There’s a fierce battle of the titans raging across the interwebs about the market value of non-physical assets, like information and computer files. How much is an MP3 or PDF really worth? What is the value of the text on the front page of the New York Times? Who is going to pay journalists to do what they do every day, in a world where journalism is expensive and information is cheap?
Chris Anderson, editor of Wired magazine and author of Free, is of the opinion that, “In the digital realm you can try to keep Free at bay with laws and locks, but eventually the force of economic gravity will win.” Anderson believes that the natural price of things that are abundant is zero, and information can be copied ad infinitum for so little that it becomes essentially free. Instead of fighting it, journalists and rock bands alike should embrace the attention-grabbing qualities of free value and focus on charging for things that are scarce, like private events and concert tickets.
Kevin Kelly agrees. Malcolm Gladwell disagrees. Seth Godin backs up Anderson. Jonathan Fields respectfully agrees and disagrees with all of them. Instead of rehashing the debate, read what each of these thoughtful people have to say, then form your own conclusion – it’s worth your time.
Here’s why this debate matters: everything “free” is actually subsidized. It’s just not always apparent where the subsidy is coming from.
What’s a Subsidy?
A subsidy is the financial support of one activity via another. Journalists don’t make money directly from going out and investigating stories: in fact, taking money from an individual or company they’re covering is a serious breach of professional ethics. In order to pay for journalists, newspapers and magazines subsidize their work via two primary sources: (1) subscription sales, and (2) advertising sales. (In recent months, both of these subsidy sources have been drying up, which is why most major newspapers are in serious trouble.)
Every activity that is not income-producing is subsidized by one that is. It’s very hard to focus on non-income-producing activity when physical or operational needs aren’t being met in some other way. Putting in the time and effort to create free stuff to give away isn’t that important if you’re already working 80-hours a week just to pay the bills.
Anderson and Gladwell’s freely-available work is subsidized by the magazines they work for and the speeches they give. Godin’s 10+ years of free blogging have been subsidized by book sales, speaking engagements, and the sucessful sale of a company he founded. Fields’ blogging is subsidized by his successful fitness business. My writing on this website was first subsidized by my day job, and is now subsdized by the coaching and consulting I do. No subsidy, no freely-available content.
“There’s No Such Thing as a Free Lunch”
It’s easy to understand the appeal of getting things free, but the cliche is true – “free” lunches are always paid for by someone or something else. If the piper is not paid, the source of the “free” value disappears.
It’s important to support the work you enjoy if you want it to continue to exist. If you like a particular band and want them to keep making music, it’s important to vote with your dollars – buy their CDs, go to their concerts, etc. Making products and events available doesn’t mean they’ve “sold out.” The same goes for your favorite bloggers when they recommend an affiliate product or create one of their own – it’s the subsidy that keeps the server running and allows them to spend time creating new things instead of doing something else.
What do you enjoy on a regular basis for free? How is it subsidized? What can you do to ensure it continues to exist?
(Photo credit: steved_np3 on sxc.hu)
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I think the missing factor here is that many people will produce content in their spare time, with no expectation of traditional, financial ROI (perhaps blogging is a recreational activity, maybe songwriting is a cathartic, or perhaps programming open-source software is a mind exercise). And I believe these people will produce content even when their checkbook has seen better days.
As these people flood the web with free content, it places tremendous downward pressure on all information.
Rather, it places tremendous downward pressure on __the price of all__ information.
Peder – the reason people can spend time doing things that don’t have an ROI is that they’re subsidized by another activity. The subsidy can come from many different sources, but the free activity still must be subsidized in some way. Also, good point on information – information overload is a huge cost, which is why filtering is a valuable activity.
I have to agree, there is no such thing as free. There is always a cost to whatever we do. It is great you point out the necessity to support your favorite musicians by voting for them through dollars.
Of course, the challenge with the music industry is rooted in perceptions targeting music labels, not artists. While the music industry is thriving, the recording industry aka music labels move closer to meeting the grim reaper. Today, fans support musicians by going to concerts, where listening to music is best, instead of paying for an MP3 easily found online.
