Friday, January 15, 2010

Book Review: Free

Man, I really wanted to not like this book. I'm not sure any other book has been cited, oft out of context, to me over the past year. The fact it was cited to me to make points I disagreed was what made me want to read it. I realized it was often being cited incorrectly or out of context, but did have other issues with the book.

After reading it, while I *do* have issues with it, I have to highly recommend it nonetheless.

The basic thesis is as follows: As the marginal cost of creating & delivering a product drops towards zero, its price will do the same. It then goes on to discuss how when the price goes to zero, interesting things happen.

The thesis is sound. And the important part relevant to many cases cited (e.g. print, music) is that when the cost of *creation* of the product is near zero, then you have a market where the cost of delivery is the biggest factor, and when that falls to zero, things go non-linear. (Divide by zero = undefined :-)

I agree with this 100%, and it's clearly had huge impact in many areas, some of which are cited in the book. Craigslist decimates Newspaper classifieds. Online distribution completely tips the music industry on it's side, Amateur journalism gives pro a run for its money, etc.

There are a couple issues I have with the book:

  1. Inconsistent definition of "Free". The author cites many different versions of 'free', some of which have been around a long time. Take for example "free prize inside". Early in the book, he points out that this isn't really what he means by free, because it's just bundled into the price of the product. Yet later in the book, he cites this as an example model of free. I think this a case of the author falling into the very common trap of trying to stretch the thesis too far. This happens a lot in business books, and it's a shame, because it dulls and confuses the fundamental point, which is a really good one.
  2. The author doesn't adequately take the cost of creating the product into account. He mentions it, but often only looks at the cost of distributing the product. He gets around this by saying that when the product is made of bits, the distribution cost goes to zero, the development cost is sunk, and therefore can be viewed as negligible. However, there are two cases where the cost of development cannot be ignored. One is when the market for a product is limited. At the end of the day, the development cost has to be distributed across the total customer base, and if that is finite, then lowering your distribution costs may let you get more efficient, but once you saturate the market, that's it. The second issue (and it's kind of the same) is when the cost of developing the product is really high. If you made a film that takes $100M to produce, and you beleive it has a market of 100M people, then the per user cost doesn't go to zero, it goes to $1 (given perfect efficiency, etc). Anyhow, I would have liked this more thoroughly taken into account.
  3. Free doesn't exist in a vaccuum. While the simple thesis looks at cost of developing a product and cost of distributing the product, these are only a couple factors. Lip service is paid to things like cost of supporting a product, shelf life of a product, value of scarcity (real or perceived), value of exclusivity (real or perceived), etc. While these are mentioned, it is only in passing. Depending on the product or business being looked at, the value of these things may be a signficant factor that needs to be taken into account.

These issues aside, the book is highly recommended. At the very least it'll give you some food for thought about your business. As a bonus, there are many examples included from the games space, including demos/trials, freemimum models, etc.

I'll post another set of thoughts about some implications for the games industry when I get a few moments.

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