By KRYSTLE CHOW
Published in the Ottawa Business Journal newspaper and website.
April 28, 2008 (May 1 on OttawaBusinessJournal.com)

The idea of literally giving something away but still profiting from it isn’t a new concept, but with the advent of the Internet there’s now a new dimension to it – and soon, all products and services we now pay for could become free, says Wired Magazine head honcho Chris Anderson.Wired Magazine editor-in-chief Chris Anderson previews his new book on how everything online will soon be free

It’s the subject of his new book, aptly named Free, which he will be previewing at Celebridee during the Canadian Tulip Festival, held from May 2 to May 19 in Ottawa. The OBJ picked Mr. Anderson’s brain to find out more about the new free economy and what it will mean for businesses.

OBJ: So tell us a bit more about what it means to have an economy where everything is free.

ANDERSON: It’s a broad economic trend that affects every industry everywhere. Any company, product, service that is digital is either going to eventually become free or compete with free; it’s the law of gravity in digital economics. It’s the Google model, where they don’t charge you: Google doesn’t show up on your credit card bill, Google’s free to consumers.

Software’s increasingly moving from a product that you buy to a free service that you go to on the web, the software-as-a-service model. And increasingly, services are moving from professional people you pay for to places you go to for free, be it travel agents or stockbrokers or lawyers or accountants – these are all turning into software applications, and once anything becomes digital, it inevitably becomes free. That’s simply what digital economics does.

The question is not “Is free going to affect high-tech companies?” The question is: what is their free strategy? Are they going to compete with free and add value to things that are otherwise free? Are they going to build a business model around free, with what we call “freemiums,” where 99 per cent of customers get the free version and one per cent get the premium version? Are you going to be third-party pays, like the Google model where advertisers pay for services? There are probably hundreds of business models built around free, and the question is not can you ignore it, but which one of those you’re going to adopt or compete with.

OBJ: Isn’t the free model a rather risky one, especially in these already risky economic times?

ANDERSON: Free plays very strongly into that – the more conservative their spending, well then, all the more incentive to offer something free. The more risk-averse, all the more reason to offer a product with no financial risk whatsoever. Free tends to have deflationary effect, which is a good thing in a world where things like oil and commodities are tending to have an influence.

It’s very hard to find a major technology company that isn’t built on free right now. Somebody’s paying, but it’s not you. I suspect you’ve never paid eBay a penny, or Google, or Yahoo. Google … is perhaps the most profitable technology company of our era. There’s no evidence whatsoever that that model is losing steam; in fact, it’s seems to be gaining steam. And that’s of no surprise. The idea that you can have a strong advertising-supported business … is the rule, not the exception in Silicon Valley. Microsoft was built on exactly the same model; in its first incarnation it sold software and it still sells software, but it’s increasingly moving to a software-as-a-service model where it turns more and more software into websites that you can visit, and those websites can be supported by a third-party pays model, which is advertising, by and large, as well as charging you for the premium version of their software. Microsoft is an example of a company that is competing with free very effectively, I think; it’s been competing for 10 years now with Linux and Apache and other open-source competitors.

OBJ: What does this mean for physical product?

ANDERSON: More and more products and services that are sold as a physical product or as a person’s time are going to migrate to the web, and once they migrate to the web … basically costs get cheaper over time. They fall in price by 50 per cent every year. And once something moves to the web, it inevitably becomes free sooner or later.

Free is hundreds of years old … we have a century of experience with free, although we now have a new dimension to free which is the notion of digital economics, which allows you not just to transfer money from one place to another, but to actually have the cost of the product or services fall every year, which is unprecedented.

Web 2.0 is essentially an economy built on free, and you’ve seen the experiment move in real-time, you’ve seen the industries embrace free as they move into the digital world.