The Evolving Newsroom

In the New Yorker, Malcolm Gladwell has written a response to Wired editor-in-chief Chris Anderson’s new book Free: The Future of a Radical Price.

I haven’t read Anderson’s book yet and don’t have any excerpts from it to post here other than these quotes from Wired. There’s also a video below of him talking about his ideas at a Wired conference.

You could call it Anderson’s Law: Digital drives the prices of content down to zero. Don’t agree? It’s like arguing with gravity.

“This law of gravity is un-fightable,” Wired Magazine editor-in-chief Chris Anderson told the opening session at Wired’s first-ever business conference, Disruptive by Design. “Because if you don’t do it, someone else will. Because they can. If it’s not zero today, it will be zero tomorrow.

“This is the law of gravity online,” said Anderson, referring to Joseph Bertrand’s 1883 statement that “In a competitive market, price falls to the marginal cost.” However, that’s not to say that no one will pay for anything in his model.

“What it says is that anything that becomes digital will become free — not to say that everything online will be free, but that everything will be available in a free version, so that fundamentally, you’re either going to be competing with free or you’re going to be making a product free and selling something else, because the marginal cost for these products is the same for everybody — which is to say zero.”.

Gladwell raises some interesting counter points in his New Yorker piece, including the following:

…The only problem is that in the middle of laying out what he sees as the new business model of the digital age Anderson is forced to admit that one of his main case studies, YouTube, “has so far failed to make any money for Google.”

Why is that? Because of the very principles of Free that Anderson so energetically celebrates. When you let people upload and download as many videos as they want, lots of them will take you up on the offer. That’s the magic of Free psychology: an estimated seventy-five billion videos will be served up by YouTube this year. Although the magic of Free technology means that the cost of serving up each video is “close enough to free to round down,” “close enough to free” multiplied by seventy-five billion is still a very large number. A recent report by Credit Suisse estimates that YouTube’s bandwidth costs in 2009 will be three hundred and sixty million dollars. In the case of YouTube, the effects of technological Free and psychological Free work against each other.

So how does YouTube bring in revenue? Well, it tries to sell advertisements alongside its videos. The problem is that the videos attracted by psychological Free—pirated material, cat videos, and other forms of user-generated content—are not the sort of thing that advertisers want to be associated with. In order to sell advertising, YouTube has had to buy the rights to professionally produced content, such as television shows and movies. Credit Suisse put the cost of those licenses in 2009 at roughly two hundred and sixty million dollars.

…there’s plenty of other information out there that has chosen to run in the opposite direction from Free. The Times gives away its content on its Web site. But the Wall Street Journal has found that more than a million subscribers are quite happy to pay for the privilege of reading online. Broadcast television—the original practitioner of Free—is struggling. But premium cable, with its stiff monthly charges for specialty content, is doing just fine. Apple may soon make more money selling iPhone downloads (ideas) than it does from the iPhone itself (stuff). The company could one day give away the iPhone to boost downloads; it could give away the downloads to boost iPhone sales; or it could continue to do what it does now, and charge for both. Who knows?

You can read the rest of Malcolm Gladwell’s New Yorker article here, and see Chris Wired talking about the ideas in his book in this video: