Free To Be Ignored
Print
Comment
Email
RSS
Twitter
Free To Be Ignored
Why doesn’t Wired magazine practice what its editor preaches?
Posted Thursday, May 21, 2009 - 12:25pm
In the late 1960s, two separate groups—the Diggers in San Francisco and the Yippies in New York—began operating "free stores." These were places where people could come to get things they needed—food, medicine, clothes, and, in some cases, cash—for free. These were designed simultaneously as parodies of, and alternatives to, the usual American consumer materialism. The stores were not around for very long because (at least in New York) people would come in and simply take everything they could put their hands on. Such predictable incursions were contrary to the spirit of the enterprise, but people who set themselves against market principles are ill-positioned to enforce "limit one per customer."
Now, four decades later, comes Chris Anderson, editor of Wired and author of The Long Tail, whose new book proclaims that giving things away for free is the "radical" new business model of the future. According to Anderson, there are a variety of ways businesses can and should do this, and once they do, they can charge for other goods and services to make their money. Readers can decide whether they think the model is radical; certainly, Anderson does not claim that it is new, although he does propose applying it in a number of ways that seem unprecedented. Which is odd, since if he followed his own advice he'd be out of a job.
The problem is that—outside of a handful of examples, almost all of which are Internet- or digital-based—giving things away for free does not work, or does not work in any significant way. Here's why: Just about any activity that merits the title "business" has a cost of producing its goods or services. Take, as a particularly rapacious example, the oil-and-gas business. It costs a huge amount of money to extract petroleum from the ground (in many places, more now than it used to), as well as refining the stuff, storing it, shipping it, and so on. Those costs may or may not justify the price of a barrel of oil or a gallon of gas, but neither do they justify a price of zero.
It's exceedingly difficult to envision a way in which the oil industry—which, by the way, is fairly large—could recoup its expenses without charging the people who use its product. Presumably, if oil companies owned all the car companies, they could give you a car for free as long as they charged you a lot to fill it up: Although wildly impractical and undesirable in this instance, it is a version of Gillette's old razor-for-free, charge-you-for-the-blades model. Or gas stations could give you a free plate when you fill up your tank. Neither of those is original or terribly interesting or necessarily very effective. Interestingly, as Anderson notes, Gillette mostly did charge for razors; these days it sells especially expensive razors. Come to think of it, gas stations don't give away plates anymore, either.
Apply this lens to almost any nondigital business—pharmaceuticals, manufacturing, law, banking—and the same problem emerges. Businesses need to recover labor and capital costs, and giving things away for free doesn't meet that need very well. Anderson makes much of a supposed distinction between an "atoms economy" (you know, stuff) and a "bits economy," but it really doesn't help, because "bits" don't run the economy. Even as Wall Street felt the need to ask Congress for hundreds of billions of dollars in bailouts, you didn't see investment banks offering their services for free, and I don't think that free toasters were going to save Wachovia's business.
Actually, even in the digital world, there are plenty of cases in which "free" hasn't worked. Back in the dot-com boom, the Internet services provider NetZero promised "free Internet forever." The company is still around, sort of, in the form of United Online (UNTD), except that it doesn't really provide free Internet access anymore, and it doesn't make money. (Note: UNTD lost money in 2008; as a reader points out below, it had a profitable first quarter in 2009.) Ditto Vonage (VG), a "freemium" voice-over-Internet-protocol phone company that also loses money.
Of course, it's not Anderson's fault if most established businesses ignore his diagnosis and prescription. But what about the one business over which Anderson presumably has the most influence—Wired magazine? Why should I have to pay $4.95 for a copy of Wired since, if Anderson's thesis is correct, the magazine would be better off giving itself to me for free? Indeed, if I subscribe for free, the magazine should be, at least according to Anderson, better off still!
Cynics might argue—and Anderson himself suggests—that at $10 a year for 12 issues, a Wired subscription is already a loss-leader; the problem with that is that Wired owner Condé Nast is taking the loss without leading its readers to anything that generates sales. No, the reason that Wired still charges you lies in the somewhat magical economics of advertising. If Anderson's thesis were correct, Condé Nast could presumably build the circulation of a free Wired magazine so high—it's very good; I'm sure millions would read it—that they could then charge advertisers even more than they currently do and not only make up for lost circulation revenue but exceed it. This remains the hope of many Web publications (including this one) that give away all their content for free.
But here's the rub: Condé Nast doesn't want those readers. It charges a very high price to advertisers—in Wired's case, about $90,000 a page, according to Publishers Information Bureau, though in reality much less. The only possible justification for such enormous sums is the notion that advertisers will reach a select—Condé Nast really likes the word prestigious—group of readers. Expand that reader pool too much, or in the wrong direction, and the prestige justification evaporates. It's a hoary, almost certainly apocryphal story, but the rationale that Bloomingdale's CEO Marvin Traub supposedly gave to Rupert Murdoch for not advertising in the New York Post still makes the point: "Your readers are our shoplifters."
