Chris Anderson on the Economics of 'Free'

'Maybe Media Will Be a Hobby Rather than a Job'

In a SPIEGEL interview, Chris Anderson, the editor in chief of US technology and culture magazine Wired discusses the Internet's challenge to the traditional press, new business models on the Web and why he would rather read Twitter than a daily newspaper.

SPIEGEL

July 28, 2009

SPIEGEL: Mr. Anderson, let's talk about the future of journalism.

Anderson: This is going to be a very annoying interview. I don't use the word journalism.

SPIEGEL: Okay, how about newspapers? They are in deep trouble both in the United States and worldwide.

Anderson: Sorry, I don't use the word media. I don't use the word news. I don't think that those words mean anything anymore. They defined publishing in the 20th century. Today, they are a barrier. They are standing in our way, like 'horseless carriage'.

SPIEGEL: Which other words would you use?

Anderson: There are no other words. We're in one of those strange eras where the words of the last century don't have meaning. What does news mean to you, when the vast majority of news is created by amateurs? Is news coming from a newspaper, or a news group or a friend? I just cannot come up with a definition for those words. Here at Wired, we stopped using them.

SPIEGEL:Hang on a minute. So-called citizen journalists and bloggers have changed the meaning of "media." But without the traditional news media they wouldn't actually have much to do. Most of the amateurs comment on what the quality press report. So did you read a newspaper this morning?

SPIEGEL: Your local newspaper, the San Francisco Chronicle, is fighting for survival. If it was to disappear tomorrow ...

Anderson: ... I wouldn't notice. I don't even know what I'd be missing.

SPIEGEL: So how do you stay informed?

Anderson: It comes to me in many ways: via Twitter, it shows up in my inbox, it shows up in my RSS feed, through conversations. I don't go out looking for it.

SPIEGEL: You just don't care.

Anderson: No, I do care. You know, I pick my sources, and I trust my sources.

Anderson: If something has happened in the world that's important, I'll hear about it. I heard about the protests in Iran before it was in the papers because the people who I subscribe to on Twitter care about those things.

SPIEGEL: The New York Times, CNN, Reuters and others can publish their best reporting on the Web and you'd never read it?

Anderson: I read lots of articles from mainstream media but I don't go to mainstream media directly to read it. It comes to me, which is really quite common these days. More and more people are choosing social filters for their news rather than professional filters. We're tuning out television news, we're tuning out newspapers. And we still hear about the important stuff, it's just that it's not like this drumbeat of bad news. It's news that matters. I figure by the time something gets to me it's been vetted by those I trust. So the stupid stuff that doesn't matter is not going to get to me.

SPIEGEL:But you could also describe the endless stream of words coming from Twitter as stupid. Limited as they are to 140 characters, Twitter messages result in this mad, unfiltered and unproven impression of what is going on. The twittering can't be any kind of replacement for fast, comprehensive, and thoroughly researched reports and analysis from quality media. And with all due respect, you're producing this yourself. You're a member of the news media, you're working for a magazine, you're doing interviews and you're creating news -- or information, or content or whatever you want to call it.

Anderson: True. But the problem is not that the traditional way of writing articles isn't valuable anymore. The problem is that this is now in the minority. It used to be a monopoly, it used to be the only way to distribute news.

SPIEGEL: Because media companies used to control the printing presses and the airwaves?

Anderson: Exactly. So now that you don't need this access to a commercial channel to distribute (news), anyone can do it. What we do is still useful but what other people do is equally useful. I don't think our way is the most important and it is certainly not the only way of conveying information. So this is why we're in a funny phase. It's going to take us a decade or two to figure out what it is we're doing.

SPIEGEL:But even with this infatuation for new formats and Internet-based media, the demand for quality journalism is growing rather than shrinking. The online media has won over a huge, new audience. And for all the talk of the press becoming extinct, circulations have remained remarkably stable. The problem is the drop in advertising revenues.

Anderson: Newspapers are not important. It may be that their physical, printed form no longer works. But the process of compiling information and analyzing it, and adding value to it and distributing it, still works.

SPIEGEL: But where's the Web-based business model for it?

Anderson: We're still figuring that out.

SPIEGEL: Good luck -- a future that won't support itself.

Anderson: The banner ad was invented right here in this office in 1995. That was the first answer to your question. But there's not one business model, there are thousands. Each one of us has to figure out our own. We all make money but we don't make enough money -- and not as much as we made in print. Facebook is trying to figure it out, Twitter is trying to figure it out. We'll get there. It's so early.

SPIEGEL: What's your answer at Wired?

Anderson: Across the hall, there's wired.com. It has about 120 million pageviews a month, it's one of the biggest sites in the world. We pretty much run it and break even. But that's completely arbitrary; we decide how to do it. We have paid journalists, we have blogs. There's user-generated content and then there's magazine content with six months of research and 8,000 word stories. Some parts are edited, others are not. We make millions of dollars in revenues, and we decide whether we want to be profitable or not.

SPIEGEL: Others don't, or can't, take it that easy. They made money in print and used it to build and fund their online products. Now many, like the New York Times, are losing big parts of their print revenues and don't generate enough revenue from their Web sites. Fast-forward and you have a big problem.

Anderson: The math of profit is pretty easy, revenues minus cost. You do your best on the revenue side and if you are not making money you lower your costs. The problem is not that there isn't money to be made online, it's just that our costs are too high.

