Some of the best quotes from the book. Use the follow below for Harvard style reference.
Anderson, C. (2009) Free – The Future of Radical Price. London: Random House
-Akshay Ranganath
Specialty of free
What Woodward understood was that “free” is a word with an extraordinary ability to reset consumer psychology, create new markets, break old ones and make almost any product more attractive. He also figured that “free” didn't mean profitless. It just meant that the route from product to revenue was indirect, something that would become enshrined in the retian playbook as the concept of “loss leader”. (p10)
(Woodward – introducer of Jell-O)
It is unique quality of the digital age that once something becomes software, it inevitably becomes free – in cost, certainl, and often in price.... The atoms economy is inflationary, while the bits economy is deflationary. (p12)
Humans are wired to understand scarcity better than abundance. Just as we've evolved to ocerreact to threats and danger, one of our survival tacticvs is to focus on the risk that supplies are going to run out. Abundance, from an evolutionary perspective, resolves itself, while scarcity neds to be fought over. (p50)
Just as water will flow downhill, economies flow toward abundance. Products that can become commoditized and cheap tend to do so, and companies seeking profits move upstream in search of scarcities. (p52)
Today's knowledge workers are yesterday's factory workers (and the day before's farmers) moving upstream in search of scarcity. (p54)
Characteristics of Free!
Why do people think “free” means diminished quality in one instance, and not in another? It turns out that our feelings about “free” are relative, not absolute. If something used to cost money and now doesn't we tend to corelate that wil a decline in quality. But if something never cost money, we don't feel the same way. (p56)
So, charging a price, any price, creates a ,emtal barrier that most people won't bother crossing. Free, in contrast, speeds right past that decision, increasing the numner of people who will try something. What Free grants, in exchange for forsaking direct revenues, is the potential of mass sampling. (p61)
As Wharton professor Karthik Hosanagar says, “The demand you get at the price of zero is many times higher than the demand you get at a very low price. Suddenly the demand shoots up in a non-linear fashion. (p62)
Most transactions have an upside and a downside, but when something is FREE! We forget the downside. FREE! Gives us such an emotional charge that we perceive what is being offered as immensely more valuble than it really is. Why? I think it's because humans are instrinsically afraid of loss. The real allure of FREE! Is tied to this fear. There's no visible possibility of loss when we choose the item that's not free. Uh-oh, now there's a risk of having made a poor decision – the possibility of loss. And so, given the choice, we go for what is free. (p64)
People often don't care as much about things they don't pay for, and as a result they don't think as much about how they consume them. Free can encourage gluttony, hoarding, thoughtless cnsumption, waste, guilt, and greed. We take stuff because it's there, not necessarily because we want it. Charging a price, even a low price, can encourage much more responsible behavior. (p67)
How does Free work?
Free is the best way to maximize the reach of some product or service, but if that's not what you're ultimately trying to do (Google is not trying to maximize snack food consumption), it can have counterproductive effects. Like every powerful tool, Free must be used carefully lest it cause more harm than good. (p67)
Here's how it works:
1.Build a community around free information and advice on a particlar topic.
2.With that comminity's help, design some products that people want, and return the favor by making the products free in raw form.
3.Let those with more money than time/skill/risk-tolerance buy the polished version of those products. (That may turn out to be almost everyone.)
4.Do it again and again, building a 40 percent profit margin into the products to pay the bills. (p69)
Why does Free happen?
