Alright, although a lot sooner than I planned to do this but this book is a very good read and I would like to share it with you. Here goes another one of my Book Review bits. This on is on a book called FREE: the Future of a Radical Price, by Chris Anderson.

The main idea of the book is making profit by giving things away – for FREE. And true to his ideas of giving things away for free, Anderson gave away free downloads of his book while at the same time offers to sell it to those who want hard copy of the book. He showed an example of giving things for FREE and still makes money out of it.

Anderson presented different business models that thrived on giving away their products but at the same time make money in the process. His first example was about the 19th century saloons that offered free lunches to anybody who bought a drink. It became very popular because people enjoyed getting things for free but without realizing that there is no such thing as free lunch as the cost of the drink covered also that of the “free” lunch. Anderson’s idea is for companies to use the right business model to make money by offering consumers many things that sell for less, or even nothing.

The main thrust of Anderson’s thesis is how everything digital have become cheaper and that the incremental advances can combine to make a product too cheap to meter or sell on an individual basis. The question that will arise will deal on who is going to pay when consumers get products for free. Anderson proposed how a business can pass on an item’s cost from the average consumer to other parties such as advertisers of picky consumers who are willing to pay for a premium version. Examples are internet software, such as anti-virus protection, that is given free to users but charge a fee for an advanced version. The fee for the advanced version very well covered the expenses of running the free version.

Anderson believes that the Web is the biggest store in history and everything is 100% off. This strengthens the belief that the price zero, or FREE, in an inevitability on the internet as the marginal cost of anything digital falls by 50% every year, making pricing a race to the bottom. Added to this is the power “Free” has over the consumers’ psyche and you will have a situation where almost everybody will grab anything that is offered for free.

The way to make money is to figure out how to combine free with paid as in the case of the aforementioned free software that offer also a premium version for a fee. Anderson wisely realized that the currency of the web can be summed up into: 1. attention as in the number of traffic to a site, and 2. reputation as in the number of links that point to your site.

By utilizing attention and reputation, any business model can capitalize on giving something for free to make money or profit. At present, a lot of business models are using this strategy. An online e-book seller makes a sale after giving out interesting mini e-books for free. Phone companies give away cell phones and sell minutes of talk time or give away talk time and sell cell phones. Casinos give away the drinks and sell the show or get people’s money through the slot machines. Google gives free search and e-mail but makes money on advertising. It is now very common to see businesses giving away something for free in order to make business profits.

However, not all businesses can work following this model of giving away things for free and making profit on something else. The most glaring example could be Google’s YouTube. YouTube allows anyone to post and watch video for free.  Since there is no quality control on the kind of videos being posted, and no limit imposed because there is an abundance of channel space, they are unable to attract advertisers who are hesitant to put their names in a site where piracy and other materials advertisers do not want to be associated with abound. While the cost of uploading and downloading videos on the part of YouTube is close to nothing, when that close to nothing is multiplied by the expected 75 billion videos for this year alone, the amount could be staggering.

What is evident here is that not all free business models will work as they are subject to different conditions and consumer reactions. There is the wrong-placed assumption that everything will work out just like the business model that was used as a pattern for all other businesses.  Anderson mentioned other products such as electricity and pharmaceuticals that could be produced, and will therefore be distributed, almost free because they will be too cheap to produce. What are forgotten here are the expenses to be incurred by the producers beyond the production stage. Electricity may be produced almost free but the distribution channel, the grid and the networks will remain to be at a steep price. Pharmaceutical production could advance, because of technology, to the point that they are produced almost free but will involve a lot of expensive clinical testing before they are brought to the market.

While the concept of free applies to many products and business models, the concept of paying a very steep price for specialized or high-end products still attracts a large segment of the consumer group. Free may attract a large group of consumers but it does not work fine for the businesses at all time.

FREE is an interesting book, especially its discussion of “Free in a Time of Economic Crisis” and the “Fifty Business Models Built on Free”. Interesting also is its optimistic outlook about the zero prices as a driving force of the digital economy. However, there could be seen flaws in the basic assumptions used in the book. Still, it will make an interesting read.