Chris Anderson Discusses the Free Business Model and What It Means in the Enterprise

picture-11Last night we sat in on a conference hosted by the Churchill Club at Microsoft’s Silicon Valley campus titled “The Free Economy: How Companies Make Money From Giving Things Away.” Headed by Chris Anderson, current Editor-in-Chief at Wired Magazine, the panel set out to discuss the evolution of business models centered around free Web services. In addition to Anderson, the panel featured five entrepreneurs, each with significant experience leveraging the “free” business model in a specific industry. Names and companies represented in the panel are listed here.

The conference was intended to promote Anderson’s new book, Free: the Future of a Radical Price, in which he explores business models and marketing techniques utilizing free services and giveaways as a profit generating strategy. To demonstrate the concept, Anderson gives the example of authoring a book and distributing it free of cost. By facilitating the distribution of the book the author could quickly develop a large following, and eventually cash in on conferences, teaching, consulting gigs, etc. The book has been the subject of some criticism, primarily surrounding Anderson’s point that the free model represents the dawn of a new type of economy, but overall many have described it as an insightful look into a different approach to running a business.

The conference itself consisted largely of Anderson juxtaposing the insights of the panel to reveal some of the more nuanced approaches to building a business around free Web services. The consensus seemed to be that the “freemium” approach is the most recent manifestation of the “free” paradigm, and the panelists went into detail explaining exactly how they leveraged this model in their respective industry.

As a whole the process was fairly similar in each case – build a service in which the derived value becomes increasingly evident over time, creating a situation where any reasonably priced premium becomes trivial. Definitely not an earth shattering conclusion, but the way in which some of the panelists capitalized upon the value they created was quite interesting.

Ranjith Kumaran of YouSendIt, for instance, provided a particularly detailed look into how YouSendIt took off in the enterprise. The story seemed noteworthy given the general stigma surrounding free Web-based services in large organizations. Ranjith described how YouSendIt was able to get around this stigma by emphasizing a view of the consumer as a professional, with a preference for a professional user experience. That means no background advertisements, no gimmicky features to artificially produce virality, etc. His rational was that busy people want to be productive, and want products that are easy to use at home and at work. By creating a free Web service that appealed to individuals with a professional agenda, YouSendIt saw grassroots adoption of their service within organizations, which, in many cases, evolved into something that management could not ignore.

Of course YouSendIt is a special case, as the service was not initially intended for business use, but the story sheds some insight into how small Web services can circumvent some of the daunting barriers to entry that exist in the enterprise space. A similar account was given for several industries, from video games to social networks to the music industry.

Anderson’s book will likely include the insights of the panelists, and accordingly, all forms aside from the hard cover will be available free of charge.