Why doesn’t Wired magazine practice what its editor preaches?
Posted Thursday, May 21, 2009
In the late 1960s, two separate groups—the Diggers in San Francisco and the Yippies in New York—began operating
“free stores.” These were places where people could come to get things they needed—food, medicine, clothes, and, in some cases, cash—for free. These were designed simultaneously as parodies of, and alternatives to, the usual American consumer materialism. The stores were not around for very long because (at least in New York) people would come in and simply take everything they could put their hands on. Such predictable incursions were contrary to the spirit of the enterprise, but people who set themselves against market principles are ill-positioned to enforce “limit one per customer.”
Now, four decades later, comes Chris Anderson, editor of Wired and author of The Long Tail, whose new book proclaims that giving things away for free is the “radical” new business model of the future. According to Anderson, there are a variety of ways businesses can and should do this, and once they do, they can charge for other goods and services to make their money. Readers can decide whether they think the model is radical; certainly, Anderson does not claim that it is new, although he does propose applying it in a number of ways that seem unprecedented. Which is odd, since if he followed his own advice he’d be out of a job.
The problem is that—outside of a handful of examples, almost all of which are Internet- or digital-based—giving things away for free does not work, or does not work in any significant way. Here’s why: Just about any activity that merits the title “business” has a cost of producing its goods or services. Take, as a particularly rapacious example, the oil-and-gas business. It costs a huge amount of money to extract petroleum from the ground (in many places, more now than it used to), as well as refining the stuff, storing it, shipping it, and so on. Those costs may or may not justify the price of a barrel of oil or a gallon of gas, but neither do they justify a price of zero.
It’s exceedingly difficult to envision a way in which the oil industry—which, by the way, is fairly large—could recoup its expenses without charging the people who use its product. Presumably, if oil companies owned all the car companies, they could give you a car for free as long as they charged you a lot to fill it up: Although wildly impractical and undesirable in this instance, it is a version of Gillette’s old razor-for-free, charge-you-for-the-blades model. Or gas stations could give you a free plate when you fill up your tank. Neither of those is original or terribly interesting or necessarily very effective. Interestingly, as Anderson notes, Gillette mostly did charge for razors; these days it sells especially expensive razors. Come to think of it, gas stations don’t give away plates anymore, either.
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Apply this lens to almost any nondigital business—pharmaceuticals, manufacturing, law, banking—and the same problem emerges. Businesses need to recover labor and capital costs, and giving things away for free doesn’t meet that need very well. Anderson makes much of a supposed distinction between an “atoms economy” (you know, stuff) and a “bits economy,” but it really doesn’t help, because “bits” don’t run the economy. Even as Wall Street felt the need to ask Congress for hundreds of billions of dollars in bailouts, you didn’t see investment banks offering their services for free, and I don’t think that free toasters were going to save Wachovia’s business.
Actually, even in the digital world, there are plenty of cases in which “free” hasn’t worked. Back in the dot-com boom, the Internet services provider NetZero promised “free Internet forever.” The company is still around, sort of, in the form of United Online (UNTD), except that it doesn’t really provide free Internet access anymore, and it doesn’t make money. (Note: UNTD lost money in 2008; as a reader points out below, it had a profitable first quarter in 2009.) Ditto Vonage (VG), a “freemium” voice-over-Internet-protocol phone company that also loses money.
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