Which brings us back to the free-store dilemma, but in reverse. The reason that Anderson can't run Wired as a store that gives everything away is not on the demand side (i.e., shoplifters); it's on the supply side. If advertisers won't pay and the magazine loses money on its subscriptions, where will the money come from to create the goods that Wired gives away? Which just raises the ultimate question: If the free model would ruin Anderson's own business, why does he think it's so great for most other businesses?
Wired Magazine
Comments
Jim, Did you actually read Anderson's Book ?
The Economics of Free is a conceptual book that contemplates business model innovations related to the drop in storage, bandwidth and other costs associated with the digital age. Referencing the oil business as evidence that Anderson was "wrong" doesn't address the essence of his book. Wired's business model is a good example. As with all organizations, Wired is wrestling through rapidly emerging change (See Collin's recent interview http://www.bryankorourke.com/journal/2009/4/28/jim-collins-were-all-head...). Therefore, is it really fair to rely on Wired's model of today as evidence of Anderson's concepts being flawed ? Most business models and industries are dealing with continual evolution, the ultimate outcome of which is unknown. In fact most, if not all, of Wired's content is online for free already. Additionally, many oil businesses are presently and actively contemplating delivery of value added services to differentiate their commodity offerings using digital technologies - all for free. What the market will ultimate accept and how offerings are priced remains to be seen because Anderson's concepts have yet to make their full impact. Perhaps in 5 years time we might all be in a better position to judge their validity Jim.
Bryan, thanks for the
Bryan, thanks for the comment. I guess we take away very different things from the book. While it's true that the book presents itself as an exploration of business models of the future, the reason that I open my story with the '60s is to demonstrate that most of these ideas have been around for a very long time. Their adoption has been so limited because they do not, for the most part, help businesses achieve their goals. Indeed, one of the conceptual flaws of the book is to present "free" as a business model. It's not. In almost every example Anderson offers, "free" is a tactic that is a subset of another business model--usually advertising- or subscription-based.
So I just disagree with his (and I guess your) premise that the world is moving toward Anderson's "concepts [that] have yet to make their full impact." My reading of the book is that most businesses that experiment with free models find it hurts their business, rather than helps it. And that includes (please see my comment below) Wired putting its content online. We could test that theory if Wired would tell us the ad revenues from its site. But they don't. That information apparently doesn't want to be free.
What's free?
I'm not sure there's any "free" content anywhere...someone is paying for it either through advertising, the inconvenience of commercial interruptions or their personal time and effort...It seems to me that the entitled generation expects everything for free. Let's try this thought experiment: how many who expect free content and music, etc. would work 35 hrs. for free? Indie music is signing many more artists these days but those artists are not signing on to simply give their music away. This whole "free content" debate is disheartening to anyone who cares about the quality of content. Institutions that are critical to our country, such as newspapers and magazines, are imploding because they cannot figure out the business model needed to survive. I'll gladly pay for quality content, just as I gladly pay for the music I truly like...
totally misinterpreted!!
The content of wired magazine is available on their website for FREE. If you want the convenience of having a hard copy you need to pay. Author is totally confused difference between content and delivery model.
wrong & dishonest
I work for a news content website & I will never pay for online news or editorial content. That's simply the way it is. Any website that switches to a pay-for-content model can kiss my ass goodbye. Slate switches to pay-for-content? Goodbye forever. As soon as such a switch is made it's no longer a matter of wanting to visit the site & read the content, it's a matter of whether I need this content. & I don't need Slate. Something tells me Slate knows this, & that's why it's content remains free. This is from an insider who provides content & an outsider who's been trained by the market to expect everything for free. Anyone trying to convince you that pay-for content is the way to go is a fool. & anyone who disingenuously uses non-website models based on old-world business models to argue for pay-for-content online business models is the biggest fool of all.
Free works for bands, not labels
The model for giving away music works for a band that wants to make money by performing live shows, the way a musician should. The people it doesn't work for are the non-musician parasites like labels, marketers, and lawyers. Most bands make more money touring than they do selling studio albums. Only if you've got a Top-100 song do you make more money with the album. The reason the Pirate model doesn't work for people like the RIAA is that they don't make money by playing music to live audiences. You can't pirate the experience of a live show, so musicians will always have a great incentive to give away their music to get people into the live concerts. Labels don't make a dime on a tour, though, so they want you to pay for every experience of listening to the music, because they see the commodity as being the recording of the music, not the music itself and certainly not the experience of seeing a band you love in concert. The "free music" model works extremely well for decent but unknown bands that are ready to break out of their local bar stage and start making it as a touring band. Free music always works to the performers advantage and the music merchant's disadvantage.
"Free" as a model
This worked as long as there was a robust advertising environment to support it. Now many sites are reduced to taking pennies for AdSense or from ad networks. It's simply not sustainable. 2010 will be the Year of Paid Content. There are many new models springing up. Perhaps enabling the user to decide not Whether or What to pay, but HOW, will ease the transition. Allan Hoving PayCheckr.com
One small error
Great Article. However, United Online actually makes money these days, with much of their cash coming from NetZero. Amazingly enough, their dial-up business actually appears to be growing, according to recent quarterly reports. Go figure.
