Wired editor-in chief-Chris Anderson kicked off his magazine’s Disruptive By Design conference today in New York City with a speech about how the Internet makes everything free, which is the topic of his latest book, Free: The Future of A Radical Price He articulated something that is now increasingly becoming obvious: As products go digital, their marginal cost goes to zero.
“This is the law of gravity online,” says Anderson. “Everything that becomes digital will become free. There will be a free version, either you will be competing with free or giving it away for free and selling something else. If it is not zero today, it will be zero tomorrow.”
When he addressed how this is affecting media and whether or not traditional media organizations should charge for their content online, he draws a number of conclusions from what the Wall Street Journal is doing. The tension is not so much free versus paid, but free versus freemium. In one slide, Anderson comes up with the following rules for media companies trying to figure out how to make money online:
- The best model is a mix of free and paid
- You can’t charge for an exclusive that will be repeated elsewhere,
- Don’t charge for the most popular content on your site,
- Content behind a pay wall should appeal to niches, the narrower the niche the better
This is somewhat counterintuitive because it means media sites that want to charge for content should charge for their niche stuff instead of their most popular content. But that is exactly the right way to look at it if you want to maximize your advertising revenues. Let the popular content be paid for by advertising, and the niche, exclusive content can be sold to fewer people at a higher price. Anderson, whose last book was the Long Tail, predicts in media: “The head of the curve will be free and the tail of the curve will be paid.”
I don’t understand all this internet stuff. Can the computers tell us when the world is going to end?
ROFL, pls post more….
Good article. At the same time, look at it from this perspective – You might see few longtails eventually moving towards and up the head. Then those will need to become free as well, as they would have moved out of the saving grace of “niche”. But then again, the longtail would keep getting created. Beautiful isnt it?
Fascinating post. For more on the topic, I’d recommend Yochai Benkler’s excellent book “The Wealth of Networks,” which deals with the economies of digital content.
http://cyber.la...works/Main_Page
This is happening with content as much as with software–the iPhone App Store being an excellent example.
Most times, as I’m searching for something, I land on pages where I either have to log in to view the content, or log in AND pay. But the trouble is, with at least 15 tabs open already, it’s just too much of a distraction to do that, even if I’m willing to pay.
If search engines start to distinguish between paid and free content right there in the results, paying for content would cease to be an unexpected annoyance. It’s time the media companies worked with Google and Microsoft on this issue.
Nice idea, also counterintuitive. Announcing that your page requires a log in or even payment makes it even less likely that the user will click that search result.
Counterintuitive but it may work as less casual searchers may invest. It might only work for high profile brands though.
if you use Google, ust do your part as a member of the internet community and click that little ‘x’ to the right of the search result’s link.
Why do you guys assume a user laways comes in through search? That’s how people arrive at the most popular content, which Anderson says should be free.
I do see your point of course and hope that OpenID-like systems will solve that problem.
EH – why would you want to remove all paid content from Google? Other people will want to see it. Hope I’m not mising out on something because you gave it thumbs down….
This is excellent advice… the best model is a mix of free and paid. Having the free model and the foundation and making the paid model on top of it. Build and make the crowd happy and then monetize niche services around it.
Erick, Great article! If you do more posts like this, I’d be interested to know just how the paid content will be paid for? Or best ways to pay for it? micropayments? Subscription? etc..
Chris has long been ahead of the curve. I wish I could be there for this speech! I can’t wait to see it online; for free!
The trick will be to find an advertising model that will work for the advertiser and not turn off the consumer since consumers are quick to tune out interruptive messages. It’s our fault as marketers because we’ve over saturated them.
Engagement is the answer, and engagement strategy will need to focus on very narrow niches as well. Today’s online advertising model is not the future, it’s just clinging to the past.
“The head of the curve will be free and the tail of the curve will be paid.”
The irony in this is that the same rules applied offline except that free was low-price and paid was expensive.
