Stephen's got two guests tonight. Law Professor and Important Personage Matthew Waxman will probably be talking about Guantánamo, indefinite detention, that sort of thing. I'm guessing second-segment, at the desk.
And Wired editor Chris Anderson is the author of the book Free: The Past and Future of a Radical Price, which plagiarized inaccurately cited contributions from Wikipedia. There's an excerpt at NPR, but you can get the entire book online for free (limited time, of course). Here's from Publisher's Weekly ( Amazon, B&N):
In the digital marketplace, the most effective price is no price at all, argues Anderson (The Long Tail). He illustrates how savvy businesses are raking it in with indirect routes from product to revenue with such models as cross-subsidies (giving away a DVR to sell cable service) and freemiums (offering Flickr for free while selling the superior FlickrPro to serious users). New media models have allowed successes like Obama's campaign billboards on Xbox Live, Webkinz dolls and Radiohead's name-your-own-price experiment with its latest album. A generational and global shift is at play—those below 30 won't pay for information, knowing it will be available somewhere for free, and in China, piracy accounts for about 95% of music consumption—to the delight of artists and labels, who profit off free publicity through concerts and merchandising. Anderson provides a thorough overview of the history of pricing and commerce, the mental transaction costs that differentiate zero and any other price into two entirely different markets, the psychology of digital piracy and the open-source war between Microsoft and Linux. As in Anderson's previous book, the thought-provoking material is matched by a delivery that is nothing short of scintillating.
There are reviews all over the place, but I think I'll go with Yglesias:
Having read some excerpts (e.g.) from Chris Anderson’s Free and also Malcolm Gladwell’s takedown review, I think the whole subject could stand to benefit from a little less good writing and a bit more plodding distinction-drawing. There’s a basic valid point underlying what Anderson is talking about. In a competitive market, the price of a good ought to converge toward its marginal cost of production. And in a digital universal, the marginal cost of production is close to zero. In other words, there are fixed costs involved in creating a blog post or a song or a film or a piece of software, but the cost at the margin of distributing the good to a new consumer is almost zero. Anderson adds to this shopworn piece of economic knowledge, the insight from behavioral psychology that while people react similarly to a price of $10.15 and $10.25, human behavior when faced with a price of free is quite different from human behavior when faced with a price of ten cents. Consequently, when market competition starts pushing prices down to nearly zero, someone will realize they can gain a huge competitive advantage by pricing the good at free.
Where Anderson goes off the rails is in his suggestion that this "give it away" business model is actually a promising business model. Gladwell demolishes some of Anderson’s examples, but the problem with Anderson’s argument is completely theoretical. The convergence to marginal cost of production is predicated on the idea that you’re operating in a highly competitive marketplace. But the thing about operating in a highly competitive marketplace is that it’s impossible to make tons of money by doing this. That fact tends to get obscured in popular discussion of business in the United States, because we (or, perhaps I should say, because journalists who want to make money getting corporate speaking gigs) are very invested in a heroic model of capitalism in which wealthy entrepreneurs get rich through their competitive awesomeness. In reality, the reason that competition is good for customers is that it destroys profits. The way you make real money is by getting into situations where you’re insulated from competition. ...
As sectors turn to a Free business model, they’re just going to become way less lucrative. ...
That’s the real lesson of Free. The combination of competition, the near-zero marginal cost of production, and the psychological significance of the zero bound means that the market-leader in video is bound to lose money. To win the market, you need to make your product Free. But while your marginal cost is near-zero, it’s not actually zero, so you’re losing money.
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