Is it the age of the free lunch?

Is this the age of the free lunch? (Sonya Rosas)One of the challenges of working in digital media is feeling like a blind man. You can hear, smell, taste the changes happening around you–but it always feels like you’re missing part of the equation; where is this going, what is happening next, what is at the horizon line? That’s how most of us who are honest about it feel anyway. It took a visit from Chris Anderson, Editor of Wired magazine to the Lab to discuss his latest book to provide some comfort.

In the same way that his first book, “The Long Tail” helped many business people as well as digerati marketers grasp the power of the niche market that developed as a result of the incredible thing we call the Internet, his second book, “Free” aims to help us all understand evolving economic models, since many of the items in our bag of tricks don’t seem to be working the way they used to.

The catchy sub-headers to Anderson’s book are “The Future of a Radical Price” and “Why $0.00 is the future of business” but as Anderson explained during his talk at the IPG Lab, it’s not really about giving everything away, but about a “freemium” economy–which is a place where marketers stop advertising and start letting their content and products do the work–then charge for the premium products.

An example would be how Adobe often gives away their software, knowing that the dedicated users will happily pay more for the complete premium package. Or how Google offered their searches as a free service, then created a powerful empire around charging advertisers to reach niche audiences who were using their search engine. Apple and all the 10,000+ app creators understood the power of providing a free app to give customers a taste of a product, or a utility around a product they offer–such as Target’s free snow gift globe which enabled users to easily find gifts for their friends and family.

It was the digital age that created this new concept of free. As the Guardian writes in its review of the book “Free stuff is spreading because of one fundamental difference between the bricks-and-mortar world (which Anderson calls the world of atoms) and the digital world (which Anderson calls the world of bits). In the world of atoms, each item is expensive to produce and distribute; in the world of bits, it costs close to nothing.” Remember when Hotmail came along and offered free email after years of forking over $30 a month to AOL? It’s easy to understand how this applies to search, email, virtual gifts, online content, or software downloads. But according to Anderson, it also applies to “atoms” such as hard goods and services—from automobiles that charge you per mile instead of for the car, or airlines like Ryan Air that offer customers extremely low flights across Europe, and then charges travelers for stowing their bags or buying a meal, or incorporates in-air gambling as a way to subsidize flights further (something casinos have understood for years). Even “freemium” healthcare models exist such as in India where patients can choose between free eye surgery or a more plush paid model.

As Anderson acknowledged to a room of mostly advertising agency executives, this is uncomfortable territory for advertisers. What is the value proposition of advertising if companies just give away their products to generate word of mouth? Or when the content that the advertising used to be sold against is a dime a dozen? Certainly it hasn’t worked so well for newspapers (and incidentally, this was the vertical Anderson acknowledged has the toughest road in a freemium economy). However, even though Apple created free applications, it hasn’t stopped advertising for MacBooks and iPods, and its most precious goods are far from free.

So, the real question is, how can advertisers tap into this “free” mindset? Anderson says it’s really a matter of where you are coming from–his parents taught him there is no such thing as a free lunch, but his kids on the other hand expect certain degrees of free stuff—whether an experience on Club Penguin, or the ability to test out a game before buying it. Yet they also understand, he says, when it’s time to pony up with the credit card.

This is the paradigm shift that must happen for companies to truly reinvent their messaging in the digital age. It is the same conversation we have with companies who are seeking to get involved in social media, but are afraid to trust their brand message to the masses. It is the same conversation we have when talking about crowdsourcing to support traditional R&D channels. It is the same conversation we have when talking about engaging uber-influencers to help a brand win the reach they used to buy. Free requires an attitudinal and generational shift, but if Anderson is right, it may be the future of brand marketing in an era of endless content, channels, and bandwidth.

You can download your digital copy of Free here (for free, bien sur) or order your physical copy here (because atoms are not free, as Anderson noted).