NEW YORK: The internet is the ultimate competitive market, and will drive down the cost of digital information to nothing, according to a new book from Chris Anderson, author of The Long Tail, although his conclusions have been disputed by Malcolm Gladwell.
In his book Free: The Future of a Radical Price, Anderson, who is also the editor of Wired magazine, explores "the most radical price of all – zero – in the context of the economics of abundance."
More specifically, he argues that new media is defined by "abundance", rather than the idea of "scarcity" that typifies traditional media.
This difference is demonstrated by comparing the restrictive editorial controls in place on broadcast media and newspapers with the all-embracing, user-generated model at the heart of YouTube.
"Information wants to be free in the same way that life wants to spread and water wants to run downhill," Anderson says.
As such, the defining characteristic of the digital era is that the cost of content is in an irreversible decline as the number of sources of information explodes.
Anderson posits that in "the digital realm you can try to keep Free at bay with laws and locks, but eventually the force of economic gravity will win."
This applies equally to everyone from musicians to newspapers; indeed, journalism itself is increasingly extending "beyond the credentialed halls of traditional media."
Similarly, Anderson asserts that "from the consumer's perspective, there is a huge difference between cheap and free."
This is evidenced, he argues, by the fact that if you "give a product away … it can go viral. Charge a single cent for it and you're in an entirely different business."
Google is a good example of a company making money "around" a free service, as its search engine is available to consumers at no cost, but the online giant makes enormous profits from advertising.
Reviewing Anderson's book in The New Yorker, Gladwell said its subject matter is "perfectly timed for a moment when old-line content providers are desperate for answers."
However, the author of Outliers and Blink disputed the notion that there is an inevitability about the demise of paid-for content in the digital economy.
Rather, he argued that the entire premise is somewhat flawed, as "information can't actually want anything, can it?"
Gladwell thus suggests that "free is just another price, and prices are set by individual actors, in accordance with the aggregated particulars of marketplace power."
In the case of YouTube, while the cost of streaming video may be "close enough to free to round down", as Anderson argues, other expenses are "fatally compromising YouTube's ability to make money around Free."
This includes the fact it has to pay an estimated $360 million (€257m; £221m) each year to stream content, and a further $260m to "buy the rights to professionally produced content", as many advertisers are hesitant to place spots around user-generated material.
Other examples include the Wall Street Journal's focus on driving subscriber revenues, and the fact that cable TV is outperforming broadcast networks.
Similarly, "Apple may soon make more money selling iPhone downloads (ideas) than it does from the iPhone itself (stuff)."
As such, Gladwell concludes "the only iron law here is the one too obvious to write a book about, which is that the digital age has so transformed the ways in which things are made and sold that there are no iron laws."
Data sourced from The New Yorker; additional content by WARC staff