February 26, 2008


One of the eternal scientific constants in the world is what I call the Wired Cosmological BS Ratio. Every Wired article will be 1/3 unadulterated BS, 1/3 crazed hype and 1/3 thoughtful analysis. As a result, most Wired articles are actually too annoying to read all the way through, as something in the first couple of paragraphs will usually be enought to compell you to hurl the (virtual0 magazine up against the (virtual) wall.

Well, I took one for the gipper and actually read the entirety of Chris Anderson's article in the latest issue, Free! Why $0.00 Is the Future of Business. It's a taste of his upcoming book on Free and overall, I have to say it's pretty interesting. As usual, he's a little too glib about how easy it is to convert attention and reputation into cash -- easy to say for the Editor of Wired, U2, Prince or anybody else that actually made their reputations in the pre-free economy. But perhaps not as obvious or as easy to the rest of the planet.

In any case, first the BS, in the form of a couple of Free scenarios he throws out for consideration:

Scenario 1: Low-cost digital distribution will make the summer blockbuster free. Theaters will make their money from concessions — and by selling the premium moviegoing experience at a high price.

Scenario 2: Ads on the subway? That's so 20th century. By sponsoring the whole line and making trips free, the local merchants association brings grateful commuters to neighborhood shops.

Scenario 3: It's a free second-gen Wiii! But only if you buy the deluxe version of Rock Band.

I know, I know, we're all trying to decide which of these is the silliest. No one in their right mind who sees a movie for "free" but has to buy $20 popcorn as part of the deal or pay $15 for an actual comfortable seat will think of the movie itself as free. It's bait and switch.

And, right, Microsoft will pay $1 billion per year to sponsor the TTC. If Anderson had taken even a second to figure out how much it costs to run a transit system, he would have seen how absurd that is. As for the Wii example, even he admits these kinds of cross subsidies are new, so I'm not sure why he makes such a big deal of them.

And the Hype:
As much as we complain about how expensive things are getting, we're surrounded by forces that are making them cheaper. Forty years ago, the principal nutritional problem in America was hunger; now it's obesity, for which we have the Green Revolution to thank. Forty years ago, charity was dominated by clothing drives for the poor. Now you can get a T-shirt for less than the price of a cup of coffee, thanks to China and global sourcing. So too for toys, gadgets, and commodities of every sort. Even cocaine has pretty much never been cheaper (globalization works in mysterious ways).

It must be nice to live in such a black and white world, free from green house gas emmissions, sweatshops and the race to the bottom. Wal-Mart making everything cheaper is an example of the tragedy of the commons, not the virtues of free.

But there is some pretty good stuff too, picking up on my recent musings on the reputation/attention economy:
Enabled by the miracle of abundance, digital economics has turned traditional economics upside down. Read your college textbook and it's likely to define economics as "the social science of choice under scarcity." The entire field is built on studying trade-offs and how they're made. Milton Friedman himself reminded us time and time again that "there's no such thing as a free lunch.

"But Friedman was wrong in two ways. First, a free lunch doesn't necessarily mean the food is being given away or that you'll pay for it later — it could just mean someone else is picking up the tab. Second, in the digital realm, as we've seen, the main feedstocks of the information economy — storage, processing power, and bandwidth — are getting cheaper by the day. Two of the main scarcity functions of traditional economics — the marginal costs of manufacturing and distribution — are rushing headlong to zip. It's as if the restaurant suddenly didn't have to pay any food or labor costs for that lunch.

Surely economics has something to say about that?

It does. The word is externalities, a concept that holds that money is not the only scarcity in the world. Chief among the others are your time and respect, two factors that we've always known about but have only recently been able to measure properly. The "attention economy" and "reputation economy" are too fuzzy to merit an academic department, but there's something real at the heart of both. Thanks to Google, we now have a handy way to convert from reputation (PageRank) to attention (traffic) to money (ads). Anything you can consistently convert to cash is a form of currency itself, and Google plays the role of central banker for these new economies.

There is, presumably, a limited supply of reputation and attention in the world at any point in time. These are the new scarcities — and the world of free exists mostly to acquire these valuable assets for the sake of a business model to be identified later. Free shifts the economy from a focus on only that which can be quantified in dollars and cents to a more realistic accounting of all the things we truly value today.

Like I said, some interesting stuff. I look forward to reading his book when it comes out, I hope in some soft of free format. Afterall, it's my eyeballs he wants, not my money...right?

(BTW, I would be remiss if I did not mention Walt Crawford's selective demolishing of another aspect of the article. I would encourage everone to pick a part of the article and fisk away.)

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