The idea of a “free” economy is an illusion. How we each pay for it could be different, but there is always some sort of currency involved. It is a matter of deciding whether the currency is in paper form, or is there an action that serves as the alternative?
Interesting comment on subsidizing free things since someone does pay for it. I enjoy reading blogs for free but that is subsidized by ads and my access fees for the Internet. Walking in the park is free but I pay sales and property taxes to maintain the park. Maybe we should turn the question around and ask what are we willing to pay for? That might shed some light on the nature of what we enjoy for free.
I believe we are in the midst of an economic paradigm shift and this question will be a central theme: “what is the value of intellectual property and information?” I agree that it is not free because there is an opportunity cost involved when a blogger chooses to spend her time writing instead of working in a manufacturing line or something else. The difficulty is that our economic system was developed for the industrial age, not the information age. In the industrial age, it was production of material goods using land, labor and what I’ll call hard capital (FF&E) that most economic transactions consisted of. Today things are much different, so it is difficult to formulate sustainable business models for the most important product of 21st century society, intellectual property. I don’t have an answer as to what the solution is, but I am confident that this will be the question that drives entrepreneurs and the ensuing paradigm shift for the next generation.
That’s true.
The free strategy is also very common to engage people in something whether it is for buying or for obtaining attention.
Another important fact is that when it’s free it’s considered as less important, sometimes mediocre when in fact the same information could be sold for a bunch of $.
I appreciate the music industry anecdotes. “Free” music (stolen and/or given away) will be subsidized by premiums: boxed sets, exclusive online content, vip tickets, fan clubs… This company Topspin Media (www.topspinmedia.com) really gets this concept and I have taken some cues from them in many ways, so definitely take a peak at what they’re all about.
The duplication of information is free. The investigation, collation and generation of information for consumption is not free. Time is always the most basic resource and it still has opportunity cost.
Great post Josh and some great comments. I agree with many of them, especially @whstrain that the duplication is what ultimately becomes “free” (though not completely, but perhaps for pennies).
My question is which produces better products? Those things created solely to sell, or those that are subsidized? Products created for profit often have more dollars behind them (in the way of marketing, research, etc), but products that are subsidized often have more passion.
Great point. There is no such thing as a ‘freebie’. Another day another dollar. Freebies are all subsidized.
A very nice point. It is so obvious that no one would ever exist if he or she only makes free content without being paid in any form. It also reminds me that to receive something you need to give something first.
Nice addition to the free debate Josh!
I agree that everything free is subsidized in some way. I also feel that it is extremely important to support people and businesses we value.
I think there is one more important consideration here and that is: increased competition will continually raise the quality and quantity of what is offered for free.
Yesterday it was free blog posts, today it is free ebooks, tomorrow it will be higher quality animated videos. It is not hard to find examples; the quality of everything is improving while costs go down.
I think there are preemptive opportunities for entrepreneurs to offer for free today, what many are selling in order to market an even higher value added product or service.
In economics, prices always tend to approach marginal costs, unless there is a monopoly. It costs nothing to distribute information products so it is an economic maxim that prices will tend to free over time. Seth Godin is correct in that it doesn’t matter what we think, it is happening.
The meaning of free is different for the giver and the receiver. Your blog posts are free for the reader, but not for you.
The “free” transaction has two sides: the giver and the receiver. The giver in a free transaction always has a cost (money, time, or some other resource). The receiver should not have a cost — if so then the transaction is not free (like the misleading buy one, get one free offers).
By the way, I’m not trying to discount this discussion. I think it’s important to think about especially with the changes we’re seeing in information delivery.
Rob – that’s a really good point. One add: the posts aren’t free for the receiver, either: they require the investment of time and attention. Here’s a great quote by Herbert Simon:
“…in an information-rich world, the wealth of information means a dearth of something else: a scarcity of whatever it is that information consumes. What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.”
Excuse me for my observation.
I feel everything nature has provided to us is free. Only efforts cost. Efforts take time. And time is limited.
We want money etc for our effort, in turn for our time, in turn to buy somebody elses effort and time.
We do all this because to get things your efforts are not complete, your time is not sufficient. You need to buy somebody elses time , in turn effort.
So effort , in turn somebody elses time is not free.
Sorry again for this insight.
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