Here is Chris’s first salvo to my review of his book Free: The Future of a Radical Price. See my earlier post An interactive review of Free by Chris Anderson for details of the review and this exchange of ideas.

Dear John,

You write in your review of my book Free: The Future of a Radical Price:

“The most plausible contender for an ‘entirely new economic model’ made possible by the internet is what Fred Wilson, the New York venture capitalist, has dubbed ‘freemium’. This refers to companies that allow anyone to use their products free but offer a premium version for which a few users are persuaded to pay.

Many internet companies employ freemium, from Skype, which charges customers to make computer-to-phone calls, to companies that charge for more versatile versions of software. Many of them, however, are still experimenting to see what, if anything, works.”

I agree, and this is actually the core of the book. When I refer to a “new economic model”, I’m not referring to slapping advertising against stuff, which dates back centuries. Instead, I’m talking about the underlying economics that allow Freemium to work. Freemium is the inversion of the traditional free sample. Rather than giving out few percent of your product away for free as marketing, hoping to sell the rest, you give away most of your product for free as marketing, hoping to sell to a minority. This is only possible in the online realm, where the marginal costs of production and distribution are close enough to zero to “round down.”

Freemium is now the main business model of the booming “software as a service” industry online, the online games industry and the fast-growing iPhone applications market. I think that creating business models around Freemium - what to charge for and what not to, a question determined as much by psychology as economics - will be the most interesting, and lucrative, efforts of this online era. And the book, both in its chapters and its tactical advice at the back, is intended to help guide that.

In short, I agree with you that Freemium is the big new story in the Free economy. I’m just surprised that you didn’t see the book as essentially telling that story. The history of Free is in the book for context, but “the future of a radical price” is what it’s actually about.

Chris

July 2, 2009 4:40am in Media, Technology | Comment