I’m going to join a conversation that I think has been moving way too quickly. Yes, it’s the whole Free conversation. So, a quick recap:
Chris Anderson wrote Free: The Future of a Radical Price (amazon link), which showed how prices for digital goods tend to fall to zero. Businesses must adapt their marketing and distribution plans to account for this, or they’ll find themselves beaten by their competitors who are offering a similar good, service, or content for free.
Malcolm Gladwell wrote a review of Chris’s book, arguing that some of the examples Chris gives aren’t actually viable businesses and providing counterexamples that seem to show that in some cases, information (digital goods) wants to be expensive. His main conclusion: “the only iron law here is the one too obvious to write a book about, which is that the digital age has so transformed the ways in which things are made and sold that there are no iron laws.”
Then Seth Godin joined in, showing how Malcolm is Wrong. Seth’s point: “[A business model based on Free] is happening … the world will change around it, because the world has no choice.”
Jonathan Fields’ post “Why I Hope The Free Brigade Got It Wrong” brought the conversation back from the right/wrong tones that it had reached and showed a more moderate position that questioned whether Seth and Chris actually agreed with each other. But what Jonathan is most worried about is that “solopreneurs, professionals, small business owners, and local, passion-driven content-creators, performers and solution providers” won’t be able to do what makes them come alive when Free becomes the major market force.
I’m picking up where Jonathan left things, and I’ll start by agreeing with him: I’m not really sure that Chris, Malcolm, and Seth are at odds at all. It seems to me that they’ve been talking past each other.
But my main point is that creative entrepreneurs running online businesses don’t have to worry about Free because we’re playing a different game. The game we’re playing actually benefits from Free, if we play our cards right.
A Tale of Two Capitalisms
In an earlier posts in this series, I advanced the idea that what we have right now are two different versions of capitalism playing in the same economy. I took a break from writing this series to figure out what I meant by that, and as it turns out, the distinction is critical when it comes to Free.
I’ll need to do some quick clarifications. In the first post in this series, I suggested that we could divorce industrialism from capitalism so that we end up with industrial capitalism and “post-industrial capitalism.” After I thought about it for a while and did some research, I determined that “post-industrial capitalism” was inadequate because the reality is that the form of capitalism I was shining light on has always been with us. The only thing “post-” about it is that the technological solutions that have led corporations to dominate our economy could be modified so that creative entrepreneurs could prosper.
So instead of “industrial capitalism” and “post-industrial capitalism,” the more appropriate terms I’ll use are corporation-dominated capitalism and people-centered capitalism. Everything else from my prior posts remains the same, and I think this way of expressing the ideas captures the essence of the exploration better.
What I’d like to draw out here is that much of Chris’s book focuses on corporation-dominated capitalism – for corporations, Free is a much bigger problem. The structure and overheads of corporations make it such that they’re really expensive to operate. By the time you get R&D, Marketing, Sales, and everybody else on the same sheet of music, the resource investment in a particular product is so intense that any given product has to either sell a bunch for cheap or sell fewer at a higher price.
This creates a terrible dilemma for corporations. They can get in either the “cheap for everybody” market or the “expensive for a niche” market. If they get in the former, they’ll have to fight against the Free trend – and too often, they’ll make an unremarkable product so they can sell to more people, but it’s easy to displace that unremarkable product. If they get into the expensive niche markets, they’ll have to compete with the corporations that have already moved into and are dominating those niches; it’s risky and resource-intensive to move into a niche market on the corporate scale. If you win, you win big, but if you don’t, you’ve lost years and millions of dollars.
Chris, Malcolm, and Seth are largely talking about the rules for corporation-dominated capitalism, and their books, strategies, and concerns sit squarely at home in that sphere. But the rules for people-centered capitalism are different because the scale is much different.
As an independent creative entrepreneur, I can move from idea to market in a month. Since my overheads are lower, I can charge much less for a product, and my needs for revenue are much lower. This is where the power of small kicks into overdrive.
Let’s say that I produce a product in a month, charge $10 for it, and sell it to only 150 people, which would bring in $1,500 revenue. That amount of money is a drop in the bucket for corporations – they spend more than that per year on pens and paper clips. But $1,500 is my mortgage and utilities.
Obviously, I can’t live off $1,500 per month, but if I’ve got enough small income streams like that, I can live quite well. Creative entrepreneurs that reach a critical mass of income streams can survive indefinitely, precisely because it doesn’t take us tens of thousands of dollars to change directions.
While this doesn’t yet address Free, what I do want to point out is that many of Chris’s ideas depend on corporations dropping prices below the point at which it’s not worth their time to charge for their products. For instance, corporations selling digital products for $8 have to fight against Free – so much so that it makes more sense for them to release a product for free and use it as a loss leader to sell another product. However, for creative entrepreneurs, dropping that $8 is the difference between eating well and sliding by for another month on Spaghettios.
So, though staying small and being agile enables creative entrepreneurs to navigate the market better, it still doesn’t show how Free doesn’t pose a huge threat to them. For that, I’ll need to show that…
People Intuitively Understand the Difference Between People and Corporations
I’m a fan of Seth Godin and Apple. But there’s a critical difference for me when it comes to buying products for them: I’ll buy any book that Seth writes, but I won’t buy everything that Apple produces.
I feel that there’s a one-to-one relationship between me and Seth. We’ve written each other – okay, he’s replied to me. I recommend Seth’s stuff to friends, not just because it’s Seth’s, but because it’s good.
My relationship to Apple is more nuanced. Even if Steve Jobs wrote me, I still wouldn’t feel like I was in a personal relationship with Apple. I wouldn’t send Apple posts that I thought they’d like to see, and I wouldn’t hear songs and think “wow, that’s something Apple would say.”
Of course, this isn’t limited to Seth. I bought Chris Brogan’s Trust Agents: Using the Web to Build Influence, Improve Reputation, and Earn Trust (amazon link) last week because I met Chris Brogan last year at SxSW and have since come to appreciate that he’s a good, knowledgeable guy. I bought the book because I know Chris, the person, will deliver and because he’s a person I want to support.
I could go on about other individuals but it would be redundant. I’m sure you have your own list of people that you identify with in the same way, and the point that I’m trying to make is that, as consumers, we are more willing to send money to support people we identify with than we are to support corporations.
But there’s still more to it than that…
People Make Things Unique and Meaningful for Other People
I’m going to take this straight from the other Chris’s (Anderson) book:
Commodity information (everybody gets the same version) wants to be free. Custom information (you get something unique and meaningful to you) wants to be
expensive. (emphasis mine)
Sure, we may think about economic exchanges differently when we’re in different economic contexts, but the real reason creative entrepreneurs aren’t put in jeopardy by Free is that creative entrepreneurs are in the unique position to make unique and meaningful stuff for other people.
Since we talk to our people, we know what they need and want. We know what conversations they are already having. And many creative people want to help others. You’ve got all the ingredients there to create information and products that people are willing to pay for: you’ve got the technical skills to create stuff, you’ve got the passion to want to help and connect with others, and you know what people are wanting and needing. And your “market” is already predisposed to support you, to boot.
Earlier, I said that corporations have a terrible dilemma, and now I can more fully show how creative entrepreneurs have a crippling advantage. Creative entrepreneurs are able to do what corporations can’t: we can be both cheap(er) and niche. Since our financial needs are a lot lower, we can talk to a very select group of people, find out what they want or need, and create it just for them. In fact, it’s easier for us to make something unique, remarkable, and meaningful for the few than it is for us to make something that appeals to a mass market – after all, if we get into the mass market, we’ve got to play with the big boys, and that’s more resource-intensive for very little effective reward.
I want to loop back and cover what Chris thinks is a better expression of “information wants to be free”:
Abundant information wants to be free. Scarce information wants to be expensive.
What we’ve seen a lot of in online businesses is marketing to scarcity. Unfortunately, the scarcity that’s most often pitched to is scarcity of patience. The prevailing practices are to figure out what people are desperate (!) to buy and then sell them a solution that they can get now (!) to solve that problem they’re desperate to solve. I’m not questioning the effectiveness of this strategy – I know it works.
But what I also want to point out is that there’s another scarcity that we don’t see pop up as often: products that qualify as art. I think we’ll see a change here in the next few years, as more and more people get savvy about the science of producing products. As we see more and more of the same sales pages selling what seems to be the same product in the same way, prices will drop. And as more creative entrepreneurs put out products that appeal to something besides urgency and desperation, we’ll probably see different pricing norms emerge besides the $47, $97, and $197 price-points that now run rampant.
In other words, as more and more creative entrepreneurs launch online businesses, what discriminates the best from the rest will change, and it’ll revolve less around the science of product creation and more around the art of product creation. Creative entrepreneurs stand to clean up here because they’re more able to be High Touch and High Concept.
We Live in a Hybrid World
I started this post with a conversation that was beginning to become a Right/Wrong or Free/Not-Free dialogue, but such a dialogue glosses over a lot of the grey areas that we’re seeing. I worry whenever I see an Either/Or conversation because such conversations usually leave out the important details that would show that there are different options. Even in my own distinctions between people-centered capitalism and corporation-dominated capitalism, there is some grey, as there are outlier corporations and creative businesses that are pushing the limits.
To bring this home, though, Chris said “it’s a hybrid world, with free and paid coexisting.” The degree to which it’s a hybrid world extends further than that – corporation-dominated capitalism and people-centered capitalism are coexisting as well. The threats that Free poses to corporations are different from the threats that it poses to creative entrepreneurs, and corporations and creative entrepreneurs will have to respond differently. Likewise, the opportunities that Free provides for corporations are different from those that it provides for creative entrepreneurs.
