Page last updated at 17:23 GMT, Wednesday, 1 July 2009 18:23 UK

The future is free

Digital Planet
Alka Marwaha
BBC World Service

Chris Anderson
Chris thinks that the concept of free is where all business will head

Digital Planet has spoken to Chris Anderson, editor-in-chief of Wired magazine, about the release of his new book, Free: The Future of Radical Price.

He told the World Service about the concept of 'freeconomics', the business model behind web companies like Google, YouTube and Yahoo, where giving away things for free is making them money.

He believes the digital world is leading the way in successful business and will continue to reduce their prices until they reach zero.

"In the 20th century it was pretty much a trick, there's no such thing as a free lunch and you get what you paid for.

"In the 21st century it's based on the underlying economics of digital stuff, which is Moore's Law," he added.

Moore's Law describes the long-term trend in the history of computing, where the power and capacity of a computer improves every two years, in turn bringing the cost down.

"Everything online gets cheaper by 50% every year; that's a deflationary economy.

"Moore's Law is more than 50 years old and now that it is online, the storage and bandwidth equivalent which are even faster, are making it even more deflationary.

"That's why zero is the ultimate price because the costs are falling to zero as well," he added.

Freemium

Web companies like Google have created a $20 billion empire by offering most of their principle products - like web search and Gmail - for free.

"Google pursues something called a max strategy, they use free to maximise the size of their audience.

Apple iPhone
The cost of applications for the iPhone are coming down

"Free lowers the barrier of entry to the products to nothing and the internet ensures its distribution is global and free.

"That gives the largest possible audience and then they monetise that," he added.

Google make money from search and web-traffic through advertising by using a media business model.

In the digital world, a few paying customers can subsidise everybody else.

"Google has 300 products and almost all for free, but more of them are becoming available in a free and paid for version and that's called 'freemium'.

"The expectation is that 90% of people will use the free one but if you are very heavy Gmail user, you may want more storage and you will pay for that.

"Ten per cent of a huge audience can be big business," he added.

The average prices of i-Phone applications are coming down as you get more free ones
Chris Anderson

One brand that seems to be bucking the trend is Apple's iPhone and the applications that you can buy to go with it, but Mr Anderson thinks even that is changing rapidly.

"If you look at the statistics, the average prices of iPhone applications are coming down as you get more free ones.

"About 30% of the apps are free but more of them are adapting the freemium model, where you have to create two products.

"A free one to create the maximum possible audience and use it as a form of marketing, and then a paid one for those who like the product and want to convert," said Mr Anderson.

Open source

Chris Anderson also shares his passion for building DIY Drones.

These are small unmanned aerial vehicles, built by amateur enthusiasts, using open source hardware.

"This is a good example of free, open source hardware is this new concept, the idea is that you give it away and people collaboratively work on it.

We give away all the intellectual property, so if you want to make our auto-pilots, or our blimps, all the circuit boards and code is out there.
Chris Anderson

"If you think of a gadget like your phone, it is a combination of intellectual property and some sand which is the chips and bits of metal.

"If the phone cost £100, then £20 of that is the underlying raw materials and the rest of that is the intellectual property.

"We give away all the intellectual property, so if you want to make our auto-pilots, or our blimps, all the circuit boards and code is out there."

However if you want DIY Drones to make the aerial vehicle for you, then they will charge 2.6 times the price.

Chris Anderson believes that free is, ultimately, going to be part of the business strategy for everybody, even though they might find that hard to believe.

Digital Planet is broadcast on BBC World Service on Tuesday at 1232 GMT and repeated at 1632 GMT, 2032 GMT and on Wednesday at 0032 GMT.

You can listen online or download the podcast .



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