Open Access News

Caroline Bayley, Buy none, get one free, BBC News, January 8, 2009.  (Thanks to Matt Cockerill.)  Excerpt:

Is the business model of the future one where the customer no longer pays? Already products in the digital marketplace are being given away free, yet companies are still making profits.

One firm believer in this increasingly common business model is Chris Anderson, editor-in-chief of Wired magazine....

BBC Radio 4's In Business spoke to Chris Anderson ahead of the publication of his book, Free: The Future of a Radical Price....

Mr Anderson refers to Moore's Law, which states that computer power doubles every 18 months. The economic reciprocal of that, he says, is "the cost of a net unit of computer power falls by 50% every 18 months, which means that everything gets cheaper by 50% or more every year and a half...Imagine a factory of the 19th Century where the labour got cheaper, where the steel got cheaper, where coal got cheaper, the real estate got cheaper, every aspect....That's why there's such an imperative to make things digital, because you go from an economy where things get more expensive, such as oil and food - the economy of atoms - to an economy where everything gets cheaper, which is the economy of bits"....

"At the moment, people are still suspicious of 'free' and are right to be so. They often pay further down the line or pay with their time or reputation....People are right to think that somewhere, somebody is going to have to pay." ...

This new model still uses cross-subsidies - the idea that someone is paying - but in this case, Mr Anderson says, it's not you.

In the digital world, a very few paying customers can subsidise everybody else.

"The new form of cross-subsidy is one where a tiny minority of people who really appreciate the product, really get value from it, can subsidise everybody else, because the underlying cost of doing things online, in digital, is so low that you can give away 90% of it for free." ...

Chris Anderson refers to the spray of perfume given away free in the department store to encourage customers to buy a whole bottle.  One per cent of the product is given away free in order to sell 99%. In the digital world, however, the opposite applies, "you give away 99% to sell 1%," he says....

"[With computer games] the people you're charging are happy about it and the people you're not charging are the majority. So everybody's happy and the company makes money because the marginal cost of supplying that game to the free users is close to zero."

Comments

• Anderson is generalizing the business model used by OA journals, whether or not they charge publication fees.  Here's how I generalized it in an April 2002 article:

  There are many successful and sustainable examples in our economy in which some pay for all, and those who pay are moved by generosity, self-interest, or some combination. Either way, they willingly pay to make a product or service free for everyone rather than pay only for their own private access or consumption. This funding model, which works so well in industries with much higher expenses [such as broadcast television and radio], will work even better in an economic sector with the nearly unique property that producers donate their labor and intellectual property, and are moved by the desire to make a contribution to knowledge rather than a desire for personal profit.

• Unfortunately the link to the podcast interview with Chris Anderson and James Boyle is broken at the moment.  But keep trying in case the problem is only temporary.  If the BBC eventually posts the interview to a different URL, you should be able to find it here.
• Also see the reflections of Peter Day, who conducted the Anderson/Boyle interview, and our past posts on Anderson and Boyle.

Update.  Here's a working link to the podcast interview.  (Thanks to Matt Cockerill.)