Only those who give away free things will see heaven

QUITE A FEW PEOPLE IN East Africa who are interested in the Internet, the mobile phone business, and video games – what is broadly called the digital economy – read Chris Anderson’s book, The Long Tail.

There were two main ideas in the book. One, that limitless digital storage means we no longer need a “hit” product to make it big.

For example, a Nairobi record shop called Aberdares Music today can only carry 2,000 CDs at a time and, therefore, it is important to have a big hit by, say, Nameless, which sells 1,500 CDs (perhaps selling 1,700 CDs a month).

However, if it were storing music digitally on servers like Apple’s iTunes, then it could carry as many as 2,500,000 albums, including titles from as far back as 1960. This greatly expands the market, both in time and space.

If the Aberdares iStore sold just one each of half the collections in your digital music shop in a year, that is 1.25 million sales. Secondly, Anderson suggests that advertising is getting to be useless in some areas. We have entered what he calls a “recommendation”, or word-of-word economy.

Today sales of all those things that online retailers like Amazon.com trade in, are greatly determined by the buzz on the Internet.

Anderson offers a fascinating example of a 1988 book by a British mountaineer, Joe Simpson titled Touching the Void, described as a “harrowing account of near death in the Peruvian Andes”.

The book didn’t do well, and was soon forgotten. However, 10 years later, a strange thing happened. Another book on a mountain-climbing tragedy, John Krakauer’s Into Thin Air became a huge bestseller.

Then the forgotten Touching the Void began to sell again. By 2004 Simpson’s 1988 flop was outselling Krakauer’s Into Thin Air more than two to one. Touching the Void became a mega-hit because of one thing; people started comparing it with Into Thin Air on blogs, online book reviews, with some saying it was a better book than Krakauer’s. The Internet buzz did it for Simpson’s book.

Nothing scary there, so far. However, a few weeks ago, Anderson published his new book called FREE. His main argument is that in the new information technology-driven economy, the companies that will make money are the ones that give away things.

There are online video games which will allow you play up to stage 3 free. To get to stage 4 through to 8, you have to pay. And you will do it if you have been hooked.

ANDERSON TELLS THE STORY OF THE comedy group, Monty Python. People were pirating Monty Python material big time online. Disgusted, they established their own YouTube channel – and made nearly all their materials available free. However, they also put up some rare DVDs for sale.

Two million people viewed the free DVDs; word of mouth spread like wildfire on the Internet, and people wanted more; so orders went up. Soon Monty Python’s DVDs were No 2 on Amazon.com Movies and TV best-seller lists.

By giving away their stuff free, Monty Python saw sales of the few DVDs they charged for increase by, wait for it, 23,000 per cent!

What does this mean? In times to come, nearly every company will have to give away most of its products free. EABL might need daily happy hours where it gives away a lot of free beer, and hope that people will stay on and buy more after they have tasted two. Oil companies will have to offer the first 10 litres free, if you fill your tank.

Things in the mainstream digital economy are becoming free, partly because costs are, as Anderson puts it, getting “too cheap to metre”.

Consider the price of transistors, the thing on which computing is based. In 1961, a single transistor cost $10. By 1968, it had fallen to $1. By the beginning of this year, Intel’s processors were coming out with 2 billion transistors each, and cost around $300. Therefore the price of a transistor is about 0.000015 cents today!

Maybe soon, Safaricom and Zain will have no choice but to let us talk free of charge. Their money will come from services like M-Pesa and Zap, downloads.

These trends should exercise our minds because most companies today are not structured to work this way. As a result, they will collapse.

When I look around Nairobi today, there is not a single company (apart from the top private hospitals) that you can confidently say will still be there in 2030.

cobbo@ke.nationmedia.com