm not ashamed of that.
Parent
Re:Free as in beer? (Score:5, Funny)
On Windows I submit weekly reports about hours and answer emails of people who are lazy enough to lift their behinds and walk 10 feet into my office, I write documentation that nobody reads, I waste my time browsing websites.
Linux makes me think. Windows makes me a slob.
Parent
Re: (Score:2, Funny)
Their hearts are broken. Their spirits are crushed. They retreat to their parent's basements to bask in the comforting glow of boxen and resume coding free software to numb the pain.
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(Yes, contrary to what NERD RAAAAAGE will tell you, this is important. If normal people can't understand you, they'll write you off.)
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As long as you have competition, market value is far more dependent on the cost of production than it is on the actual value of a thing. Actually having competition and a decently informed market is another matter though.
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