Great article by Malcolm Gladwell on Chris Anderson's book, Free. I saw Anderson speak about a year ago and wasn't convinced by his arguments. What he should be saying is that Free is the future for products that either, 1) Have a way to subsidize the production cost of whatever they are giving away, or 2) Perfect Substitutes (or at least close enough to be hard to distinguish) that must price at zero to temporarily ensure distribution until a choke point that offers pricing is available or they figure out a subsidy scheme.
The first case is where Google Search and Gmail fall. Google wants as many consumers to use Search as possible because they can subsidize the cost of that service with their integrated AdWords advertising product and still make a profit. Google has studied it and the bigger the funnel for the service the more money they can make on AdWords. So Google doesn't charge to ensure there is no barrier. What would happen if they charged $1/user? Lot's of people would drop out and they would make less. The second way they ensure a big funnel is by making the product the best available in the marketplace. This is often overlooked when talking about Google but it's very important. They differentiate the product.
The second bucket is where the Dallas Morning News (DMN) falls into. What is the difference between a recap of the Dallas Mavericks game between the DMN or the AP? Very little. I'm sure Mavericks fans enjoy the insight provided by a beat writer close to the team, but how big is that population? The DMN has a problem differentiating its product and doesn't have a choke point to enable charging. Paper used to be the choke point. Only a few papers in each metro could afford the printing and delivery costs, so a natural monopoly developed that ensured pricing. With the web, that monopoly is gone. Amazon, Apple and other device manufacturers with large market shares now own the choke point (their device). Google also owns a choke point on searching and finding the article at the DMN site or in Google News. Those parties have all earned the choke point by spending $ billions on R&D and finding a better way of delivery. If the DMN doesn't play the game and removes itself from the Google network or don't take Amazon's deal, how many people will care? Not enough and they will be replaced in consumer reading habits quickly.
The DMN and others find themselves in a temporary position where they must take what the Device & Web Services offer but if they re-engineer their business into something different or, gasp, build a better brand through focus (on the Mavs and 5 other core subjects for example), they will earn the audience and right to pricing power. The DMN and others like it have a difficult time seeing this though because they are competing against forces they've never had to worry about before. The paper monopoly was won long ago and they view the distribution monopoly as their right and not something that must be re-won (is that a word?).
Anderson wrote a good rebuttal of Gladwell and used the blog GeekDad as an example of a site (smallish) that produces popular content for a community, generates revenue, pleasure and recognition that can be monetized by a book deal (a subsidy). GeekDad earned its audience and now controls the economics of its Wired advertising deal.
Here's a more tangible example. Journalists have to eat right? They shop at supermarkets like all of us. In recent years "private label" goods have become very popular. These are knock-off goods sold at a lower price points with the supermarkets label. Consumers know that they are pretty close to the branded consumer goods sold by P&G, Clorox, etc. Some consumers aren't persuaded by the brands marketing efforts to differentiate so they buy the cheaper private label goods. As Gladwell says, $0 is just a price point, and in this example, private label products are not $0, but they are significantly cheaper. Free or cheaper is conceptually the same thing, it's the spread that matters. Why do the supermarkets get to offer private label products next to the branded goods? Because they differentiated by building their own brands, sinking $ billions into store infrastructure, and most likely, establishing a local neighborhood monopoly. Brands face the same dilemma as the Dallas Morning News, but they've been dealing with it longer, have learned how to co-exist and most importantly, don't own media outlets that give them the audience to complain about their problems.
Journalism is important and expensive, but it too is getting cheaper. Athletes are breaking news all over the place. How expensive is it to take what they say and re-package it? This trend will continue and make journalism even cheaper. I crack up everytime I see CNN reading Twitter feeds for breaking news. Where's the value add? CNN and other news agencies are in the process of being dis-intermediated. Happens all the time in the tech world. Editorial taste and opinion pieces still have significant value though and brands like the DMN need to focus on that. Let Twitter, the AP and everything else cannibalize the low-end of the news business and focus on building branded, higher value content that leads to a loyal audience. The audience will become their leverage against Amazon and others. Just as the P&G's of the world pour money into higher quality and brand building and deal with smaller market shares, so must journalism.