On staying relevant in a "Free" economy

This week's Advertising Age features an interesting interview with Chris Anderson, who is probably best known for his work with Wired, but is also known for his book The Long Tail: Why the Future of Business is Selling Less of More.

I was particularly drawn to some of Anderson's classifications of different kinds of free. Here's an excerpt from the interview:

When you think about it, there really are three kinds of free. There's the free we've known forever, which is the King Gillette razor-and-blade model, which is a form of cross-subsidy. A spin-off of that model is the media model, where the product is free because it's subsidized by the advertiser. That's called a three-party market -- the publisher, the advertiser and the consumer who gets everything for free.

The second kind of free is this weird kind of the free that's never existed before, simply because cost goes to nothing. Moore's Law said processing would get cheaper every year, but there are corollaries for bandwidth and storage. As the price gets closer and closer to zero, you can eventually just treat it as free.

Hotmail started with a tiny amount of storage for free and then you had to pay for the rest. By 2000 to 2002, you were getting more. Then Gmail said, "We're going to give away one gigabyte for free," and revolutionized the market. Yahoo said, "We'll give them infinite storage. We'll use that to reinforce people's connection with Yahoo and make the money somewhere else, maybe banner ads on Yahoo News, maybe just the information you get from people's user behavior that allows you to charge more for ads."

The third model of free is the gift economy. This is what used to be called freaky, Berkeley, hippy-commune stuff and now is the basis for Wikipedia, the blogosphere, Craigslist. There is a real economy out there that is motivated by nonmonentary consideration such as reputation, attention, expression -- all the social incentives that are turning out to be incredibly effective in getting people to do things for free. Before we didn't have a platform on which they could work.

Interestingly enough, Wired is also free to the first 10,000 on an e-mail list and is dedicated to how the future is "free" as well.

The Long Tail is something that's consistently brought up in presentations to our digital clients at work. One of our EVPs of Planning recently blogged about how he believes Barak Obama to be the first successful "Long Tail Candidate," by hitting on a massive niche area of campaign donors. This targeting has allowed Obama to continue to flourish while other candidates war chests have become a bit tapped out.

All interesting discussions really, and it presents a big challenge for marketers and traditional ad people alike. How can we really gain traction when more and more people want things for free? In my opinion, a lot of it comes back to content. People are willing to pay for something if they believe it to be a quality product. Just look at Radiohead and the success it had with allowing its fans to purchase "In Rainbows" digitally for any price they chose. It was an interesting exercise, and while it wasn't the first band to try it, Radiohead was by far the most successful.

Radiohead's success doesn't necessarily come from the fact they make good records (I believe a lot of their stuff between "OK Computer" and "In Rainbows" was absolute crap). The band is successful as well because they have people waiving their flag and attesting to their quality despite critical bashing from time to time.

I'll blog more on "The Long Tail" and freeconomy later. I'm just getting going on my initial research into this realm. What do you think of the Free Economy? I'm curious.

As a side note: thanks to all of you for the well wishes and great feedback on the redesign. You're great friends and colleagues.

xo - Eizans