Monday, June 29, 2009

Malcolm Gladwell takes apart Chris Anderson's "Free"

Pondering the narrow topics John McPhee has explored in his career, a critic once wrote, “One day John McPhee is going to bite of less than he can chew.” I’ve had the same thought about the subjects of Malcolm Gladwell books, to tell the truth; like Thomas Friedman and others, he seems to specialize in taking a really good, interesting idea and expanding it far beyond anything I wanted to know.

I say this to introduce what I found a compelling Gladwell piece in which he takes apart another author – Chris Anderson, author and editor of Wired – for a much greater sin: failing to report (or perhaps even understand) several essential points that turn his thesis on its head.

The thesis in question is Anderson’s much-cited theory that “Free” is the news business model – certainly in the digital world and, increasingly, in meatspace as well. (As widely noted, neither Anderson's book nor magazine is free.) For both a citation of the Anderson ideal and Gladwell’s brutally effective rebuttal, this:

"Information wants to be free,” Anderson tells us, “in the same way that life wants to spread and water wants to run downhill.” But information can’t actually want anything, can it? Amazon wants the information [from publishers] to be free, because that way Amazon makes more money. Why are the self-interested motives of powerful companies being elevated to a philosophical principle?

Having effectively dismissed the central idea in “Free,” Gladwell then happily proceeds to demolish a lot of the pseudo-factual evidence Anderson uses to support it.

For one, Anderson uses YouTube as a poster child for his point. ““Nobody is deciding whether a video is good enough to justify the scarce channel space it takes, because there is no scarce channel space,” he writes, and goes on:

Nobody is deciding whether a video is good enough to justify the scarce channel space it takes, because there is no scarce channel space. Distribution is now close enough to free to round down... which is why YouTube’s founders decided to give it away. . . . The result is both messy and runs counter to every instinct of a television professional, but this is what abundance both requires and demands.

Ooo. Bad choice, Anderson. As Gladwell telling points out, YouTube is a spectacular money loser. It costs its owners (Google) something like $360 million just for the bandwidth to serve up all those billions of videos. Even worse (for YouTube) was the discovery that advertisers don’t want their ads placed alongside most of the crap (skateboarding cats and bad dancers). In order to sell ads, YouTube pays roughly another $200 million to license quality commercial entertainment.


To recap: YouTube is a great example of Free, except that Free technology ends up not being Free because of the way consumers respond to Free, fatally compromising YouTube’s ability to make money around Free, and forcing it to retreat from the “abundance thinking” that lies at the heart of Free. Credit Suisse estimates that YouTube will lose close to half a billion dollars this year. If it were a bank, it would be eligible for TARP funds.

Finally, Gladwell demonstrates what shallow reasoning Anderson and so many techno-utopian evangelists employ. Take a famous example from the 1950s, when Lewis Strauss, chair of the Atomic Energy Commission, predicted “our children will enjoy in their homes electrical energy that is too cheap to meter.”

Well, we all know that didn’t happen; Gladwell shows why it couldn’t happen: Strauss made his prediction based on the assumption that nuclear energy, compared to coal or fossil fuel, would generate electricity so cheaply it could be given away. In the words of another AEC commissioner: “Even if coal were mined and distributed free to electric generating plants today, the reduction in your monthly electricity bill would amount to but twenty per cent, so great is the cost of the plant itself and the distribution system.”

Obviously I am quite taken with Gladwell’s analysis, and urge you to click through to the New Yorker and read the whole thing. Because thinking and writing like Gladwell’s, I can assure you, does not come free – or even cheaply.

U{DATE: Josh Young points me to an analysis that says Google's loss is much less than the Credit Suisse number Gladwell cites. In truth, nobody knows, but I am sure Google doesn't want it to be free.

1 comment:

  1. Anonymous11:15 AM

    This was a really good article and thanks for pointing to the New Yorker piece which I read, for, well, free.
    I'd just like to point out that free is not necessarily a bad business model.
    At the dawn of my career, I worked for a group of free newspapers in San Fernando, Calif.
    The paper was free to the reader. Much of the content -- club news by community correspondents, calendar listings, letters to the editor, recipes that called for mass quantities of Smucker's (tm) jam, etc. -- was free to us.
    We, of course, made our money by selling the eyeballs of all those free readers to our advertisers, which funded a small, low-paid, but hard-working and award-winning staff.
    It was mostly recent graduates looking to establish themselves and build a clip book, (like me) and semiretired pros who wanted to keep their hand in and got some satisfaction from training the newbies in the ways of journalism.
    Our energy and their experience made for some rich -- if mildly schizophrenic -- newspapers, beloved in the community and well supported by the local merchant class.
    I guess my point is, free works if you do it right. On the web, we need to learn (or maybe remember) how.
    And I think the Strauss quote may be a little out of context here.
    "Too cheap to meter" does not necessarily mean the same thing as free.
    As head of the AEC, Strauss would undoubtedly have been aware of the costs of building power plants and running distribution systems.
    Modern analysts think he was talking about a system where the wattage itself would be so plentiful that it wouldn't be cost-effective to maintain a system of installing and reading meters and calculating bills based on individualized usage.
    You'd pay a flat rate for running the system and use what you want.
    That might seem kind of pipe-dreamy, but I remember when I used to pay by the hour for Internet access and by the minute for cellular and VOIP phone service.