Digital computers are still built up from analog parts. This is a continuous, not a first-order phase transition.
v interesting. i wonder how many publishers can stay producing niche paid-for content about the same areas… yes, you can charge for niche content – but only when there arent comparable services for free.
“…with a speech about how the Internet makes everything free…”
I can’t decide whether I want to d/l a chicken burrito or some pizza for lunch. Hmmm…Decisions,Decisions…
I agree, let consumers have free access to the main content, but charge for special reports, archives, etc.
“Content behind a pay wall should appeal to niches, the narrower the niche the better”
What about profit margins? They’ll be shrunk to nothing if you follow his advice!
If your site has 1M visitors and 1000 of them want something that’s a narrow niche (1000 is a reasonable estimate since he says it should be ‘narrower the better’) and then you charge these 1000 a $100 fee, you end up with 100K as your revenue. That’s NOTHING for these sites!
Thanks for speaking up. I love when I hear these guys talk about free. Nothing is free – someone always pays! They’d give away cars if they could charge you for something else (gas?).
You’re not thinking big enough. There have long been professional, niche newsletters around which charge much more than $100 per year – one I subscribe to has a top rate of $895 per year, has many more than 1000 subscribers, and is essentially the work of two people.
You could have more than one niche? That’s nothing for these sites.
What we’re seeing is a flattening of the media industry. Downward price pressures are forcing companies to give up their content for free and downsize their staffs.
It’s happened to the record companies and the newspapers, and we’re now seeing the downward pressure on television, which is looking for cheaper and cheaper ways to produce professional content, while producing few new scripted shows. (NBC is becoming the talk-show channel, while Fox has become the talent show channel, and ABC is cheesy reality show channel.)
Is there anything wrong with this? Only in the huge disruption to the laid-off media workers, who can’t find good paying jobs anywhere. (How much does blogging pay?) Only in the quality of journalism, as smaller staffs can’t provide the depth and breadth of a major news organization, and as they continuously pander to what’s “popular” in order to gain traffic. Only in the negative ripple effect throughout the economy, as smaller media organizations generate less revenue and consume fewer products and services than their predecessors.
On the potentially positive side, advertisers have saved money and can channel their profits back to investors, reduce their prices to consumers, or expand their advertising to more media outlets. All that, however, will probably have to wait until the economy recovers.
“Downward Price Pressures”?
I know the record companies are in trouble because they they only wanted sales proven formulas for bands/artists(They still do). Fashion & Status started driving that industry & none of the major labels had the foresight to grab the internet reigns. The consumer got sick of the same ‘ol sh!t being shoved down their throats on every CD they purchased and decided to only buy singles(Mp3s). OR to just d/l that crap for free.
The newspapers just seem to be blind & dumb to any kind of progressive or pioneering approach to adapting their industry to the worldwide stage. Especially with such a huge green movement here in the US as well as other countries, they continued to use paper(Uh,Duh). Plus, with consumers wanting “real-time” news & a lot less filler, people aren’t going to spend 1-2 dollars per day on an inferior source.
Television networks seems to be the only industry “catching on”. I mean they don’t call it Broadcasting for nothing. They realize that if they can pull people in to watch the stuff they already pay for for free at inferior video quality online, then when it’s possible to stream video at real HD then they will start charging.
I think the mentality is why punish people who like change…
I’ve seen too many Webmasters and online business owners refuse to give anything away free, much less some content. I think that your best stuff should be free. There’s not much online content I’ll pay for unless it provides a service as well.
The four points seem obvious to many that have been in Internet business for long, but the mainstream business world seems to just be figuring this out.
Man does anyone not sound like Ponzi these days?
Repeat after me:
“Anything that can be reproduced infinitely at no additional cost per copy HAS NO INHERENT VALUE, other than the initial cost of production.”
All of these media outlets would be better off selling distribution rights to their content as a means of revenue as opposed to actually charging for the content.
Not everything that is produced is worthy of a fee, regardless of its production costs. Maybe it is time that content providers stopped assuming their media has value simply because it has been created.
