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Will the move toward 'free' pay off?

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Wired Editor Chris Anderson is writing a new book, and he's going to give it away for free. You'll still have to pay for a physical volume, but the words themselves will be online for anyone to consume. Anderson isn't alone. Today, many authors offer advance copies of their work online for free, knowing that increased awareness drives book sales. Anderson's strategy is appropriate. The new book will be titled “Free! Why $0.00 Is the Future of Business. He has a compelling argument to make. The Internet has created a new competitive dynamic that is relentlessly forcing the price of all things digital toward zero. Software that commanded six-figure license fees just five years ago is now free. The entertainment industry has all but abandoned digital rights management on recorded music. Artists now give away music and make money on concerts. Not long ago, people had to buy Consumer Reports or Fodor's to find product reviews. Now they get them free at such Web site as Kaboodle, ThisNext and Yelp. Magazines that I don't remember subscribing to arrive in my mailbox. Yahoo now gives away unlimited free storage on its e-mail accounts. And it's not just the digital world. The CEO of RyanAir, Europe's original low-fare airline, recently said, “It's our ultimate ambition to get to a stage where the fare is free.” The cost will be made up through other services. Manufacturer rebates are becoming more aggressive as companies trade free products for names. For more examples, see blogs by Anderson (www.longtail.com) and Wired cofounder Kevin Kelly (www.kk.org/kk/). The point isn't that these assets have no value. Rather, the marginal cost of distributing them is falling. For some goods, when the price approaches zero, it's cheaper to give it away than to sell it. The increasing pressure from low-cost offshore producers contributes to the trend. Two years ago, I paid a professional designer $1,000 to design my logo in a month. I recently paid an Indian company $300 to deliver the same service in three days. The economics of “free” force us to think differently about value. Writers and artists give away the fruits of hundreds of hours of work, yet charge $10,000 for a speech or custom painting. T-shirts are essentially free, but the cost of a Major League Baseball logo is $30. Las Vegas casinos give away flights and hotel rooms so they can make back their money at the gambling tables. Anyone who markets products that can be digitized or commoditized will be touched by this trend. Competitors will constantly find ways to deliver comparable value at lower cost. Our challenge is to find the assets they can't easily be duplicated—whether it's our time, expertise or attention—and charge a premium for that. M
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