Chris Anderson’s FREE

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Chris Anderson’s FREE is a very interesting book on the subject of things that are available ‘Free’, and the implication of that for entrepreneurs – particularly digital entrepreneurs.  Free as a component of business models is not a new concept, but its use is becoming increasingly important.  In his view, if it’s digital, it will eventually be free.  It’s a subject I am spending a fair amount of time on as I think we are going to see an explosion of Free enabled models in the enterprise applications/services market – more on that later.

First a bit about Chris.  He is probably one of the best trend-spotting reporters of our time.  He is the Editor-in-Chief of Wired magazine, wrote The Long Tail (another great book) and is a highly sought after public speaker.   His strength is in identifying emerging (mainstream?) trends, why they happen, where they happen, and commenting accurately on what is going to happen as a result.  I appreciate his insights and expect to profit from them – even in a world of Free.

I will say that the book targets a broad range of readers so depending on your age and what business you are in, you will probably need a twitchy thumb for the next page button on your Kindle in a few sections.

The book has few big ideas:

Age Dependent Framework

Under 30: Your view on the subject of Free will vary based on your age.  If you are under 30, you were in high school (or even earlier education) when the internet went mainstream. You have spent most of your life living with free digital services on the Web so you understand the ‘gift/reputation economy’.  For you, the book is most useful in understanding the disdain with which those over 30 often see ‘Free’.  It will also help you get focused on finding a workable business model for free.  It offers a good sweep of what is working and what isn’t.  Lots of good case studies.

Over 30: This book helps provide a framework for how those over 30 tend to think about Free and why they are so reluctant to embrace it as a model.  Being over 30, many of the points resonate with me – our mindset is one of getting paid for what you create, digital assets or otherwise.  If you are in this age group, this book will help you see why business models that have worked before probably won’t in the future – Think record labels.  It discusses how to use the power of reach and low cost distribution to create mind share and ultimately workable business models.  Understanding this bias will help entrepreneurs tune into opportunities that others will miss.

More things will be free in this world going forward. The “more Free is coming” prediction is not just true for digital products, where the marginal cost of delivery is zero, but Chris argues that, to a lesser extent, it is also true for material products. The thought process is that the economy is increasingly based on intellectual property product content versus raw atoms, and as we increase the intellectual content of products, the marginal cost goes down and therefore the ability for them to embrace some form of Free goes up.

Scarcity/Abundance Shifts/Mindsets Lag –  When costs shift and what was scarce becomes abundant, people tend to be very slow in changing how they use resources.  Their mindsets are relatively fixed and slow to adapt.   This is great for entrepreneurs since the lag creates the opportunity for new business models.   My favorite example from the book are IT managers who ask you to delete emails to save storage space – this was an endless source of frustration with the IT team in one of my businesses.  Think about it:  this IT manager had everyone waste valuable time at an average cost of $100 per hour to save about 10 cents of storage space.  He was working hard to help us do the right thing and it did make sense when storage was expensive – his pre-existing mindset – but made no sense when we could buy virtually unlimited mail storage for $50 per person.  Now that same storage costs pennies.

The reputation/gift economy is growing – this is not new and picks up on the theme in other books like Crowdsoucing by Jeffery Howe (coming soon) but he does a good job of reviewing it,  It amazes me how many people are contributing valuable content largely for reputation purposes.    Figuring out how to participate in this non monetary economy in a way that is consistent with either enjoying life or putting food on the table (or both) will be a key skill to hone in the years ahead.

Applying Free
One of the reasons I like the lessons in this book is that I have used a number of them successfully in the past.  One of my businesses generated over $10m in revenues from sales to Google: we developed an open source ETL product that they used internally. We were never paid for or profited from the terabytes of data they moved with our product, but did well with services and other revenue streams as a result.  This blog series is another free contribution from which I hope many people benefit

A great emerging opportunity that fits the scarcity shift mindset is data enabled solutions.  In the past, data was scarce, expensive to buy (if available) and expensive to manipulate.  Today it is readily available, relatively inexpensive, and easy to manipulate (abundance) (see Supercrunchers).  Yet relatively few businesses have mined or capitalized on it.  Now combine the scarcity shift with Free and you get some interesting business model shits.  Provide something your prospects value for free to win business. Use data to find where this is now cost effective but wasn’t previously.  Presto: you now have capitalized on a newly found abundance and used Free as your friend.  Those that don’t will wonder why their tried and true sales model isn’t turning up the great prospects it used to.

Free can be scary and daunting but being creative in finding workable business models means you can profit from it and prevent yourself from being overrun.  I have always liked the Darwinistic analogy of capitalism and Darwin’s quote makes this point the best:  “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.”  Same is true for businesses and Free is the escalating change in our environment.

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Author: Chris Anderson

Who should read it: CEOs, Company Founders, Entrepreneurs

Javier Rojas
Javier Rojas is a managing director at Kennet Partners, a private equity firm that invests in growth companies in Europe and North America. He has been reviewing the best business books for awhile, posting summaries of the authors’ big ideas on his blog and also monthly on Entrepreneur Corner at VentureBeat.
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