DIIA Blog

In 2006, Chris Anderson introduced the concept of the Long Tail. His soon-to-be released book will talk about the power of free. Will his theories stand up to the tough questions of Silicon Valley venture capitalist Guy Kawasaki?

[SXSWi 2010 will take place March 12-16. We need to get more higher ed sessions and panels in the mix--deadline for session proposals is this June.]

Kawasaki: With a book about “free,” context of the Long Tail, how does Twitter fit in?

Anderson: 2 banes of his existence–the questions 1) how I would use Twitter, and 2) the future of the NYT. Not the right time to maximize your ad revenue. The idea is now is how to make money. The media business model is to have 2 products: premium product and free product. Who’s going to pay for Twitter–ads or followers? Just being able to raise a company to visibility is of value. One model says it would take $250,000 from a single donor, or from members.

If you version your product, how do you price your premium, and how do you give value to your free product? MMOGs are the best test model–the World of Warcraft box and CD cost, but you can play free online.

Kawasaki: I have so many followers I can’t afford to leave Twitter, and expect them to follow me.

Anderson: How much stickiness do you have? Once you append a price, you quickly find out how loyal your fans are.

K: If you could reinvent Wired.com, what would you do differently?

A: Wired was launched in ‘93, and the very first question was “your magazine is about the digital world, why paper?” Some paper adds value to the internet. High production values–beautiful photography, premium content. That makes sense. Wired also has short form. Exists in multiple forms–paper and online. Books still matter.

K: Does that mean “free” won’t be “free?” You would be a hypocrite if you didn’t offer something for free.

A: hypothetical scenario by which a book could be free: audio book, abridged and unabridge, e-book (Kindle, iPhone reader, etc.). The digital forms, the marginal cost is close to zero, so should be free. Printing has larger costs, so should still have a price. If you believe if the physical book is the superior form, then a sample chapter or 2 (5%) free online.

K: asked his publisher to allow him to publish with a free pdf, publisher turned him down.

A: his publishers expect him to do what he wants, that’s how he began with them.

K: is it harder to achieve the popularity or to monetize the popularity?

A: wrong way to think about it. We’re each our own platform, we come up with our own ways to do it. Kawasaki has a company, then a following, then a Twitter following. Give readers something of value, then everyone will do it differently depending on the individual.

K: giving our books away will lead to more keynotes. Publishers may not get a cut of the keynotes.

A: key problem. Everyone says music industry is in collapse. Not so–only one portion–sales. More content, more licensing, more stuff. A disalignment. We need to align with the industry and go 360–artist rep, tour mgmt., see the world as the artist sees it. Books are similar. They are misaligned with the publishers, who just want to sell books. Do a 360 for books. As a speaker, consultant, equity stake in yourself.

Labels are bad managers, and publishers are bad speakers. Align the author with all the other ways to connect.

K: Twitter as a marketing weapon. You should do a thing where if you follow me (or you) we give you a free pdf–quid pro quo. Everybody gets something.

A: that would lock me into Twitter.

K: if I do it, it’s clever marketing, if someone does it to me, it’s spam.

A: why would I hold back the pdf for free, except for going through the one step of following him.

K: James Hega changed the music business. Apple exec who convinced the music publishers to sell iTunes for 99 cents.

K: what are some alternative models?

A: started the whole thing as an economic research model, became a semantic research model. The word “free” is fraught with. The old model: say you have a product for free–in reality, only part of it was free, charged for other parts. Then the last 10 years, everything gets cheaper over time. Anything online is near marginal cost line. Take the quotations of for 21st century. What are the models? Media business. Radio: how are we going to pay for it? Tax on vacuum tubes. 3rd party advertisers. 21st century, business model way beyond the media model. Software and services were free first. Freemium is the new version of the free sample. Give away %1 to sell 99%. Freemium is the opposite.

Starting with kid’s games, moving into Second Life, you’re seeing the model. 5% is the break-even line.

K: it’s hard to get 5% of any audience to pay.

A: don’t begin without the model, then change later. Begin your model with all of that up front. Means you have to differentiate between the two products–free and premium class for committed customer, and tailor to them.

K: what about China–no intellectual property rights.

A: an entire chapter on China. China is the future of greed. Also Brazil. Took decades to come to the decision that price = what the market will bear. In a competitive market, price falls to a marginal cost. Piracy is the animal influence of the Bertrand model. China can’t stop digital piracy. You don’t expect to make money from the CD, pirates will create leverage/celebrity, and you capitalize on that. Do commercial concerts, advertisements for product endorsement. Use piracy to create celebrity, celebrity to leverage cost.

K: what if Starbucks said, “this size coffee is free from now on.” Most people will upsell themselves, buy muffins, add caramel, chocolate.

A: Wall’s Drug–first real life model of that. Out of the way store, needed someway to get attention. Gave away free ice water, then people would buy something else. Can Starbuck’s do this? Absolutely. Companies give away free coffee, try to make you stay in the office. Would have to calibrate it. Don’t want a bunch of freeloaders to come and tie up the lines. Tony Hsieh of Zappo’s gives away shipping for free.

Two meanings: freedom, and price. In other languages, there are two separate words for the two meanings. Americans take adavantage of this dichotomy to sell products. It takes the risk out of experimentation.

K: why is 1 penny worth more than free? We sell things at $13.99 rather than $14.00 and people will buy.

A: there is a cognitive flag raised by ANY price, whereas free doesn’t raise that flag. Not about the money, it’s about the cognitive overload–”do I really want this?” A church offered free bus service to the elderly. Most of the tickets weren’t used, too many buses, not enough traveller. Then they charge a nickle. Suddenly people started using the tickets. If they value stuff they pay for, do they not value things they don’t pay for? Great deal of waste.

Apply to the digital world: waste is a good thing. No cost to wasting a Google search. No one thinks less of Google for being free. By age 5, children internalize economy. Now, in a digital economy, the model has changed. The point: does the premium product save you time or money in the long run? That’s where it gets it’s value.

K: is there any negative connotation to free?

A: can’t think of one. No excuse for sucking. If you do, we will take our attention and adulation elsewhere. Does anyone think less of Twitter being free? Utility is the best indicator. Which one suits my needs better? As you move on line, free wants to be the natural price. If you don’t take advantage, someone else will.

K: do you think people are more motivated by the fear of losing something they already have, or something they can’t get?

A: motivated by emotions: fear, regret, etc. Things you don’t have but want loom large. Traditional marketing is all about that. What they don’t do is followup–now that you have it, are you happy with it? Free says “this is what it is, try it out, if you like it, you can pay.” Lowers the risk. Then you don’t have to deal with lost, or “can’t have it.”