Free products equals big profits on the Web, says Wired editor

If there aren’t any free lunches, you better be giving away some.

That’s the advice Wired magazine editor Chris Anderson has for you, especially if you’re selling over the Web.

Anderson reminded a room full of corporate marketers that his nine-year-old would rather watch Lego stop-motion videos on YouTube than the Star Wars trilogy in hi-definition.

It’s only a matter of time before your business either offers something for free or loses out to the competition, Anderson told the crowd at the Interactive Marketing conference in Toronto – a philosophy he has expanded on his upcoming book, “Free.”

Wired editor Chris Anderson explains how his nine-year-old is smarter than his IT department.

Montreal-based Infopresse hosted the day-long conference that offered stumped marketers a glimpse of how to make money in the new world of socially-driven media.

Anderson offered one such idea that seems counter-intuitive. Give away almost everything for nothing.

“Most Web 2.0 sites have a free site that is for most people and a paid site for just the few who are really passionate about it,” he says, pointing to photo-sharing site Flickr as an example.

“The cool thing is the people who are signing up for those accounts have totally bought into the system,” he says. “They don’t need to be marketed to and they’re price insensitive.”

The Wired editor says processing power and data storage are now so cheap that any average person can be wasteful with those resources. But unless you’re part of the younger generation, you are stuck on the idea that technology is expensive and its use needs to be justified.

Anderson realized the folly of his own company’s thinking one day when he got his regular weekly message from the IT department asking him to clean out his old files to free up storage space. He asked how much storage space was available for the entire company and discovered it was only 500 gigabytes.

“My nine-year-old has one terabyte because he likes making stop-motion movies with his Lego,” he says. “Someone at my company got the wrong idea that storage was expensive and should be saved. My nine-year-old knows the truth – storage is free and should be wasted.”

Not only does his nine-year-old make Lego movies, he watches them on YouTube, Anderson adds. The now-famous Web site is successful because it pretended that bandwidth was free and there should be no content filters in what is streamed to the Web audience.

“Every possible video that can be made will be made,” he says. “We’ve maximized the potential space of video and now we know what nine-year-olds really want, and it’s all thanks to wasting bandwidth.”

Free Web 2.0 tools like YouTube are changing the way Canadians use the Internet. Such tools haven’t been around for that long, yet are already seeing levels of use equal or surpassing that of traditional Web tools like Instant Messenger and e-mail, according to Bryan Segal, senior director of ComScore Media Metrix Canada.

“Canadians are using the different tools the Web offers them, and it’s going to affect how people talk,” he says. “These tools have changed the way that Canadians use the Web.”

While more than two-thirds of Canadians report using an IM program in the past month, and 84 per cent have used Web-based e-mail in the past month, even more have looked at a social networking site, Segal’s data shows.

About 85 per cent of Canadians have used social networking over the past month, he says. The growth of social networking is so fast, it outpaces the rise in Internet use by a factor of four.

That presents a big opportunity for Canadian publishers to get into the social networking space and provide an outlet for their countrymen to share their voices, Segal says. “Canadians are dying to talk.”

The secret to making money off of this latent desire of Canadians to create content on the Web in the form of text and video is to offer it for free, Anderson maintains.

The “free sample” model of the traditional marketer gives away one per cent of products for free and sells the other 99 per cent.

But the “freemium” model flips that model on its head. Try giving away 99 per cent of your content – which is possible because the publishing means are now practically free, he says.

Sunnyvale, Calif.-based Yahoo Inc. offered a great example of such a model when they faced competition from Mountain View, Calif.-based Google Inc. entering the Web e-mail market.

Google had one-upped Yahoo on the amount of storage space offered, at one gigabyte per user.

But Yahoo wasn’t fazed. They saw that while storage costs were dropping, the revenues per user were going up. So they beat out Google by offering unlimited storage to their 120 million e-mail users.

“It turned out that not everyone takes advantage of infinite capacity,” Anderson says. “A lot of people kept deleting their e-mail, and a lot of people kept paying $30 a year for their premium account.”

The paid account offered other additional features when storage became free, he adds.

Anderson will heed his own advice when his book does come out in about a year from now. It will be free in e-book form, in audio book form, and even in an advertising-subsidized physical form.

But he’s not sure how to distribute that yet, with bookstores having little incentive to carry a free product.

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