If you’re referring to articles/news/etc, yes, that’s true. Software on the otherhand still has inherent value beyond the initial first copy as a direct result of the benefits it provides the user – whether it’s eCommerce software, an accounting package or even a game on the iPhone.
Revenue from “traditional” media may shrink, but I doubt a device such as the kindle will mark the end of newspapers and magazines – you have to think about WHY people buy them. They are cheap, easy and most importantly FAST. Remember, it’s still quicker to pick up a magazine off a shelf than to find and buy an eBook on the kindle, and even when the kindle is faster you’ll still have a boat load of people who just “don’t get it”.
Just my 2 cents…
I agree, software, provides a continuing service, with all of the support requirements that go along with that particular type of media, thus it retains its value, just like a car or a stereo.
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BE CAREFUL AS YOU APPROACH FREEMIUM
With all “due” respect to Chris Anderson, I encourage you to carefully confirm that your product/service/solution is a good fit for the Freemium approach (do not assume).
With the low marginal costs, barrier to entry is low and thus potential for competition is high, which leads to low switching costs and the potential for high churn. Which means you need to be realistic about forecasting the number (%) of free users you can convert to paid customers.
Make sure you, your team and your investors have a clear understanding of the below (at a minimum), before you opt for the Freemium or any other approach . . .
(1) what your prospects and customers value (wants and/or needs)
(2) what your prospects and customers are willing to pay for that value
(3) how your business will differentiate a competitive advantage over alternative sources of that value and sustain that advantage
(4) customer and market segments that may differ in how they value different offering combinations or bundles
(5) the most effective methods of communicating your value offerings and the importance of consistent messaging
(6) how your prices impact value perception and how value perception impacts willingness to pay certain prices
(7) the role pricing plays in revenue growth, cash flow requirements and profitability
There certainly is a fit for Freemium, just be aware that if you don’t value your solution enough to charge for it . . . what type of message are you delivering to prospects about how much they should value it?
The problem for media outlets is that until recently, we were all trying to be anti-niche in order to maximize number of users and ad-revenue. Turing around 180 degrees to produce niche information quickly is almost impossible. How do you change a general media outlet to one focusing on say car-testing without loosing your entire audience?
Also: If you only do car-testing and demand payment, you will have a very hard time creating a large enough audience. It’s a catch-22, especially when it needs to happen so fast. I think you need to do mix of general free news in order to keep your (large) audience and then live of paid services. Creating paid content is VERY tricky.
The NYTimes tried this model already, it was a flop.
Don’t you guys read the news?
FYI: I did not leave the above comment, which I copied and pasted below.
“The NYTimes tried this model already, it was a flop.
Don’t you guys read the news?”
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Someone has decided to use my contact info . . . not cool.
Chris Anderson, argues his case extremely well. But freemium is flawed in many ways, and the practice of giving away content and services only serves to reduce the value perceived by consumers. For more see: http://bit.ly/SIFbn
W3i is proof that the free model works. For over nine years W3i has promoted free downloads. Using W3i’s Application Network companies with user demand for their free app can promote other apps looking for distribution with an economic model strong enough to pay for distribution. We average 7.1 million installations a month.
With the free model you definitely need to think creatively but there are alternative methods of making some signficant revenue. Learn more: http://www.w3i....m/join-wdn.aspx
This is news? Are there any Techcrunch readers that don’t find this obvious already?
Totally agree with Chris!!!
This freemium approach seems to be the outcome of lousy ad placement technologies … otherwise, you’d expect to see this ‘niche’ content free as well … as you could deliver very highly targeted ads, and receive a ‘premium’ CPC/CPM for those who are consuming the ‘niche’ content.
There is no such thing as Free
“As products go digital, their marginal cost goes to zero.”
DING DING DING. Myth of Internet Business Number 1! You win a no-prize!
While marginal cost per user/reader *trends* towards zero, it can never actually reach it. And, if you’re shouldering the distribution costs yourself – a la YouTube – the more users you have, the more it costs you in real money.
