Chris Anderson is one of the most astute observers of the tech scene today. His previous book, "The Long Tail", adroitly explained the power of online distribution and how the absence of physical inventory requirements fundamentally alters the way we shop for products. His latest book, "Free: The Future of Radical Price" argues that an economy based on information and digital content will inevitably push costs to zero.
Anderson spends roughly half of the book describing the various meanings of the term 'free', and its chequered past. I could have done without the exposition, and found myself rushing to get to the meat of the book-- those places where Anderson describes different pricing schemes that incorporate elements of free products or services into their overall revenue model. Google, Netflix, and Facebook all receive due attention here, and Anderson is at his best when he describes the rising phenomenon of 'the reputation economy'.
I find Anderson's argument for the inevitability of free digital content somewhat overstated. While he acknowledges that 'free' pricing often amounts to little more than gimmickry, he seems quick to convince the reader that this is not the case with online goods and services. At least one of his examples-- Zecco, the online stock trading platform --recently abandoned its free trading system and has begun to charge for trades like every other platform, perhaps a tacit acknowledgement that free may not be all it is cracked up to be.
The heart of Anderson's argument is that falling processing, bandwidth, and storage costs for digital content are driving the marginal cost of delivering digital services to zero. Companies, therefore, are able to offer such products at effectively zero prices in order to capture that most elusive of goals: customer attention. This, however, ignores the economic idea that just because the cost of delivering a service is zero, one should not necessarily charge zero prices. Anderson argues that in a perfectly competitive world, if one actor does not reduce prices to match costs, it will be rendered obsolete by others who will do so to steal share. But do we live in a perfectly competitive society? Are there not still significant barriers to entry which prevent the lowest-priced entrant from stealing share from incumbent interests?
Anderson's work is, as always, a treat to read. I recommend this title, although I continue to have misgivings about the author's central argument.