Chris Anderson explains why ‘free’ may be the most compelling price of all in today’s market.
The Monty Python comedians were tired of getting ripped off. For three years, YouTubers had been giggling over pirated clips of their work. The Pythons’ response? They set up a YouTube channel to offer higher-quality clips free of charge. In return, they asked viewers to buy their DVDs. Daft move? Actually, sales of their movies jumped 23,000 percent.
So begins Chris Anderson’s suave but skin-deep study, Free: The Future of a Radical Price. For anyone trying to make a living in the digital economy, that example is good news. Finally: a plan for profit when the price is zero. “Sooner or later every company is going to have to figure out how to use Free or compete with Free....” Anderson writes. But don’t give away all that you have just yet. Free is a sales tool, not a source of cash. You still have to sell something.
Actually, free is an old concept in sales. Anderson tags four different ways in which it is used:
•Direct cross-subsidies: Free cellphone with a two-year contract.
•Three-party market: Most radio and TV stations. You don’t pay for them. Ads do.
•Freemium: Free tax-prep software with invitation to buy a premium version.
•Nonmonetary markets: Wikipedia. Real people wrote all those articles, motivated by social capital, not cash.
Why is free a radical price? Chocolate brands give a compelling answer. Which would you pick: a 15-cent Lindt Truffle or a 1-cent Hershey Kiss? In a study, most bought the Lindt. Then each price was cut by a penny. Most wanted a free Kiss. “[T]here is a huge difference between cheap and free,” Anderson notes.