MONEY & MEDIA:Chris Anderson on how to make money in the face of widespread free content
CHRIS ANDERSON wrote The Long Tail,one of the most widely quoted business books of the internet era. It suggested that the web's limitless capacity for storing product - books, music, DVDs etc - offered consumers almost limitless choice, in turn creating an almost limitless supply of niche markets. The Long Tail was a marketing masterpiece, taking a complex idea and presenting it simply.
So popular was it, he says, that The Long Tailbecame the most pirated business book in China, something that, "made me feel great, really proud". Over breakfast in a plush west London hotel, talk of pirates allows Anderson, editor-in-chief of Wired magazine, to segue neatly in to discussing his new book, Free: The Future of a Radical Price.
"Piracy is the animal forces of market economics," he says. "If you don't make your product free when the marginal costs of production are zero, then the pirates will, because they can. If something can be distributed free, someone will try to do it. And it's very hard to stop it. When you look at piracy as a price in the marketplace, and in places like China it is so rampant that you can't really fight it any more, it forces you to use the pirates as a form of marketing," he says.
He quotes Bill Gates, who said that, if the Chinese were going to be ripping off software, he'd prefer it to be Microsoft software. "One day they will be richer and willing to pay. And on that day, he wants them to be hooked."
People are starting to look at piracy as authentic and organic marketing, says Anderson. "What I think about is someone taking the book, cutting all the pages, scanning them, reprinting them, rebinding them, and distributing them to people on street corners. They didn't do it because my publisher asked them to, or for marketing or advertising reasons. They did it because they thought it might sell. It feels authentic. It feels like real demand."
The 21st century challenge for many industries, he says, is to find a way of competing with them by offering something they can't rip off. "We are still trying to keep the genie in the bottle. In China they have largely given up. They are trying to sell something else."
This something else is at the heart of what he calls the reputation economy. With music, he says, artists and record companies have all but given up trying to sell recorded singles and albums. "They assume the pirates will own that market, and because it's in their economic interest to distribute music on the peer-to-peer sites, they will be quite efficient at that."
A by-product of this piracy is celebrity for the artist, leaving the smart ones at liberty to monetise that celebrity, in the form of endorsements, store openings and tours. "It doesn't work for everybody, and probably doesn't work for most. But that's been true of all business models. We have this assumption that the music industry worked for artists in the past. It didn't. It worked for some, but not for most. Most people weren't signed to labels. Many who were didn't make a penny from it."
But what of Chris Anderson and his books - how is he faring in the reputation economy? "If you are me, you may not be able to turn your pirated book in to money. But I wasn't planning on making money from it anyway."
Anderson is among a handful of authors who are profiting from the lessons learned by the music business in the past decade. In particular, he says, he looked at how Radiohead fine-sliced their product. "Three albums ago I would guess they had around five different versions," says Anderson, listing the album, two singles, the concert tour and maybe a vinyl release. "Toss in a T-shirt and we'll call it six."
For the latest one, In Rainbows, they had at least 20 different versions: the MP3 with different bit rates, the CD, box set, vinyl, book, concert, DVDs. You could name your price of entry, from £100 down to zero - the band famously released the album free of charge on their website. "There is a continuum of price and it's what sophisticated markets do. It's not one size fits all. They identify the sensitivities to price at each level and offer products to each category. Including zero."
So confident is he in the theories he puts forward in Freethat he's giving it away - in digital form. And only for a week, following the US launch this week on July 9th. Is this walking the talk or another clever marketing ploy?
"I'm willing to bet two things," he says. "That the physical book is the superior 'Freemium' version of the e-book. And two, that the best way to get the maximum exposure for an idea is to sample it. If you want to read it the whole way, you can, but most people will trade up to the physical book. If you get ten per cent of a million people to do that, you're doing alright.
"The best way for people who value the traditional book is to buy the hardcover. If they don't, I still extract some value. My free book is a vehicle to propagate recognition for me and my ideas, and I'll figure out a way of making money from that."
As a print journalist and magazine editor, Anderson appreciates the value of physical form. By releasing the digital book for a limited period he is also betting on Long Tail demand: "The ones who buy it (the free e-book) are the fast movers, the early adopters. Let's give them the book for free. If they like it they'll talk about it, and by the time the second wave hear about it, it won't be free any more." This is he says, a perfectly acceptable business model, with the confidence of someone who learnt their trade at the Economist.
His home for the last decade has been Wired, which began life as a hip chronicle of Silicon Valley and is now a glossy, global leviathan with a glassy Manhattan office. On the morning of our conversation, Anderson's new book was the subject of a blistering review in the New Yorker, written by Malcolm Gladwell. So critical was Gladwell, and so close his readership to Anderson's own constituency, that the man from Wiredfelt compelled to take him on.
"Dear Malcolm, why so threatened?" he wrote on his blog, thelongtail.com, starting: "It's now clear that the bane of my next year will be questions about the future of the newspaper industry from journalists. I don't blame them - newspapers are indeed one of the industries most affected by Free (although that's just one manifestation of their larger problem: having lost their monopoly on consumer attention)."
He references "the Gladwell review" without prompting, before offering a guide to modern cyberspace etiquette. "There are three conversations going on. First is a lecture, when people read the book. It's all me, this is what I want you to think. Then there's the reviews and media coverage, which is filtered through what the journalist wants you to think. Then there's the social media conversation, which has its own agendas, which is influenced by the media, as in the case of the Gladwell review, and also influences the media coverage.
"Someone in your position [he says to me, pointing a tea spoon] might come with their own questions. Then if they've followed the online coverage, they will be influenced by the Gladwell opinion, and by the responses to Gladwell's opinion. This whole thing has taken on a different dimension, which is not what I intended, it's not just about newspapers any more. There is this interplay between the old and new media, the social and the so-called professional media. I can influence it but can't control it. I can try to steer, but it is just as likely to backfire."
Given this complex network of opinion and comment, why did he feel it necessary to respond? By jumping in so early, might it not come across as defensive? "My instinct is to always be part of the conversation," he says. "When you are on the road, in the wrong time zone and on a cell phone, it's kind of hard. I can't control it, but if I am part of it, I can try to steer it in a different direction. I do respond to quite a lot. To the extent of going through people's comments on their own posts, often privately, to be read only by them. If you are going to respond to everyone who makes a legitimate point, you are in reactive mode all the time, because there are so many of them. It's all tactics and no strategy. And that's where I am now."
