This week, Geoff Livingston of CRT/Tanaka and “The Buzz Bin” and myself had the opportunity to speak with Chris Anderson about his new book “FREE: The Future of a Radical Price” and the impact these business model have on small businesses.
For those of you not familiar with Chris, he is editor-in-chief of Wired, where he wrote an article in the magazine entitled The Long Tail , which he expanded upon in the book “The Long Tail: Why the Future of Business Is Selling Less of More“ (2006).
His new book, “FREE: The Future of a Radical Price” discusses how companies are attracting customers with indirect routes from product to revenue with such models as cross-subsidies (giving away a razor to sell razor blades) and freemiums (offering 90% of the product for free while selling the awesome remaining 10% to a portion of that base) which he calls “atoms and bits”.
We sat down with him and discussed the impact of “Free” on small businesses. Here is the transcript of our interview:
Steven Fisher: One of the main things in your book, Free, are the Four Types of Free. Two that are 100 years old, the Razor/Razor Blade model and the Media Model (Producer, Consumer and Advertiser). The two that are new – the incremental cost model and the gift economy. Is there anything different about a brand new business leveraging these models and maybe a more established small or growing business?
Chris Anderson: Not really. I think in terms of non-digital and non-digital “Free”. What is new is that technology has changed free from a marketing gimmick to a new economic model. This new form of free, based on near zero marginal cost which is an emerging biz model of the web and has completely changed marketing and product variety. If you can change something into software you can participate in this model. Whether it is the freemium model as a low cost part of marketing or product innovation, the choice is up to you.
Steven Fisher: You mentioned Radiohead as an excellent example of leveraging the Free model and setting a new precedent with the music model of album, single and tour. They introduced 35 different types of SKUs, many of which were free others which were premium. Is this type of diversification something that small businesses should experiment these days?
Chris Anderson: Two elements effect small businesses and free works both ways. Free isn’t just the price you set, it is also the price you pay for technology used in your own business. Today you can start a business with your credit card because of open source software and hosted services. So yes, small business should experiment as much as they can with this model on the purchasing and the utilization side.
Geoff Livingston: How long should a business wait for its model to start catching fire with stakeholders? Is there a point when you know it’s not working?
Chris Anderson: The one thing we have learned about business today is that no market is alike and no community is alike. You really need to think for yourself and what is right for your own product. Let’s use an example like BookTour.com. We deploy about a product a week and in some cases the product might need to be modified or marketed differently. There is the possibility that the price needs to be changed and on rare occasions it is a complete disaster. The bottom line is that each situation is unique and a small business will know instinctively when it is not working.
Geoff Livingston: What are the innovative types of Free you are seeing with small businesses you have come across?
Chris Anderson: There are so many and all the innovation right now is around the Freemium model. Especially in the area of versioning. This is where you have at least two levels of your product, one free and the other paid. The real question becomes, how much value do you put in the free one? Enough to attract new customers but not too much so you can entice a large percentage to upgrade to the paid version. After that you should look to address segmenting your market. It is all up-selling in some way but you have an opportunity to offer them more. The upside is that customers become extremely loyal and the churn rate goes down.
Crowdsourced Question from Nedra Weinreich (asked by Geoff): How can non-profits (who already often give away their service for free) apply the principles in his book more effectively.
Chris Anderson: One of the best examples of non-profits are associations which tend to be membership organizations. They serve their biggest members well, their smaller members somewhat well and non-members not at all. Their challenges are always getting more members. So if you can turn more of your services into software and you can offer this free to non-members it becomes a form of membership acquisition. It allows you to explain to more people what you do and the value you provide.
Crowdsourced Question from Mark Taylor (asked by Geoff): If he were to write a new edition of “The Long Tail…” what would he change in it since the business environment has changed so much in the 5 or so years since he wrote it.
Chris Anderson: Well, the “Long Tail” is largely a cultural phenomenon whereas “Free” is an economic phenomenon. The “Long Tail” is a true effect but the biggest thing people need to realize is that the money is not really in the long tail but rather the “fat middle”. But that wouldn’t have exactly make a great book title.
Steven Fisher: Chris, thanks for the time today. We really enjoyed it. We look forward to seeing you at the Grow Smart Biz conference at the end of month.
Chris Anderson: Great. Looking forward to it. See you all then.
Register for the Grow Smart Biz Conference and See Chris Speak
Coming on September 29, in Washington, DC, Network Solutions is hosting the Grow Smart Biz Conference where you can see keynote speaker Chris Anderson speak. The Grow Smart Biz conference is a premier one-day event featuring renowned small business leaders and well-known industry experts. If you haven’t registered, then click here to learn more and register now. Tickets are going fast!
Google+
