Author: Chris Anderson
_Chris Anderson_
Reading time: 22 minutes
Synopsis
Free (2009) is about how businesses can succeed in the new digital markets of the 21st century. All the old rules of business have changed completely. These blinks explain these big changes. They also give advice to business owners on how to adapt. One way is to use the internet’s ‘free culture’ to their advantage.
What you will learn: How to build a business on the internet’s free culture.
You probably have a drawer at home full of promotional gifts. Pens with company logos are often there. They are often ugly, but we keep them just in case we need them. Other ‘free’ items are often useless. For example, a razor with only one blade often makes you buy expensive replacement blades.
Chris Anderson says in his book Free that businesses in digital markets should offer better free gifts. These gifts can have a much bigger effect: Free products are not just for marketing; they can also create new, profitable business models. In these blinks, you will learn how to make offers that people will value, even if they are free. You will also learn how companies can turn free users into paying customers.
In these blinks, you will also find out,
- why technology makes digital products cheaper,
- what small companies can learn from Google’s product development, and
- how Monty Python beat pirates using their own methods.
Blink 1 – The 20th Century’s Belief: Creating scarcity keeps demand high.
In the 1930s, many record companies had a problem. Radio came into homes. People could listen to music for free. They stopped paying for live shows and records. What did the record companies do? They tried to stop radio stations from playing their music.
This shows how people felt about free products in the 20th century. Companies feared that customers would not pay for things they could get for free.
Record companies tried to stop people from listening to free music on the radio. They hoped this would keep people buying records and concert tickets. Creating a lack of products seemed like a good business plan. Companies controlled what they sold to keep people wanting it.
This was not only true for music companies. Many other industries did the same. Copyright was a key tool to create scarcity. Copyright stops other companies from copying a product. This also stops competition. When Microsoft launched its Office software, copyright gave them a monopoly. They could charge a high price of $300 per disk. Customers who wanted to use Office had to pay this price.
This way of thinking shaped the 20th-century economy. They created scarcity on purpose. They made sure customer demand was never fully met. They also stopped competition as much as possible.
Blink 2 – Classic free gifts come with hidden costs.
In the 19th century, American restaurant owners found it hard to attract customers when it was not busy. They wanted people who would buy drinks. So they started offering free lunches. This was to attract customers who would also buy drinks. This led to the saying: “There is no such thing as a free lunch.” Even free food was paid for by the drinks people bought.
Giving things away for free has always been a popular marketing method. Think about the free items we have received from companies, like recipe books or razors. There was always a hidden reason behind them. These ‘gifts’ wanted us to buy something, or even forced us to: A free razor is useless until you buy the right blades. The free Jell-O recipe book is also useless if you don’t buy Jell-O.
The cost of the free item is simply added to another product. You have to buy this other product. So, the free item is a trick to make you buy something else. Companies might lose money at first by giving things away. But this makes customers spend money on another product. This money then pays for the free item.
This often happens with subscriptions. For example, a phone company might offer a free phone. Then they charge monthly fees for using it.
Sometimes, customers do not pay for the free item. Someone else pays for it. This is how most mass media works. Think of private TV and radio stations, or some newspapers and magazines. Advertisers pay the station or publisher. In return, we, as listeners or readers, see or hear their ads. This means one thing pays for another.
Someone always pays for ‘free’ products. It could be us, like when we buy another Jell-O product. Or when we pay monthly fees to use a phone. Or it could be a third party, like advertisers who pay for our attention on TV or radio.
Blink 3 – What costs nothing, is worth nothing: the problem with how free products are seen.
Everyone knows how attractive free products are. Think about a free cereal bar: You probably won’t think much about taking it. You’ll just grab it. The ‘free’ label is very appealing. It removes financial risk from a product. Even if it’s not good, we lose nothing.
Companies use this idea in their marketing. When they give something away, they know many more customers will be interested.
But this strategy has a downside: Customers value the free product less. Customers don’t spend money or time deciding on it. So they see it as less valuable and less desirable. This means a free cereal bar might be taken, but often only half eaten.
People don’t value free things because they don’t have to think hard about them. When a customer has to pay for something, they make a decision. They think about the risks and make a choice. This effort makes people value what they buy.
This also explains why ads in paid magazines are five times more expensive than in free ones. If readers pay for content, they value it more. They are also more likely to notice ads in it. On the other hand, people buy fewer paid magazines. They often choose the free option instead.
In the 20th century, this trade-off was a key part of marketing: Free products attracted many people, but they valued them less. Charging money made products seem more valuable. But it reached far fewer people.
Blink 4 – Technology makes digital products cheaper and cheaper.
All physical products cost money to make. This is because they use materials like wood or plastic, which cost money.
Digital products are very different. They are made of bits, which are information. These bits form digital things like software and music files. So, the cost to make one more copy (called ‘marginal cost’) becomes almost zero as you make more copies.
Why? First, technology for storing, sending, and using bits has improved greatly. This makes it much cheaper. In the past, a device like an iPod, which can hold thousands of songs, would have been too expensive even for a millionaire. Today, almost anyone can afford one. Our internet connections are also faster and cheaper now.
Second, digital products can be copied endlessly without extra cost. This is because they are made of bits. Whether we make one, a hundred, or a million copies, the cost is the same.
Finally, the internet offers a free and competitive market for selling digital products. It costs nothing to share them online. There are no big distributors who control the market. For example, Apple’s App Store has allowed thousands of programmers to sell their products to anyone with an internet connection.
So, the digital economy has cheaper technology, almost no extra cost per copy, and a free, competitive market. These three things will slowly but surely push the price of digital products to zero.
Blink 5 – The internet economy is based on attention – it’s a rare thing there.
