Free

Chris Anderson, editor-in-chief of Wired magazine and author of The Long Tail, builds his argument around a central paradox: Businesses are generating enormous profits by charging nothing. The book opens with the example of the British comedy troupe Monty Python, which launched a free YouTube channel of high-quality clips and saw a 23,000 percent increase in DVD sales on Amazon. Anderson uses this case to introduce the book's guiding question: How did an economy the size of a country emerge around a price of zero, and where is it headed?

Anderson traces the origins of Free as a business strategy to two early twentieth-century case studies. In 1895, a carpenter named Pearle Wait developed fruit-flavored gelatin but could not sell it and sold the trademark to businessman Orator Frank Woodward for $450. Woodward's company struggled until 1902, when it began distributing free recipe booklets door-to-door; by 1906, annual Jell-O sales reached one million dollars. In a parallel case, King Gillette, inventor of the disposable-blade safety razor, sold razors cheaply to partners like banks, who gave them away in promotions, creating consumer dependence on profitable replacement blades. Anderson identifies these as the birth of a principle that defined twentieth-century marketing: giving away one thing to create demand for another.

Anderson distinguishes this older Free from its twenty-first-century successor, which he argues is not a marketing trick but an economic model driven by genuinely falling costs. He introduces four models: direct cross-subsidies, where a free product entices the purchase of something else; the three-party market, where advertisers subsidize free content for consumers; freemium, where a small percentage of paying users (often around five percent) support a much larger free base, as with Flickr's free photo-sharing alongside its paid tier; and nonmonetary markets, including gift economies like Wikipedia and piracy.

The technological core of the book rests on what Anderson calls the "triple play" of cost declines: Transistor density doubles roughly every 18 months per Moore's Law, named after Intel co-founder Gordon Moore; storage capacity doubles approximately every year; and fiber-optic bandwidth doubles every nine months. Anderson traces the price of a single transistor from $10 in 1961 to approximately 0.000015 cents on a modern chip. He credits Caltech professor Carver Mead with articulating the "compound learning curve" and its corollary that engineers should stop conserving transistors and start wasting them. Alan Kay at Xerox's Palo Alto Research Center acted on this insight in the 1970s by developing the graphical user interface, making computers accessible to ordinary people. Anderson argues that any industry where information becomes the primary ingredient will exhibit similar exponential price declines.

Anderson connects these trends to classical economics, invoking the nineteenth-century pricing model of French mathematician Joseph Bertrand: In competitive markets, price falls to marginal cost. Because the Internet's marginal costs for digital goods approach zero, prices inevitably follow. Anderson contends that the best response to this abundance is to embrace waste rather than conserve, exploring possibilities the way nature does by scattering seeds widely.

Anderson devotes considerable attention to the psychology of Free, drawing on behavioral economist Dan Ariely's research. In one experiment, when Lindt truffles cost 15 cents and Hershey's Kisses cost one cent, 73 percent of consumers chose the truffle. But when both prices dropped by one cent, making the Kiss free, 69 percent switched to the inferior chocolate, because a free item eliminates any perceived risk of a bad decision. Anderson also introduces the "penny gap," a concept from venture capitalist Josh Kopelman: The mental transaction cost of any nonzero price creates a disproportionate barrier to adoption. This explains why Amazon's offer of free shipping boosted sales everywhere except France, where a mistaken charge of one franc completely eliminated the effect.

A pivotal chapter traces the phrase "information wants to be free" to a 1984 hackers' conference where Stewart Brand, creator of the Whole Earth Catalog, articulated a duality: Information wants to be free because the cost of distributing it keeps falling, but it also wants to be expensive because it can be so valuable. Brand explained that he was drawn to this paradox because both halves were equally true. Anderson notes that the quote is chronically half-remembered, with only the "free" portion surviving in popular culture.

Anderson presents a case study of Microsoft's decades-long competition with open source software, a category of programs whose source code can be freely shared and modified. The arc begins with co-founder Bill Gates's 1975 open letter protesting hobbyist software piracy and extends through the company's pragmatic tolerance of piracy in China to build market dependence. Anderson frames Microsoft's battle against the Linux operating system through five stages of grief, from denial through eventual acceptance and interoperability. The lesson is that free and paid models coexist, with smaller users choosing open source while large organizations pay for contractual guarantees.

Anderson examines Google as the most successful company built on Free. With an estimated half million servers in over 36 locations, Google offers nearly 100 free products funded by its dominant advertising business. CEO Eric Schmidt describes a "max strategy": Distribute free products as widely as possible because the marginal cost is essentially zero, with each service increasing overall Internet usage and thus ad revenue. Anderson also analyzes the disruptive side of Free through Craigslist, whose free classifieds removed an estimated $30 billion from newspaper companies' stock valuations while generating only about $40 million in revenue for itself. The value was not destroyed, Anderson argues, but redistributed to millions of users through better marketplace efficiency.

The book surveys how Free reshapes specific industries. In music, Anderson profiles Radiohead's name-your-price release of In Rainbows, which became the band's most commercially successful album. In video games, he catalogs models including virtual item sales, subscriptions, in-game advertising, and merchandise tied to online worlds. He cites author Neil Gaiman's experiment of offering American Gods as a free digital download, which boosted sales of all Gaiman's books by 40 percent in independent bookstores. Internationally, Anderson profiles Chinese pop star Xiang Xiang, who embraces piracy as zero-cost marketing for concerts and endorsements, and Brazil's tecnobrega music scene, where bands distribute music through street vendors as advance marketing for live shows.

Anderson estimates the U.S. ad-supported free media market at $80 to $100 billion and the freemium market, including the Linux ecosystem of businesses and services built around the open source operating system, at roughly $36 billion, with a conservative global total of at least $300 billion. He also cites technology writer Kevin Kelly's calculation that the Web's one trillion unique URLs represent approximately one trillion hours of labor, an estimated 40 percent unpaid, equivalent to over $260 billion annually.

The final chapters address 14 common objections and contextualize the argument within the 2008 recession. Anderson concedes that costs always exist somewhere but argues they can be so widely distributed as to be individually immaterial. He contends that Free becomes more attractive in economic downturns but warns that advertising alone is an increasingly fragile business model. The real innovation, he concludes, will come from entrepreneurs who pair free offerings with paid ones. Practical appendices distill the argument into 10 principles of abundance thinking, a guide to freemium tactics recommending a five percent break-even conversion rate, and 50 specific business models built on Free.