Panel on Rebuild­ing the World with Free Every­thing, with:

• Doc Searls — Linux Journal
• Kather­ine Druck­man — Linux Journal
• William Hur­ley — evil genius project
• Chris Ander­son — Wired Magazine
• Dave Tay­lor — filmBUZZ

“Free” is the future of busi­ness. Steve Larsen says the world has more than 500,000 open source code bases now — all free. That’s a tall chal­lenge for a huge pile of build­ing mate­r­ial. Linux Jour­nal presents a panel of cre­ative hack­ers and busi­ness crafters to dis­cuss con­struct­ing the future.

Free as in free­dom and free as in beer. Free­dom gave us the inter­net. Free is the title of Chris Anderson’s book.

By giv­ing away con­tent for free, it means more eye­balls. One model for mag­a­zines is to lock up con­tent for a time period, say, 30 days; another model is to open up the con­tent imme­di­ately, rec­og­niz­ing that a cer­tain per­cent­age of peo­ple will like to sub­scribe to the long form mag­a­zine content.

Starbuck’s should give out free iPhone cases with their logo on it. This is a huge mar­ket­ing opportunity.

There are things that become com­mon knowl­edge as they evolve. For exam­ple, server mon­i­tor­ing has become a free ser­vice. Com­pa­nies in this area are giv­ing away the 90% to con­cen­trate on the 10% of stuff that requires con­sult­ing and is profitable.

Was there a con­nec­tion between “The Long Tail” and “Free”? Def­i­nitely. Free is enabled by infi­nite shelf space. The near-zero mar­ginal cost of an extra Ama­zon list­ing enables the “free”. The fas­ci­na­tion was in research­ing the his­tory of a very mis­un­der­stood word, which is becom­ing an eco­nomic model and defin­ing busi­ness for the next era.

The inter­net is our biggest mar­ket­place, but we’re just get­ting our sea legs now and under­stand­ing how it works. There is this enor­mous invis­i­ble energy and build­ing mate­ri­als that are mak­ing the sur­face we’re walk­ing around on. But this is how things work: you invent the medium frst and then fig­ure out how to mon­e­tize it later.

Wired Mag­a­zine pays among the high­est rates in the world: about $3 a word. So an exclu­sively online pub­li­ca­tion of Wired would still cost about 50% of a paper pub­li­ca­tion, because of the human costs.

It’s hard to think about what the pre­mium prod­uct should be and what peo­ple will pay for. But you can get around this by build­ing the prod­uct with the com­mu­nity … and they will give you the busi­ness model. Most peo­ple under­stand there is eco­nomic real­ity and that you need to make money: they will accept that the mon­e­ti­za­tion is there. If you build a com­mu­nity first, you build trust and peo­ple will be ready to pay money for services.

The patron­age model may not work well and is where the “starv­ing artist” comes from. It vio­lates eco­nomic prin­ci­ples. In fact, you want the oppo­site, which is for the mar­ket to fig­ure out how much some­thing is worth.

If you’re in a nose­dive, “free” is not the prob­lem. The prob­lem is the under­ly­ing paper, prod­uct or ser­vice. Whether it’s free or not is irrelevant.

Not every­thing has to be a profit cen­ter in your busi­ness; some things can be loss lead­ers in order to make money elsewhere.

Red­dit accounts for 20M uniques and 40M pages view per month … and costs noth­ing. This is user-generated con­tent that costs Wired noth­ing. So Wired has the mass audi­ence with the mag­a­zine, and the very spe­cific and gran­u­lar with Reddit.

In the com­ing years, as band­width increases, there will be a com­plete break­down of the movie dis­tri­b­u­tion model.

The mon­e­ti­za­tion of free is dif­fi­cult. For exam­ple, some­one needs to click on adwords in order to make some money. But this is just a prob­lem of con­tent. If you have nice con­tent that’s updated con­sis­tently, you should be get­ting good CPM rates. Google sinks or swims based on their abilty to match ads to content.

How to com­bat mis­con­cep­tion that just because the soft­ware is free, the ser­vices are not? The answer is to dis­ap­point peo­ple and to say no.

It is fac­tu­ally true that micro-payments have failed to date. One of the rea­sons is that the process of pay­ing is so high. If the trans­ac­tion were less dif­fi­cult, there would be more micropayments.

How can free apply to prod­ucts with a very high cost base? There is a com­pany that gives away elec­tric cars and sells you the elec­tric­ity. There are a lot of mon­e­ti­za­tion oppor­tu­ni­ties in ser­vices as well.

Open ques­tion: would the iTunes store make more money if Apple just gave away iPods for free?

Another model is to give away free deriv­a­tives of work. The prob­lem will be dis­tri­b­u­tion for the free stuff. How do you incen­tivize distributors?