Furthermore, Chris’s exploration shows that Free “turns billion-dollar industries into million-dollar industries” – but it does this by redistributing the wealth from the billion-dollar players to million-dollar players. The money doesn’t just disappear into the ether.
So, whereas I see how corporations are worried about Free, I see only opportunities for the rest of us willing to show up and play the new game. But of course I’d see it that way – I’m a creative entrepreneur.
Photo Credit: DonnaGrayson
Ramsay Taplin says
What a great article! Finally some balance in the Free argument.
I am honestly quite surprised the idea of Free got so much attention because it is so massively unrealistic. There will be free and there will be paid, always.
I really dont think Paid is limited to unique products either- it is about perceived value- if someone sees something as valuable they’ll buy it even if there are free alternatives. And I think that’s about branding. Some sneakers are nearly free but I still buy Nike.
Catherine Azzarello says
I completely agree!
James NomadRip says
I haven’t involved myself in this conversation at all up to this comment. I’ve read the arguments back and forth. You are obviously paying attention. That was the best observation on the “Free” to-and-fro I’ve seen (having not read Chris’ book yet).
The world keeps changing. There are always ways for those who require less to get by much more easily than a large machine that needs a lot of things to work properly for it to even keep itself afloat, let alone turn a profit.
Excellent! You hit it out of the park, Charlie.
I especially appreciate the distinction between scarcity of patience, which leads to overhyped and overpriced marketing, to scarcity of uniqueness, which leads to people-centered capitalism.
I do have concerns over how capitalism tends to suck up all resistance (the “sell-out problem”), how consumerism is replacing political and cultural engagement, and whether capitalism is viable for people-centered sustainable living on a small planet. But that said, it’s hard to argue with meaningful, unique, fairly priced goods and services.
J. J. says
Fantastic article! I hope you’re writing a book about this topic – put me on the pre-order list!
.-= J. J.´s last blog ..You’re doing it wrong: Twitter (the command-and-control edition) =-.
And just to turn everything on it’s head, here’s today’s quote from KK’s New Rules for the New Economy:
I have no idea what KK means here, but it sure seems important!
.-= Duff´s last blog ..Which Video of Me is More “Authentic”? On the Style of Authenticity =-.
Social Media Commando says
High Touch and High Concept
Wonderful to read a post that doesn’t fall into the trap of ‘either, or’ like so many other writers. I’m most inspired by your easy to understand outline of the critical mass required by corporations, and how that benefits creative entrepreneurs.
Freemium is a concept I’m interested in as well — that is, creating a free download (like a ‘free chapter’ for book sellers) to entice someone to buy into your ideas before committing to buy your high concept product.
Moreover, the recession is likely creating many thousands of new creative entrepreneurs to test and refine these business plans.
Great post Charlie, hell of a good start to my day!
.-= Social Media Commando´s last blog ..Brand in a Box =-.
Suzanne @ vAssistant Services says
You give a lot of food for purposeful thought here, Charlie. This article goes a long way toward calming the freak-out mode so many people seem to be edging toward by simply asking us to breathe and think. Consider for more than a half second what we’re really doing and what we’d really like to be doing and take some measured steps in that direction. Too many Chicken Littles running about right now, IMHO. I’ll send the ones I see/hear this way and see if you can’t rub your word-magic-balm on them.
.-= Suzanne @ vAssistant Services´s last blog ..WordPress Summer Camp Re-opens! =-.
You make my philosopher’s heart go pitter-pat! Thank you for drawing some much-needed distinctions in this discussion. Whenever things start to become polarized in this way, chances are we’re missing something important.
In particular I appreciate your analysis of the distinction between ‘commodity’ information/products and ‘custom’ information/products. This is where the little guy or gal can rock his or her little corner of the world.
Similarly with your claim that people intuitively recognize the difference between a person and a corporation. Interactions with people are meaningful in a way that interactions with corporate entities are not. Doing business with a real, live person (even one we only ‘know’ from their blog, twitter and perhaps a personal email or two) lets us be part of their story, and they get to be part of our story.
And in my view, the search for meaning is part of what we’re all about as human beings.
Thanks for a thought-provoking and enlightening post!
.-= Liz´s last blog ..Back in the saddle again…. =-.
Karl Staib - Work Happy Now says
Very well thought out. I couldn’t agree more. Free is vital in this day and age. We have to prove to our buyers that we are worthy of their money. People get to eat free samples in super markets because it entices people to buy. As long as we are producing products people want to know, for sure, that they aren’t wasting their time.
Teaching Sells will make a million dollars on their last launch. That’s because they gave away a ton of free material that showed the reader exactly what to expect. I learned more from those free samples than I do from most blogs. I wasn’t one of the buyers, but I was really close.
We have a great opportunity to reach buyers directly. This was never in our reach before. We needed book and music publishers to reach the masses. Now we can entice them directly with free samples, earn their trust then sell them products that will help them solve a problem.
We are lucky to live in this age of “Free”.
.-= Karl Staib – Work Happy Now´s last blog ..Career Renegade Interview =-.