SXSWi2009: Chris Anderson/Guy Kawasaki Conversation

Guy Kawasaki – CEO, Alltop
Chris Anderson – Wired Magazine

#free is the hashtag

Q: how would twitter make money? New goal with new media companies – to make money, as opposed to the older traditional ad model (freemium approach). So for twitter, charge companies.

Guy – so charge companies but not Guy, who’s not a company?

Suggestion of doing a first 500 tweets are free, pay so much after that. Good option. nline gaming is a good test case for that model. Sort of a free to play, pay to get better hair & weapons. Chris thinks this model with Twitter might make people go elsewhere.

Guy disagrees – he has lots of followers who might not follow him elsewhere, so he’ll stay and pay.

Guy – How would you reinvent Wired? Right now, paper still matters. The question is which paper adds value to the internet? Nice way to view the question – I’ll bet libraries can use that logic for the short-term, anyway. We’re NOT, but just sayin.

Right now there’s both, and that’s ok. Guy – will there be pdf versions of free? Guy – Chris, you’ll be a hypocrite if there’s no free version. laughter.

Hypothetical scenario – What is a book? Lots of different formats. Paperbacks. Sponsored paperbacks. Electronic version, audiobooks, DRMed versions, ebook in various formats, the web version of a book. Digital forms – marginal price is 0, so it should be free. Paper formats are not free to make, so they should cost.

If you believe that the physical version holds value, you need to still make those.

Chris’s publisher is forward-thinking .. chris also owns the rights to the ebook version (I think that’s what he said) – so he can do whatever he wants to with it

Popularity – is it easier to achieve popularity or monetize popularity? Chris says it’s harder to monetize popularity – because there’s no one right “here’s how to do it” answer.

If you’re a professor, you might want tenure. If you’re a speaker, you want speaking gigs – so it’s different. Guy says – me giving my book away gets me more speaking gigs – but it doesn’t help the book publisher. Chris – talking about similar thing with music industry. Music industry is moving along, but publishing houses are having problems. So they’re starting to represent artists differently – they’er seeing the business as the bands do now.

Can a book publisher do a similar thing? Get speaking gigs for the author, etc? Align their business to push the author and not just the book.

Guy talks about a meaningful trade – if you follow chris on twitter, maybe he can give you a free pdf? Then you can figure out how to monetize that. Chris says “he’ll do it.”

Guy is introducing soemone in the audience. The guy who negotiated the 99 cent song for Apple. Cool.

More models. A free/pay model like free cell phone, pay for minutes. Now a new free – anything online is near zero cost. Take the quotation marks off free – it’s really free bacause of no to low cost.

Freemium is fascinating. Giving out water. Give away 99% for free to sell 5%. The free version doesn’t cost anything – again, you see this in the game space. Online RPGs – much experimentation in online charging. If you can get 5% to pay, you meet cost. Guy says – it’s very hard to get 5% to pay. Chris – free for a couple of years, then add value. 37signals as example. TIme limited – first 30 days free. Storage limited, feature limited. Google – certain enterprise class is free, larger costs.

Guy – switch cultures. he bought Chris’s book for 50 cents. Chris says “oh really?” In China – no intellectual problems – what can we learn there, where there is no intellectual property? Chris – China and Brazil is the future of free.

CHina – has stopped fighting piracy. Instead, play off that and use it. Let the pirates do their thing, let them to spread the buzz for you, then use that to push celebrity – concerts, appearances, etc. Advertisements/product endorsements.

Guy – another model. Let’s say a basic Starbucks coffee is free. You buy muffins, buy the extra stuff – mocha, extra shots, etc. Chris – you have just described Walls Drugs. They needed some way to gain attention – they’re in the flat part of Colorado – they offered free water to bring people into the store, then people bought other stuff too while there. Companies do this too – they give you free coffee so you’ll stay and do more work. Zappos – gives away free shipping.

online shoe store – you can’t try on the shoes. Can you take that problem away? Yes you can with free shipping and free return policies. Some people feel guilty about this. Chris’s wife feels guilty about all the shoes that get sent back.

Guy – why is free better than 25 cents? Why is one penny more of a bump than free? Chris – someone he knows calls it the one penny gap. We always think “is it worth it?” That flag is enough to dissuade you from buying the stuff. What free does is to allow us to never raise that flag. It’s not about the money – it’s about the flag. Remove the flag, and you’ll be more successful.

Charging people a little bit can give it more value sometimes.

In the digital space, waste is a good thing – it’s too cheap to matter. This differs from the physical world. No one thinks less of Google because it’s free.

Is there any negative connotation for free in the digital world? Chris – I can’t think of one. But – there’s no excuse for sucking. If your stuff is bad, people will simply go elsewhere.

Office vs Google Docs. Ask which one suits my way of working best? Utility comes first. As you move online, free wants to be the natural price. If you don’t do it, someone else will do it to/for you.

Traditional marketing – shows you stuff you don’t have but want. Free – doesn’t do this. Free says – come try it out. If you really love it, when it comes time to pay, you’re cool with that. Because you love it. For Guy, if twitter asks him to pay, he’d be ok with that because he’s getting real value out of it.

Q&A Audience time:

A guy with a company that has a freemium model – a hosted app. People weren’t going to the free model. Chris – how people feel about free comes from their experience and familiarity with similar products. IE if you’re competing with Photoshop and you say similar to photoshop but free, people might be suspicious.

Chris’s new book, “Free” will be published on July 6. Follow him and apparently get the free online version. Cool…

Economy question – no good answers. Guy said “free money!” Chris – you need to start working on new freemium business models.

Guy hollered at someone who was going too long on the question – “Can you cut to the question?” Funny.

Chris says he isn’t telling the apple to fall (thinking about gravity). He’s just saying the apple will fall – it’s inevitable.

Depends on expectations. If people are used to free, they want free. If they’re used to pay, they want to pay (hmm … I must be different here – I always want free!).

How can you compete with free? Microsoft has been doing this for 30 years. They’re not selling software – they’re selling confidence and risk reduction – they’re selling a contractual term, a 1-800 support line.

Some dude says he’s willing to pay for premium video content. He’s being laughed at. His point is that this would be similar to current cable models … so why hasn’t YouTube done this? Chris – YouTube isn’t doing this – they more concerned with content and relevancy instead of premium quality.

Guy is making the next Q&A guy give $20 to a non-profit feed the hungry group, in order to ask a question – the guy agreed and did it! Housing credit bubble question … Chris says it’s different online. You can start a new company with a credit card over the weekend, vs the years and years of the housing market.