The Ultimate List of Great Books on Pricing
Individual Book Review:
Free: The Past and Future of a Radical Price
Book Author: Chris Anderson
In this book, The New York Times bestselling author, makes the fascinating case that on many ocassions businesses can profit more from giving things away than they can by charging for them. Free describes the fundamental business strategy to a company's survival.
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Free is a study of how digital technologies are changing life and business through the diffusion of " a radical price" - Zero. There has been a rise in businesses offering free stuff, as a consequence, we are also seeing a rise in pricing models which give products and services to customers for free. Most of the time these pricing models are used as a strategy to attract users and then up-sell some of them to a premium offering. This model, for example, is widely recognized as "freemium" and is currently very popular for a diverse number of digital products and services.
In general, Free is an elaborate book on innovative business models, mostly for online, information-rich contexts. However, the book doesn´t only touch on digital products, it encompasses everything from free silverware to free DVDs or bikes. Some of the topics Anderson covers include for example: How can air travel be free? How can a car be free? or How can university education be free?
Anderson, describes how the rise in free stuff is spreading as the marginal cost of digital products, is approaching zero. However, although copying costs almost nothing, the initial cost of producing something might be as high as ever. Therefore, the business question is: how do we cover these fixed costs when we are offering our service for free? It is highly challenging to survive on the market with high fixed costs, low marginal costs and a relatively easy entry, as the competition to attract as many new customers due to the cheap costs will drive prices to zero.
Anderson presents us with his solutions to this problem. He argues the answer lies within cross-subsidies: " shifting money around from product to product, person to person, between now and later, or into nonmonetary markets and back out again". Frequently, however, the cross-subsidy is a way to sell one product by giving away another. This technique is really old, but as Anderson writes " Everyone can use a Free business model, but all too typically, only the No.1 company can get rich with it"
Free describes the phenomenon in which most of the new value goes to consumers instead of to producers. We cannot assume no price means no value, all the same, we cannot assume that value implies profitability. Anderson discusses the future of the digital economy, touches on advertising and gives reasons for the evolution to a free economy.
"Therein lies the paradox of Free: People are making a lot of money charging nothing.“
ABOUT THE AUTHOR:
Chris Anderson: is a British-American author and entrepreneur. He was named in April 2007 to the "Time 100," the newsmagazine's list of the 100 men and women whose power, talent or moral example is transforming the world. He was with The Economist for seven years before joining WIRED magazine in 2001, where he was the editor-in-chief until 2012. SInce then he has led the magazine to nine National Magazine Award Nominations and won the price for General Excellence in 2005,2007 and 2009. He is known for his 2004 article entitled The Long Tail, shortlisted for the Financial Times and Goldman Sachs Business Book of the Year Award in 2006 and runs a blog on the subject at www.thelongtail.com. Anderson is the cofounder and current CEO of 3D Robotics, a drone manufacturing company.