The Long Tail

Nick Carr on why Google makes the "complements" to its core business free

Nick Carr has an awkward role to play in the world. He is one of the most insightful thinkers about technology's impact on the world, but he has also chosen to be this era's most erudite technology curmudgeon. 

In practice, this boils down to a love/hate relationship with Google, which Carr both understands on a really deep level and constantly frets about. You might argue (with reason) that those two are not mutually exclusive, but there is such a gap between the rigor with which he approaches the first and the hyperbole he uses in the second, that one has to wonder if the second is just for show. 

Anyway, he's always worth listening to, and his post on the occasion of Google's tenth anniversary is no exception. Here, he explains why Google, the cathedral of free, gives away most of its products: to reinforce the market for the few products it charges for:

Google’s protean appearance is not a reflection of its core business. Rather, it stems from the vast number of complements to its core business. Complements are, to put it simply, any products or services that tend be consumed together. Think hot dogs and mustard, or houses and mortgages. For Google, literally everything that happens on the Internet is a complement to its main business. The more things that people and companies do online, the more ads they see and the more money Google makes. In addition, as Internet activity increases, Google collects more data on consumers’ needs and behavior and can tailor its ads more precisely, strengthening its competitive advantage and further increasing its income. As more and more products and services are delivered digitally over computer networks — entertainment, news, software programs, financial transactions — Google’s range of complements expands into ever more industry sectors. That's why cute little Google has morphed into The Omnigoogle.

Because the sales of complementary products rise in tandem, a company has a strong strategic interest in reducing the cost and expanding the availability of the complements to its core product. It’s not too much of an exaggeration to say that a company would like all complements to be given away. If hot dogs became freebies, mustard sales would skyrocket. It’s this natural drive to reduce the cost of complements that, more than anything else, explains Google’s strategy. Nearly everything the company does, including building big data centers, buying optical fiber, promoting free Wi-Fi access, fighting copyright restrictions, supporting open source software, launching browsers and satellites, and giving away all sorts of Web services and data, is aimed at reducing the cost and expanding the scope of Internet use. Google wants information to be free because as the cost of information falls it makes more money.

There’s one more twist. Because the marginal cost of producing and distributing a new copy of a purely digital product is close to zero, Google not only has the desire to give away informational products; it has the economic leeway to actually do it. Those two facts — the vast breadth of Google’s complements, and the company’s ability to push the price of those complements toward zero — are what really set the company apart from other firms. Google faces far less risk in product development than the usual business does. It routinely introduces half-finished products and services as online “betas” because it knows that, even if the offerings fail to win a big share of the market, they will still tend to produce attractive returns by generating advertising revenue and producing valuable data on customer behavior. For most companies, a failed launch of a new product is very costly. For Google, in general, it’s not. Failure is cheap.

But while Google has an odd business model, it's not an unprecedented one. The company it most resembles is, ironically, its archrival, Microsoft. Just as Google controls the central money-making engine of the Internet economy (the search engine), Microsoft controlled the central money-making engine of the personal computer economy (the PC operating system). In the PC world, Microsoft had nearly as many complements as Google now has in the Internet world, and Microsoft, too, expanded into a vast number of software and other PC-related businesses - not necessarily to make money directly but to expand PC usage. Microsoft didn't take a cut of every dollar spent in the PC economy, but it took a cut of a lot of them. In the same way, Google takes a cut of many of the dollars that flow through the Net economy. The goal, then, is to keep expanding the economy.

The whole post is worth reading. Check it out here.

Clay Shirky on the weird things that happen when things suddenly become abundant

A few months Clay Shirky gave a terrific speech (scroll down past the introductions for the full transcript) that got the most attention for this important lesson from a little girl:

"I was having dinner with a group of friends about a month ago, and one of them was talking about sitting with his four-year-old daughter watching a DVD. And in the middle of the movie, apropos nothing, she jumps up off the couch and runs around behind the screen. That seems like a cute moment. Maybe she's going back there to see if Dora is really back there or whatever. But that wasn't what she was doing. She started rooting around in the cables. And her dad said, "What you doing?" And she stuck her head out from behind the screen and said, "Looking for the mouse."

Here's something four-year-olds know: A screen that ships without a mouse ships broken. Here's something four-year-olds know: Media that's targeted at you but doesn't include you may not be worth sitting still for."

But if you read the whole thing, you'll find an equally important lesson about why it takes a generation or two to figure out how to properly use some resource that used to be scarce but is now abundant. In this case that resource is time, which we got more of in the prosperous decades after the Second World War. For the first few generations, we chose to fill that time with television. Only now are we learning to fill it more productively, and to greater satisfaction. To use Clay's term, it took fifty years for us to learn how to tap the cognitive surplus that came after the five-day work week.

"I was recently reminded of some reading I did in college, way back in the last century, by a British historian arguing that the critical technology, for the early phase of the industrial revolution, was gin.

The transformation from rural to urban life was so sudden, and so wrenching, that the only thing society could do to manage was to drink itself into a stupor for a generation. The stories from that era are amazing—there were gin pushcarts working their way through the streets of London.

And it wasn't until society woke up from that collective bender that we actually started to get the institutional structures that we associate with the industrial revolution today. Things like public libraries and museums, increasingly broad education for children, elected leaders—a lot of things we like—didn't happen until having all of those people together stopped seeming like a crisis and started seeming like an asset.

It wasn't until people started thinking of this as a vast civic surplus, one they could design for rather than just dissipate, that we started to get what we think of now as an industrial society.

