In his bestselling book The Long Tail, author Chris Anderson described some of the ways in which the Internet has influenced and changed our global economy. More specifically, he explained that the Internet has made it possible for someone to find whatever product or service they are looking for online. There is a limitless inventory, and demand for almost everything. In his new book Free, Chris Anderson delves deeper into the topic of e-commerce. Free is about a new phenomenon where businesses can profit more from giving things away than they can by charging for them.

The Internet has completely changed the way firms sell their products and services. Many businesses now conduct the majority of their transactions online. For example, in 2009, online booking reached 84% for Southwest Airlines. Companies can profit largely from online sales because the cost of doing business over the Internet is nearly nothing. Then there are other businesses that provide products and services exclusively online for free. Companies like Google and Facebook are two popular examples. They don’t charge users anything for their services, instead making money through advertising.

One of the reasons that companies can afford to give things away for free is because the cost of reproducing and delivering digital content is practically zero. For example, it costs pennies for ITunes to copy a song or YouTube to stream a video. The fixed cost of producing the first of something is high, but the cost of producing one additional copy is little to nothing. In other words, prices will inevitably drop to the marginal cost of production, which is practically zero for digital content.

For these reasons, Anderson explains that some companies can profit more from giving things away for free than they can by charging for them. By giving away one product, firms can entice a customer to buy another product. An example of this is Monty Python’s YouTube channel. They released some of their most popular skits on YouTube for free, and sales for their complete DVDs shot up. The free videos were great, but people wanted more! Another popular free service is email. Providers like Gmail and Hotmail offer customers free email, and in return get paid by companies for advertising. This illustrates how giving away things for free can benefit both consumers and businesses.

Perhaps what was most controversial about Anderson’s book Free was his declaration that this “free” business strategy may become essential to a company’s survival. On the one hand, I think there are other ways in which businesses can stay alive in this economy. However, if the competition is giving things away for free, a firm may be forced to do the same in order to compete. What’s more, people my age are accustomed to everything digital being free. I would not be happy if YouTube or Google started charging me a monthly fee.