Writing articles is no longer just for journalists or professional writers. Bloggers, their readers, and Wikipedia users know this. The internet gives millions of amateur creators a platform. They can create and share content. It connects people who have the same interests.
If a movie lover can’t find similar people in their town, they can post on the Internet Movie Database. They can share their movie knowledge with millions of other experts. The main thing is: nobody pays for it. The writer’s only reward is the good feeling they get. In this gift economy, content is made and shared without making money.
Usually, how much people are willing to pay shows how valuable something is. But in a gift economy, this is not true. In terms of money, one blog post is no different from another. They are all free.
But in any economy, things become more valuable if there are not enough of them. In the online gift economy, so much information and content is free and easy to find. Because of this, our attention has become rare. A blog post that no one reads is worth nothing. So, in the gift economy, value is measured by how much attention something gets. This can be seen with Facebook likes, Twitter followers, retweets, and other social media ratings.
Clearly: Money does not control the digital market. It actually allows us to create and get things for free.
Blink 6 – Product piracy is hard to fight, but it can be used for marketing.
Xiang Xiang is a 21-year-old singer. She is a star in her home country, China. Her albums have reached over five million people. The special thing about her success: Her fans did not pay for any album. They were all pirated copies.
Product piracy means illegally copying and sharing goods. It is an unplanned part of the free culture from the 21st-century market. Copying digital products costs very little or no money and effort. So, customers today can easily get pirated music, videos, and software.
This is especially true in China. There, 95 percent of all music shared is pirated. Chinese musicians have accepted this. Pirated copies are a free marketing tool. They help to grow their fan base.
Xiang Xiang became popular in an unusual way, but she benefited from it. The five million people who got pirated copies of her albums are now big fans. So, she can earn a lot of money from ads, shows, and tours.
Western artists still fight piracy. But some have found a way to deal with it. They offer their own products for free too. Monty Python is a great example. The British comedy group was tired of bad pirated copies of their films ending up on YouTube. So, they decided to release their own work for free. This was not only a loss for the pirates. It also brought Monty Python great benefits. Three months later, their DVDs were at the top of the bestseller lists. The free, high-quality online videos made people want the original films much more.
So, fighting piracy is an unavoidable part of making digital products. But smart business owners and artists find ways to stop pirates or even benefit from what they do.
Blink 7 – Users of free offers give valuable information for making products better.
Most people know Google as an innovative company. But few know that most of its employees are paid for something unusual: to develop new products that customers get for free. The goal is not to earn money by selling products. It is to build a large user base by offering main products for free.
This approach has given the company many users. They use services like Google Maps, Google Mail, and Google Docs. Users can use these services for free. They give Google information about their lifestyle, interests, and online habits. Google uses this to develop new products. These products are based on deep studies of what users want. So, they are usually very popular.
But how does Google make its profits? The company uses its large customer base to attract advertisers. This way, Google has earned twenty billion dollars, even though it offers most of its products for free.
Building a customer base first, then making better products, and later earning money, is a model other digital companies can follow. They don’t have to be as big as Google, but they should use the same idea. Companies need to offer their products for free to get user data. At the same time, they test new ideas and see how users react. This helps them find out what customers are willing to pay for.
Many small digital companies have built their business on the ‘free’ model. They have learned that being popular is as important as making money. The customers gained through free products can help decide prices.
Blink 8 – Paid extras for free products create new business models.
What do Google Earth, Spotify, and Flickr have in common? They all offer two versions of their products. One is free, and the other, with extra features, costs money. So, you can pay for unlimited storage for your photos on Flickr. You can enjoy ad-free music on Spotify. Or you can get very high-quality 3D views of Earth on Google Earth.
These providers know they must offer their basic product for free to build a customer base. This means they must offer extra services along with the free product to charge money for them.
Another way to benefit from two versions is to make the paid version fit customer needs. For example, the author released the book these blinks are about for free as a digital download. He did this to get attention and reach more people. But customers have to pay him for personal advice.
Arduino, an open-source hardware platform, goes even further. Besides the paid final version of its hardware, it publishes instructions. Users can use these to build the final product themselves. Then they can share their experiences and tips in the provider’s forum. Some try to build it themselves, following the plans. But Arduino knew from the start that most people would gladly pay to save time. They would pay to get the finished product.
Combining a free and a paid version helps companies build a large customer base. This eventually brings them profit. For customers, the free version is a great way to get to know the product. Then, with more knowledge, they can choose the better paid version.
Summary
The main message of these blinks is:
In the 20th century, promotional gifts were just a marketing trick. They always had hidden costs. Only the digital revolution made truly free products possible. To succeed in the new markets, all companies must deal with the internet’s gift economy. The best strategy is to offer a standard product for free. Then, earn money with a paid premium version.
What you can do:
Give away your product to sell yourself better!
Many business owners fear ruin if they give something away for free. But the opposite is true: If you offer your standard product for free, you can create a lot of interest in yourself and your offer. Imagine you are a marketing expert and you write a great book! Of course, you could try to sell it online, and you would probably earn some money. But if you offer it for free to read, it will reach many more people. Maybe readers will like your ideas so much that they will hire you as a consultant for their own marketing strategy. Then you will earn more than you would have from book sales.
Did this help you?
We work hard to present the main ideas of books so you can learn a lot. At least six people edit and check each blink. We welcome your feedback at [email protected].
For further reading: The Subscription Age by Tien Tzuo and Gabe Weisert
Now you know more about how to meet the challenges of the internet with the right business models. The subscription model is one of these. In the blinks for Subscription Age (2019), you will learn why this model is the future for modern companies. You will also learn how to use it.
Source: https://www.blinkist.com/https://www.blinkist.com/de/books/free-kostenlos-de