This is what I call The Facebook Conundrum. Despite a massive, engaged user base, Facebook continues to make a loss – because the more users it has, and the more engaged the users, the faster its costs will increase. Network effects, and all that.
And, in an economy where online advertising revenue growth is slowing or even falling, that effect it going to lead some suckers who fall for the idea that “marginal costs fall to zero” to join the deadpool.
I agree. Hype does not equal revenue if you give away your product – regardless of what it is. The true cost of delivery should always include all factors – such as staff, hosting etc. There is never a true zero-cost.
IMHO – the problem with most online newspaper sites is their lack of user-to-user interactivity. If all newspaper sites added blog-like functionality to their articles (ie allow users to respond to the author, comment on the article etc) and focus on building communities I suspect the current dire landscape they are facing might change.
Just an idea!
Agree Chris same opinion .
Yawn.. Chris Anderson’s “solutions” are all basically taken from Kevin Kelly’s “better than free” article:
http://www.kk.o...er_than_fre.php
Can’t the wired crowd come up with something original?
To me they seem to be ignoring the fundamental difference between content, and providing access to content.
Digital content should be free, as it’s inherent value, IMO cannot be gauged in the same manner as physical products or ongoing services.
It is the access to content that needs to be monetized.
It’s difficult to say what is right when ideas like this have no public empirical evidence to back it up.
So, Chris is neither right nor wrong. So any idea could be a good one.
However, I think we are all stuck with an assumption about structures to help generate these ideas. For example, why does there have to be a paywall that is content-specific? As people have mentioned many sites like the NYT have played with this..
So for example,, why not make the paywall demand based?
For example, make content free for the first 1,000,000 users. After that, you have to pay for it.. Possibly with increasing scale, so 2x at 10,000,000 users and 4x at 100,000,000. The theory being that once demand is generated for content, you can start charging for it, because people will be more compelled to view it due to recommendations from friends, trusted influencers etc. The more demand, the more you can charge.
It’s classic supply and demand economics.
Increasing demand with an ineslatisc supply should increase the price..
What ever happened to “permission marketing,” Seth Godin’s brilliant concept that people who are interested in a topic will accept an attached commercial purpose or intent (or message?) if the content is compelling. We published a weekly sales tip for 14 years. Those receiving it knew that our reason for publishing was to remain in front of them so that when they were ready to buy sales training they would be familiar with us and our thinking. They were OK with that because the tips were practical, fresh and immediately useful. It was a fair trade.
Likewise, over-the-air TV operated essentially on that same model for its entire existence. As a viewer, you accepted the commercial messages because the programming was worth receiving and that was the deal. Again, a fair trade.
Just as HBO and other premium TV channels show, people will pay a fee not to have commercials. Would I pay a subscription fee to receive a version of the WSJ or NYT or Washington Post with no ads? You bet.
To those who argue that people can get the same content for free elsewhere on the web, yeah, sure you can, if you’re willing to wander around the web looking at random sources, which means valuing your time at zero. 7-11 proved the marginal value of convenience long ago.
These properties should experiment with two versions — the ad-supported “network TV” version such as they have now, and the “HBO” paid subscription version with no ads.
Speak with someone at about the midpoint of a movie on TBS or TNT, after they’ve suffered through the Chinese water torture of a half-dozen interminable commercial pods bracketed by inane chatter from the utterly superfluous hosts. Ask whether or not they would pay a fee at that moment to watch the rest of the movie without the commercials and insipid interstitial yakking. You’ll set a new record for response rate.
This is a very problematic idea. I just watched Chris Anderson’s conference presentation.
In his original Wired article, he really emphasized that everything will be free. But now his core argument is about freemium, not much of which is controversial. I think he softened and refined his ideas.
However, the some key problems remain the same, one of which is the his “marginal cost drives price to zero” argument.
My response is the same as before. See this.
http://www.slow...ze-youtube.html
Please read Mark Cuban’s post linked in it, about YouTube’s cost problem, as well as my other posts about free.