SPIEGEL: Or maybe revenues are too low. Why do advertisers pay less online than in print? Is the audience of wired.com less attractive than readers of Wired magazine?

Anderson: It's about efficiency. Online people tend not to look at banner ads. In print people tend to look at the ads just because they're better integrated, better looking ads. They're big, full page, beautiful photography. In many ways they are content. That's why advertisers spend $22 to reach 1,000 people on wired.com -- and $100 at the magazine. I don't think we have discovered the perfect online advertising vehicle yet.

SPIEGEL: Except for Google. They make billions with text ads placed next to search results.

Anderson: The Google idea is fantastic. But you can only do so much with text. It's very good for transactions, but it is very poor for brands. It's very good if you are trying to drive an action immediately, but it's poor if you are trying to instil a desire that plays out weeks later. We need to develop a form of advertising that works as well online as glossy pages work in print. And we don't have it yet. Again, it's very early. This is only a couple of decades after the invention of the Gutenberg press and we're trying to figure out what we've invented. But we will.

SPIEGEL: If the audience goes online, will the revenues follow?

Anderson: Yes. It's all about attention. That is the most valuable commodity. If you have attention and reputation, you can figure out how to monetize it. However, money is not the No. 1 factor anymore.

SPIEGEL: Why?

Anderson: Attention and reputation are two non-monetary economies. The vast majority of people online write for free. We've tried paying some of our bloggers and they thought it was insulting. They're not doing it for the money, they're doing it for attention and reputation, or just for fun. For example, two years ago, I started this Web site called geekdad.com. It's about being a dad and being a computer geek. We're writing about how to do things that are fun for kids and fun for dads. It's a community project, everyone contributes for free but we now have an audience bigger than many newspapers. And there are an infinite number of sites like this out there.

SPIEGEL: Can classic journalism, which is obviously more expensive to produce, compete with that sort of thing?

SPIEGEL: You just published a new book, called "Free." Its central message is to give your product away for free ...

Anderson: ... and monetize it some other way!

SPIEGEL: How does this apply to the Internet?

Anderson: The online economy is about the size of the German economy. And it's based on a default price of zero. Most things online are available in a free form. We have never seen an economy this big with a default price of zero. I realized that we needed an economic model to explain how an economy could be based on "free." And we need to understand the psychology of that. We have the psychology of free, we're drawn to it, but we feel cheated by it. If something used to be paid for and then it becomes free, we think the quality is lower. But if something has always been free, and remains free, we don't think that.

SPIEGEL: Many companies would love it if your concept of "free" were to disappear from the Web as soon as possible.

Anderson: How could it disappear? Free is the force of gravity. If we decide to resist it then somebody else will compete with something that is free. The marketplace follows the underlying economics. You can be free or you can compete with free. That's the only choice there is. The Wall Street Journal, by the way, is very clever about this.

SPIEGEL: In what way?

Anderson: They use free content to attract large audiences and then convert some of them to paid content. The idea is: Don't charge for the most popular stuff. And never charge for exclusives because if you wall off the exclusives and other people report on your exclusive, they'll get the traffic and you won't. Instead charge for the niche stuff that some people will pay for.

SPIEGEL: But charging a minority of your audience won't fund expensive reporting on Iran or Iraq.

Anderson: Right. The curiosity is that, that is what is left for mass media -- it's the kind of stuff that niches don't do well. Politics, war, disaster, scandals, etcetera. You can't charge for it and advertisers don't like it. Unlike in the old offline-world, it turns out they would rather not have their ad for Coke be up against reports from the streets of Iran.

SPIEGEL: Conclusion: There is no convincing solution so far -- even from provocateurs like yourself?

Anderson: I think we will discover that whatever the business model of the 20th century was, it will be different in the 21st. Maybe we realize that selling ads is not the business we're in. Maybe we're into selling online content to audiences, or in creating communities or into selling events -- in a similar way to which parts of the music industry is making money from concerts. Maybe companies that were built around the old business model will go away and other companies will come up, in much the same way as old record industry labels may disappear but the Apples of the world, with their iPods and iPhones, will continue to do well.

SPIEGEL: One last thing, why isn't your book free?

Anderson: You only pay for the hardcover version. The marginal cost for the digital file is zero, so I'll give the digital text and the audio files away for free. However, if you want to have the abridged audio book in a 3-hour-version, then you'll have to pay.

SPIEGEL: Because time is money?

Anderson: Exactly.

SPIEGEL: Mr. Anderson, thank you for this interview.

Interview conducted by Frank Hornig.

ABOUT CHRIS ANDERSON

Before he became the editor of Wired, Chris Anderson wrote for the Economist, Science and Nature. After the dot- com crash, though, Wired magazine, which was founded in 1993, lost some of it's relevance. But Anderson turned the publication into a cult must-have for the high- tech community and circulation went up 32 percent to over 700,000 copies. Unfortunately the publishing crisis that saw even the mighty New York Times fall into the red, also had an impact on Wired. Advertising sales fell by 40 percent and the magazine was more impacted by the crisis than many other monthlies. Nonetheless, ever since the publication of his book "The Long Tail," Anderson has been considered something of a guru of new media -- as well as a professional provocateur. In his new book, "Free," he advocates giving away Internet content for free. That is despite the fact that his book costs $26.99 if you buy it on Amazon and that Anderson charges around $50,000 on the guest speaker circuit.

Copyright 2009