Physical vs Digital
I have to admit, I have been a fan of free my whole life. For consumers, radio is free, network television is free, samples are free, buy one get one free is a staple of modern business. I am inundated with free every day of my life. Granted, most of these free offers incentivise another purchase or are supported by ad revenues. However, I am trying to understand the issue surrounding the free model with respect to digital media. In an age where quality music can be produced in a sound insulated suburban home with a good engineer and a few thousand dollars, why must consumers be soaked for millions just for the privilege of listening? I would think that listening to the music is a means to an end. That end being entering fandom for the band and partaking in other goods/services like concerts, merchandise etc... It seems like the eventual evolution of the industry as evidenced by scores of major musicians and virtually all indie bands. I take issue with likening this model to Netzero, whose service was terribly unreliable and inferior; simply not worth the $0 they charged. This has no parallel to giving infinite goods (digital music) away for free and incentivising other purchases. Internet access is NOT infinite... not even close and not inexpensive to produce. The 'free' was ad-supported which was poorly implemented and contributed to the hate most of us felt for the service back in the 90's. This was a poorly run technical company who failed not because they offered a free service, but because they were horrible at what they tried to do. Take it from a ex-tech support infantryman. Vonage, another poor example, has had multifactorial problems. They have been litigated against by the big boys, cramping their expansion and putting undue pressure on the company. Now that telecoms are in the VoIP biz, Vonage is at a distinct disadvantage. You cannot draw causation because of their 'freemium' model (if you can actually call it that), as they had innumerable technical issues surrounding their pioneering effort in VoIP. They were one of the very first companies to offer this service and had numerous obstacles that cost them huge monetarily. Plus, they most certainly are not giving away an infinite service for free. In fact, they charge quite a bit for a service that you can get through other VoIP channels for much cheaper, or free. We are also back to the finite nature of internet access. Maintenance of hardware, support staff, etc... is simply not analogous to digital media. Once a song, a movie, a magazine, a book is created. It exists in perpetuity with no maintenance required. Very different. I won't go into the big oil, big pharma, law, examples. They are antiquated representations of giving away finite goods to try to sell a less-finite premium good or to stimulate participation in a service. They simply have no correlation to distributing 50,000 copies of a song for free. Maybe that one song cost $1000 or even $5000 to produce. But that song will last forever and those 50,000 could multiply many fold, greatly increasing the chance of making money from finite goods. If it doesn't... well you need to write a better song or find another venue to distribute. This is very unlike a toaster, plate or razor. Free is working like gangbusters for musicians who are free of the shackles of the big industry. It would do so within the industry if they weren't so egocentric and money hungry. Bands are being signed by indie labels at a faster rate now than ever. More music is being produced, and not force fed to consumers by the industry. It is where human creativity must go. Eventually this sort of distribution will be par for movies, television and literature. It is rapidly becoming so. The artists need to adapt to the needs of the consumer and treat them as a true fan of their work, not treat them as if they are bringing down the creative world around our ears. I'm a scientist in Texas and always attend SXSW. There is no better place to see how the music, movie, and software industry is evolving. Amazing full length moves are made on a shoestring budget, far surpassing almost all of the the eyecandy junk we see in the major theaters. Music is as complex and spans multiple genres... it's just free now... and all the better for it. I suggest you find an example where a musician or director or author has failed or lost popularity because their infinite product was given away for free. Artists fail because they lose their fans, not because they can't afford to eat. This is not to say they there are not flaws in the free model. It just requires the industries that are hugely affected by the digital revolution to reinvent themselves to a degree. Artists should get paid for their performance, not simply for a performance that was 15 years ago. I have long advocated that the money spent on passive entertainment (CD music, movies, etc) be spent on active entertainment such as concerts and theater. Watch a movie for free, but pay for a signed copy or a poster, or pay for the movie theater experience. Movies are making more money now then ever, even though you can get them online for free very easily. I also suggest you find a parallel that more closely resembles the true nature of the digital age and not rely on very dated and irrelevant examples to prove a seemingly nonexistent point... that a business model that incorporates free infinite goods is doomed to fail.
Wired.com
Hey, Erik, thanks for the response. It's true that wired.com makes Wired articles available for free. Unfortunately, no good public numbers exist about the company's Web business, but I strongly suspect that wired.com has hurt Wired magazine's business more than it has helped it, at least up until now. That is, the $90,000 per page that Wired magazine ostensibly charges its advertisers represents a cost-per-thousand readers that is way, way higher than I suspect wired.com can get for its advertisers. And, as you note, Wired magazine's ad pages are dramatically down this year, more than just about any magazine in its category or any magazine still published by Conde Nast. All of this, by the way, is why Conde Nast head Si Newhouse did not want to buy Wired.com when he purchased the magazine in 1998.
And, yes, advertisers strongly prefer paid subscribers, a point Anderson makes in his book. To me, that's just one more piece of evidence that the free strategy is flawed.