If I had to pick the critical technology for the 20th century, the bit of social lubricant without which the wheels would've come off the whole enterprise, I'd say it was the sitcom. Starting with the Second World War a whole series of things happened—rising GDP per capita, rising educational attainment, rising life expectancy and, critically, a rising number of people who were working five-day work weeks. For the first time, society forced onto an enormous number of its citizens the requirement to manage something they had never had to manage before—free time.

And what did we do with that free time? Well, mostly we spent it watching TV.

We did that for decades. We watched I Love Lucy. We watched Gilligan's Island. We watch Malcolm in the Middle. We watch Desperate Housewives. Desperate Housewives essentially functioned as a kind of cognitive heat sink, dissipating thinking that might otherwise have built up and caused society to overheat.

And it's only now, as we're waking up from that collective bender, that we're starting to see the cognitive surplus as an asset rather than as a crisis. We're seeing things being designed to take advantage of that surplus, to deploy it in ways more engaging than just having a TV in everybody's basement."

This is the same phenomena that I described earlier, using a computer science analogy rather than an economic one, as the "awesome power of spare cycles."

Pricing sweet spots: $0 and $Lots (Yet another reason to forget micropayments)

Cory Doctrow writes: My latest Locus Magazine column is live: "Macropayments" explains why I don't have a tipjar:

Two columns back, in "Think Like a Dandelion," I talked about the reproductive strategies employed in species where reproduction is cheap, like dandelions. Unlike humans, dandelions don’t worry about the disposition of each of their children — they only want to be sure that every opportunity for success is fulfilled, that every crack in every sidewalk has a dandelion growing out of it. It’s a damned successful strategy, for dandelions at least. You’d be hard pressed to find a lawn, no matter how carefully tended and how thoroughly poisoned, that doesn’t have a dandelion or two sprouting on it.

To concretize the metaphor: I don’t care about making sure that everyone who gets a copy of my books pays me for them — what I care about is ensuring that the everyone who would pay me decent money for a book has the opportunity to do so. I don’t want to hold 13-year-olds by the ankles and shake them until their allowance falls out of their pockets, but I do want to be sure that when their parents are thinking about a gift for them, the first thing that springs to mind is my latest $20-$25 hardcover.

Macropayments [Read the whole thing, which is great, and also read Cory's previous article on the freeconomics of book distribution: Think Like A Dandelion]

Michael Moore to release his next film free online

[My take: I'm not so sure that Moore is giving up tens of millions of box office revenues on this one, as AP suggests. Getting theatrical distribution for a documentary is hard, even for Moore, and it maybe this one just didn't look like it was going to sell well enough to justify that. So it may really be a case of free online vs straight to DVD. And for Moore, for whom political impact is as important as cash, the mass reach enabled by free could mean more than whatever DVD revenues he'll forgo during the online distribution window. ]

NEW YORK (AP) — Inspired by Neil Young and Radiohead, Michael Moore will release his new film online and for free.

The film, "Slacker Uprising," follows Moore's 62-city tour during the 2004 election to rally young voters. It will be available for three weeks as a free download to North American residents, beginning Sept. 23. An official announcement of the film is planned for Friday.

Moore said he considered releasing "Slacker Uprising" theatrically as "Michael Moore's big election year movie" as he did with 2004's "Fahrenheit 9/11," which was highly critical of President Bush.

Instead, Moore opted for a symbol of gratitude to his fans as he approaches the 20th anniversary of his first film, 1989's "Roger & Me."

"I thought it'd be a nice way to celebrate my 20th year of doing this," Moore said. "And also help get out the vote for November. I've been thinking about what I want to do to help with the election this year."

The 97-minute long "Slacker Uprising" will be the first major film to be released in such a way. Last December, "Jackass 2.5" was streamed online and for free, but that was only a collection of left over material from "Jackass 2." Companies like ClickStar, which Morgan Freeman co-founded, have made films still in theaters — such as 2006's "10 Items or Less" — digitally available for purchase or rental.

If history is any measure, "Slacker Uprising" could have made a decent sum in theaters. His last two films, "Sicko" ($24 million) and "Fahrenheit 9/11" ($119 million) are two of the three highest grossing documentaries ever.

Read more here.

[Thanks to Brandon Buck for the heads up]

Buy the phone, get the music library for free

From Silicon Alley Insider:

Next month Nokia will launch its "Comes With Music" subscription service in the U.K., ahead of 2009 launches in Europe and Asia. Your new Nokia phone comes with a "free" year's worth of music -- an all-you-can-eat selection of 2.1 million songs, which is about 25% of Apple's iTunes library. After that, you can pay to keep using the service, or cut it off and keep your original song files.

Unanswered questions: How much will the phone cost? Will this come to the US? Will Apple do the same with the iPhone?

Microblogging random examples of free

I'm back from the family vacation (the beach at Stinson was perfect aside from the 12ft Great White) and am now entering the last two months of crunch book writing. We'll be launching a blog redesign tomorrow, and the focus will shift to mostly FREE material (although the name of the blog will remain the same--there's too much Googlejuice there to give it up).

To replace the sidebar in current blog, I'll be microblogging random interesting examples of free as I come across them. Here's today's, from Marginal Revolution:

A Danish chain of gyms is now offering membership free of charge, with the only caveat that you have to show up, in order for the membership to be free. If you fail to show up once per week you will be billed the normal monthly membership fee for that month. This should solve the problem with incentives that gym-membership normally carries - there is suddenly a very large (membership is around 85$ per month) incentive to show up each week.