People once paid for email software. Then ISPs began offering email software as the ‘promotion’.

Then Hotmail appeared, offering free email (no ISP strings attached) but with greater storage capacity as the upgrade – ‘freemium model.’

Then Google appeared and offered free storage (massive amounts of free storage) in return for ad placements – the ‘cross-subsidy model’.

This is happening in every industry (from music to magazines).

Fortunately for magazines, we’ve been operating under a cross-subsidy model for years (Do you really think a magazine can be produced and sold for only $8.95 per unit?).

Same models. New mediums.

To an extent I agree that businesses relying on advertising alone are going to find it harder (see Facebook, YouTube) But Freemium seems like a great model – look at 37signals. They released Ruby on Rails and offer free versions of most of their products. RememberTheMilk, FlickR other examples of successful freemium businesses.

Freedom isn’t free…

I see it as distinct from a ‘promotion’.

The rise in discussions around ‘free’ largely relates to new applications of this model or extensions of this model due to the falling costs of digital.

One of the points Anderson makes is that as digital becomes closer and closer to free (as products/services start to near their marginal cost), manufacturers and service providers will need to find new ways to subsidize the cost of development.

This is different to a ‘promotion’ (for example, the free information on this site is not a promotion, unless treated in its loosest definition – as a promotion to get you here to sell your attention to advertising agencies).

Rather, one area of the business is subsidizing the other.

Some more interesting examples might include…

A free car wash that makes you complete market research surveys
A free airline that offers gambling services
A cinema that makes its money only from popcorn and coke

Is the car-wash a promotion? Is the airline a promotion? Is the film a promotion? I guess it depends on how loosely we define the term.

But coming from publishing, a complicated web of cross-subsidies that makes our books sometimes look like spaghetti, I prefer to see the world as ‘cross-subsidies’.

Call it semantics. But it makes more sense to me than viewing an entire revenue model as a promotion.

To emphasis you point that ‘free’ isn’t new, each of these ‘traditional’ media types sit at different points in the continuum.

1. Television/Radop: Free to consumer, fully funded by advertising.
2. Newspaper: Relatively small cost to consumer, partially funded by advertising/classifieds.
3. Movies: Higher cost to consumer (vs newspaper), partially funded by product placements and in cinema advertising.
4. Books: Fully funded by consumer, no advertising.

The two biggest questions that come out of this article are:
1. What are the consumer’s expectations in terms of paying for the service and percieved value? The problem with venture capital is that it has allows too many internet business to offer ‘free’ services which destroys the consumer’s willingness to pay irrespective of question 2.
2. Which is, how valuable do advertisers see the particular business/vertical/industry as a channel to market? TV still manages to dominate advertising spend despite being fundamentally unmeasureable (vs web or mobile) and in the words of Seth Godin, only works by ‘interrupting’ the consumer’s entertainment.

OK, so I think most of the criticism of Anderson’s latest riff is at cross purposes to his argument.

There are many business models other than advertising that support “free” stuff. Anderson is probably far more focussed on “freemium” than advertising, for instance, as a business model.

http://www.longtail.com/the_long_tail/2008/09/the-three-kinds.html

Why what Anderson has to say is worth considering, and why I’d argue it aint the same old same old, is that he, like Kevin Kelly in “Better Than Free”

http://www.kk.org/thetechnium/archives/2008/01/better_than_fre.php

is asking what are the implications for an economy when one of its central things of value, ideas and their digital expression through writing, music, cinema, software and more, are infinitely reproducible for effectively no cost. This really isn’t the same economic reality as shampoo samples of the 1950s.

I happen to be a big fan of Gladwell, and not so much of Anderson, or Godin, but in this instance, I think Gladwell either misses the general point of Anderson’s argument, or is riffing on his own take of the whole issue.

Anderson’s work is not unique in its insight by any means, but he is considering issues that will not go away.

john

(BTW, I’ve considerable experience of this as an author, software developer, publisher and conference organizer, in all of which guises I’ve found giving stuff away a very effective part of successful business)