The long tail's tall tale

01-07-2009

by Ralph Averbuch

Chris Anderson thinks everyone's getting a free lunch very soon.

If you liked Chris Anderson's first foray into the world of internet economics and his tale of the "Long Tail" as epitomised in the Amazon business model, you'll probably equally enjoy his latest tome, entitled "Free: The Future of a Radical Price". It's a big simplification of his argument, but he essentially argues that with very large audiences using free services (e.g. Gmail) you only need a very small percentage to upgrade to the premium paid-for service (e.g. Google Apps) in order for the economics to work. He calls it the "freemium" model and it seems a pretty compelling argument. Only problem is it kind of falls apart at the micro level. If we're talking of this in macro-economic terms, where global services supply to global audiences then, as we can see today, some companies really can make healthy profits by giving away the farm. But the big danger of this thinking is that it might suggest itself to smaller companies which have no intent or ability to scale to supply to global markets. This is where Free's arguments fall flat. Everyone in Ireland will be used to using a plethora of online and downloadable software from trans-national online businesses for the princely sum of nothing -- provided you exclude the costs of hardware and connectivity. But for companies operating consumer or business services at a national level in Ireland, the notion of giving your service to 99pc of the people in the expectation that the remaining 1pc will pay the bills and keep the investors happy is perhaps unlikely in anyone's lifetime. It's not that Chris Anderson's arguments are wrong, it's just that they're probably only right for a very limited set of global companies in a limited set of circumstances. And as for free... well let's just say that if you're getting a free lunch, someone, somewhere is paying the bill.

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