The “triple play” of faster, better, cheaper technologies – processing, storage and badnwidth – all come together online, which is why today you can have free services like YouTube – essentially unlimited amounts of video that you can watch without delay and with increasingly high resotion – that would have been ruinously expensive just a few years ago. (p78)
Definition of 'learning curve': The principle states that the more times a task has been performed, the less time will be required for each subsequent iteration. (p82)
What Kay realized was that a technologist's job is not to figure out what technology is good for. Instead it is to make technology so cheap and easy to use, and ubiquitous that anybody can use it, so that it propagates around the world and into every niche. We, the users, will figure out a what to do with it, because each of us is different; different needs, different ideas, different knowledge, and different ways of interpreting the world. (p88)
Alan Kay: inventor of Mouse
..But the long-term pricing trends are determined by the technology itself – the more there is of a commodity, the cheaper it will be. Say's Law (named after the early-nineteenth century French economist Jean-Baptiste Say) states that “supply creates its own demand,” which is another way of saying that if you make a million times as many transistors, the world will find a use for them. (p93)
Paradoxes drive the things we care about. Marriage is a paradox: I can't live with her, and I can't live without her. Both statements are true. And the dynamics between the two statements is what keeps marriage interesting, among other things.... Paradoxes are opposite of contradictions. Contradictions shut themselves down, but paradoxes keep themselves going, because every time you acknowledge the truth of one side you're going to get caught from behind by the truth on the other side. (p99)
Classic problem of free: It's easier for the newcomers that for incumbents. That's not just because the incumbents have a revenue stream that they're in danger of cannibalizing. It's also that they have a lot more users, and the costs of serving millions of customers can be astronomical. (p115)
Advantage of free economy
..companies can start small and aim high without taking huge financial risks or knowing exactly how they will make money. (p120)
(Google's max strategy) “Take whatever it is you are doing and do it at the max in terms of distribution. The other way of saying that is since marginal cost of distribution is free, you might as well put things everywhere.” (p123)
-Eric Schmidt, CEO of Google
The interesting thing about the consumption of complementary products is that they tend to rise in tandem. The more people use the Internet, the better it is for Google's core business. So if Google can use Free to encourage people to spend more time online, it will make more money in the end. (p125)
“Liquidity” is usually thought of as just a financial term, but in truth it applies in any system of connected parties. In technology, it's called “scale”... the Internet, by giving everybody free access to a market of hundreds of millions of people globally, is a liquidity machine. Because it reaches so many people, it can work at participation rates that would be a disaster in the traditional world of non-zero marginal costs. (p129)
Free is disruptive, to be sure, but it tends to leave more efficient markets in its wake. The trick is to ensure you've bet on the winning side. (p131)
Our assumption on Google ads: Magazines are put together by people, and people can be corrupted by money. But Web advertising is placed by software algorithms, and somehow that makes it pure. (p139)
(Question on how companies make money in Free economy) Then how do they make their billions? Scale. Not quite the old joke about losing money with each sale but making it up with volume, but instead losing money with a lot of people and making it back with a relative few. Because these companies pursue the max strategy, that relative few can still amount to thousands of millions of people. (p176)
Motivation for Free
In 1971, at the dawn of the Information Age, the social scientist Herbert Simon wrote:
“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. “ (p180)
(Comparison of our information requirements to Maslow Hierarchy of Needs)
The same sort of pyramid can be applied to information. Once our hunger for basic knowledge and entertainment is satisfied, we become more discriminating about exactly what knowledge and entertainment we want, and in the process learn more about ourselves and what drives us. This ultimately turns many of us from passive consumers to active producers, motivated by the psychic rewards of creating. (p181)
Facebook and MySpace have “friends”. EBay has seller and buyer ratings. Twitter has “followers”, Slashdot has “karma” and so on. In each case, people can build reputational capital and turn it into attention. It is up to each to figure out how to convert that to money, if that's what he or she wants (most don't), but the quantification of attention and reputation is now a global endeavor. It is a market we all now play in, whether we know it or not. Reputation that was once intangible is now increasingly becoming concrete. (p184)
Why do we participate in Free economy?
In short, doing things we like without pay often makes us happier that the work we do for a salary. You will have eat, but as Maslow showed, there is more to life than that. The opportunity to contribute in a way that is both creative and appreciated is exactly the sort of fulfillment that Maslow privileged above all other aspirations, and what many jobs so seldom provide. (p189)
(Difference of piracy in online and offline world)
Pirated digital products are as good as the originals. But pirated physical products usually aren't. (p204)
Why piracy happens?
Piracy happens when the marketplace realizes that the marginal cost of reproduction and distribution of a product is significantly lower than the price asked. In other words, the only thing propping up the price is the law protecting intellectual property. If you break the law, the price can fall, sometimes all the way to zero. (p228)
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