Close Enough to Free to Round Down

FreeMalcolm Gladwell, a Broken Spines favorite, provides a nice counterpoint to the digital age mantra of “build it and they will come” as articulated in Chris Anderson’s new book: “Free: the Future of a Radical Price.” 

Anderson describes an experiment conducted by the M.I.T. behavioral economist Dan Ariely, the author of “Predictably Irrational.” Ariely offered a group of subjects a choice between two kinds of chocolate—Hershey’s Kisses, for one cent, and Lindt truffles, for fifteen cents. Three-quarters of the subjects chose the truffles. Then he redid the experiment, reducing the price of both chocolates by one cent. The Kisses were now free. What happened? The order of preference was reversed. Sixty-nine per cent of the subjects chose the Kisses. The price difference between the two chocolates was exactly the same, but that magic word “free” has the power to create a consumer stampede.

But, Gladwell turns Anderson’s YouTube example around and points out how Free isn’t really working out for YouTube and its parent Google.  

YouTube lets anyone post a video to its site free, and lets anyone watch a video on its site free, and it doesn’t have to pass judgment on the quality of the videos it archives. “Nobody is deciding whether a video is good enough to justify the scarce channel space it takes, because there is no scarce channel space,” he writes, and goes on:

Distribution is now close enough to free to round down. Today, it costs about $0.25 to stream one hour of video to one person. Next year, it will be $0.15. A year later it will be less than a dime. Which is why YouTube’s founders decided to give it away. . . . The result is both messy and runs counter to every instinct of a television professional, but this is what abundance both requires and demands. 

But, according to Credit Suisse, Google is spending $500 million to support YouTube and it has yet to make a profit.  Advertisers don’t want their ads associated with stupid pet tricks.  And, with the video capabilities of new cell phones, YouTube videos have jumped 1700% in the last 6 months.  That’s a lot of inane video.

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