Visualizing Chris Anderson's "Free" Model

Chris Anderson, author of the Long Tail, put out a call for help to visualize his "3 Kinds of Free" model.  The above visual is what I've come up with. If you know Chris, can you give him a heads up? Of course, if the Long Tail is valid, he should be able to find this himself. :-)

From his post:

1. Here's the first, which dates back more than a century. It's the razors-and-blades model, as well as loss leaders of all sorts, from "free gift inside" to "free toaster for opening an account":

2. The second is the media business model, ranging from free-to-air broadcast radio and television to all ad-supported content online today:

3. The third is the new one, enabled by digital markets where the marginal cost of production and distribution is close to zero. This is the one that allows the "freemium" business model, where 90% of the users get the basic product for free and 10% chose to pay for a premium version. In economics this is called "versioning"...

Comments

[Ben Kunz]

Nice. One thing the graphic doesn't convey is the migration of consumers from the second model "Free 2" to a new model where no one subsidizes content -- because consumers are creating it themselves.

We can see this in newsprint, for example, where readers are migrating to the web or social media, and this declining readership has forced advertisers to pay MORE per impression or per inquiry.

The rates of ads may not change on a per-spot or per-column-inch basis, but the cost of getting results from advertising is rapidly rising. The entire ad industry faces a gigantic challenge of limited inventory as consumers shift their attention away to other, totally free resources.

If advertising were oil, it's headed for $200 a barrel.

[Jason Baer]

Killer visual representation of a powerful idea that's changed the world of news, software, music and many more.

I'd like to see an eventual follow up from Chris Anderson (and of course graphics from you) that shows how well these models are working for companies that have been disintermediated and have HAD to embrace it.

Especially the freemium model. It makes great sense in theory, but how many Web 2.0 and SAAS companies will be able to generate enough $$$ on the upper tier to make the huge numbers of free "customer" pay off? I would argue that freemium is the dot com bubble model of get as many customers as you can, and figure out how to monetize later. We just have a better understanding of the possible success path now.

Please keep up the fantastic visual thinking. It's a huge asset to the entire community.

Jason Baer
Convince & Convert - Internet consulting for agencies
www.convinceandconvert.com/convince-convert-digital-marketing-blog

[Gustavo Fischer]

Hello David,
have you checked Anderson´s post about a forth kind of free?
http://feeds.feedburner.com/~r/TheLongTail/~3/401168829/revised-the-fou.html

[Chris Anderson]

Chris here. Great job! Just two suggestions:

1) As others have pointed out, I've slightly rethought this formulation and added a fourth (gift economy) and tweaked elsewhere a bit. You might want to check it out and see if that suggests variation on the above.

2) One thing that's missing in your visualization is the return loop of money, such as the consumers returning money to the advertisers by buying their products in Free 2.

If you can do revised version based on my most recent taxonomy, I'll post it to my blog with much praise!

[Mark Rauterkus]

Gratis.

Its GRATIS.

Free is not always $0.

Free can mean freedom too.

Oh well.

Without cost and closed can be very, very expensive.

[Zac Martin]

Wow, this is really interesting. I did a post a couple of weeks back regarding new media business models; http://www.pigsdontfly.com/2008/09/new-media-business-models.html

I didn't realise it until just then, but these Free models play a big part in that. It's like a lightbulb just went off in my head.

[charles]

Thanks for writing the #3.

[David Armano]

Thanks for the comments all.

Chris, I'll look into adding number 4.

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[George Johnson]

This is all new to me, but most interesting. I wonder how you would illustrate consumer co-ops and worker owned collectives. Here the employee-consumer-member owns and hopefully receives "free" benefits from that business.

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