Ah the joys of the “free” stuff that only comes when you buy special marked items and only if you use a coupon for it in order to make the extra stuff free. This is basically my quick hit analysis of Chris Anderson’s February 2008 article over how the world of free stuff has entered the marketplace.
Anderson used a great example to begin his article by using the story of King Gillette and how his promotional razors became a business model that “is now the foundation of entire industries”. His concept was to package his razors with something that people knew like coffee, tea, marshmallows, etc. He basically gave away the razors for men to use but the consumer really didn’t get those razors for free as they had to buy a product in order to get to the free razor.
This concept of free allowed us to understand that you can still turn a profit even though you may still “give” your product away and the best example of that is the use of transistors within computers. Transistors are so numerous within a computer that when you break it down to an individual cost, they are close enough to costless that they should be free anyways. I think the best way of putting this in terms that I could understand was to use Zeno’s dichotomy paradox in the article. “…[Y]ou run toward a wall. As you run, you halve the distance to the wall, then halve it again, and so on. But if you continue to subdivide space forever, how can you ever actually reach the wall? (The answer is that you can’t: Once you’re within a few nanometers, atomic repulsion forces become too strong for you to get any closer.)”
Anderson’s other article called “Long Tail” was a little bit more confusing to me than I originally thought it would be. His concept here, in my estimation, was that in order to make money off certain aspects of the entertainment industry, you can’t put all of your eggs into the “popular now” basket. Instead, you should spread them out within the niche to maximize the profits.
Again, Anderson puts out a great example of his idea on the first page of his article. He uses two books that have similar areas of interest and how one was revived through the release of another. His economic model here was based off how one product can cause further interest in a similar product through consumer taste. This will allow the consumer to be free to follow a trail from the more popular to the less popular in certain areas of the entertainment industry.
Anderson also foreshadowed his 2008 “Free” article a little bit when he described his rules for the market. His rules were pretty simple and pretty easy to follow:
1. Make everything available
2. Cut the price in half. Now lower it (his foreshadowing of the “Free” article)
3. Help me find it.
The basics of rule #1 are simple: Offer up everything because you never know who is willing to buy what you have to sell. It doesn’t matter what it is that you are selling because someone out there is always willing to buy it from you. Even if you don’t think the item has a chance to sell, put it out there on the market because maybe someone will see it or hear about it from someone else.
In terms of rule #2, people don’t want to pay more than they think they should have to for anything nowadays. If we take Anderson’s example of Rhapsody, we can see where he has the right idea. The thought of breaking down the cost of a single track off a CD allows us to get a generalized idea as to how much that track should cost. However, when we go to buy it, we are almost turned away due to generalized pricing on Rhapsody and the iTunes site even though the middle man (Rhapsody, iTunes) has fought to make the price what it is. The music industry thinks it’s too low, the consumer believes it is too high and this is where we as consumers want the price to be fair.
The final rule of “Help me find it” was the basic idea behind Napster, Kazaa, and currently LimeWire. People want help to find certain music and through other people’s computers, they are able to find it and (to ward off the FBI for a little while longer) UNFORTUNATELY illegally download that music. This approach is used by Rhapsody now as well and they have been successful in their ability to help the consumer use recommendations in order to drive demand within the idea of Long Tail.
