SXSW Interactive 2009 Takeaways: "Free"

I closed out my first SXSW Interactive with two sessions featuring Chris Anderson of Wired and The Long Tail fame. In this year's final festival, Anderson was interviewed by Guy Kawasaki with questions about his forthcoming book on the concept of free being the way to come out ahead in today's economy.

The duo vowed from the get-go to outdo last year's infamous Sarah Lacy interview of Mark Zuckerberg (of Facebook). There were more than a couple of cheap shots taken at last year's debacle–all deserved, in my opinion. I didn't take many notes from this session, or from the followup panel on using "free" to rebuild the world, but here are a few takeaways for the two:

The freemium model, in which there's a free version that's perfectly useful but a for-pay version that allows power users to do more, is good--but you need to know where to draw the line between different versions, lest you cripple your product and test your customers' loyalty. The economy has driven demand toward free, but now you have to have a business model to support it.
Paper still matters, and some paper versions still add value to Internet content. That's why people still buy magazines--long-form stories and high resolution imagery still works better on paper.
Free is the best way to maximize reach, by lowering barriers to zero. Don't put up barriers that keep people from recommending you.
Anderson suggests that it's easier to achieve popularity than it is to monetize it. The way you convert popularity to money depends on your particular situation and goals.
Publishers (and record labels) and authors (and musicians) have misaligned goals. Publishers (record labels) need to get over selling books (albums) and focus on selling "360," or the whole experience.
Worry about establishing a fan base, then figure out how to make money based on that.
The meaning of "free" has changed over the years. The 20th century "free" model was along the lines of the razor and the blade--give away the razor; charge for the blades. Now, "free" means really free because costs are so low. Now, if you can convert 5 percent of your users to paying users, you've covered your costs. Anything beyond that is profit. Differentiate your user classes like Microsoft BizSpark and 37signals do to reach (and surpass) that 5 percent.
"The Chinese are going to teach us capitalism." China is the future of free. If your product isn't free, piracy will do it for you. Use this as marketing.
When using free to sell things, use its good connotations (freedom, "free as in beer"). It draws attention either way.
The moment you put a cost on something, an "is it worth it?" flag gets applied. This is why micropayments never took off. Free never raises this flag.
Nobody thinks less of Google because it's free. "Too cheap to meter, too cheap to matter."
Anderson surmised that New York City is feeling the pressure of the current economic climate more than, say, San Francisco because institutions are being hit more than individuals. Individuals have more power now.
"We think in terms of utility, not price." Free wants to be the natural price.
"Some information wants to be free; other information wants to be very expensive." High quality content is not always cheap--smart humans cost money.
Companies that use the freemium model have low startup costs. No bailouts are needed in a free economy.
As media, being free makes it easier for you to be in the conversation. Create the medium first, then figure out who it's for, then figure out how to monetize it. Build your community first. Build trust and a natural constituency.
Not everything needs to be a profit center--some things can be loss centers designed to support revenue.

It should be noted that Guy Kawasaki, ever the entrepreneur, began charging audience members twenty dollars a pop for questions. Proceeds went to a non-profit aimed at ending hunger. At the end of the day, I think that's the best lesson any would-be successful entrepreneur should have taken from this session (and SXSW Interactive as a whole): You need to be able to recognize an opportunity when you see it.

March 20, 2009. Questions or comments? Let me know what you think.