I just finished reading Chris Anderson’s new book: Free: The Future of a Radical Price. Given that I am a lawyer, I kept thinking about how his concepts apply to law firms.
Let me say a few things up front.
First, this is an excellent book that will make you think about how these concepts apply to your business. For my prior employer, a large law firm I saw lots of trends in the book.
Second, I am part of an example that Chris uses to defend his hypothesis: GeekDad. Chris started GeekDad as the parenting blog for Wired magazine. The blog is led by Ken Denmead as editor who gets a nominal retainer. The rest of the contributors are unpaid volunteers writing for a magazine conglomerate that makes good money selling ads on GeekDad. I am one of those volunteer contributors. (You can see my name in the list of core contributors in right-hand column.)
Third, Chris does not take the position that everything should be free. He merely points out that more things now can be, thanks to the reduced costs of computer power, storage and networking.
Fourth, I paid for the book out of my own pocket. Free, the book is not free. Free, an abridged audio version is free online.
The Long Tail
Free is an extension of his previous book: The Long Tail. In that book he showed how the sale of large quantity of less popular titles can collectively sell as much as the few popular titles. You can make this work when you have cheap storage. Free takes the next step of what happens when your marginal production costs get close to zero.
There are many studies that show there is a big difference between something costing very little and something costing zero. Therefore you will attract a bigger audience if you round down. With electronic distribution, the marginal cost for adding the next customer is close to zero. So Chris says round down.
How Do You Make Money?
Chris outlines 50 different ways that you can make money even when you are giving away some of your product. Chris does not advocate giving away everything, just some of the things when the marginal cost is close to zero. One of the big distinctions is whether your product is atoms or bits. Atoms are expensive to produce and distribute. Bits are not.
He divides the idea of Free into four categories: cross-subsidies (give away the razor, sell the blade); advertising-supported services (from radio and television to websites); freemium (a small subset of users pay for a premium version of something, supporting a free version for the rest); and non-monetary markets (in which participants motivated by non-financial considerations develop things like Wikipedia and GeekDad).
Freemium is the model that Chris seems most in favor of. You give away a limited version of the product, but charge for the full version, add-ons and enhancements. SocialText just adopted that model for their wiki product: Free for 50. You can use a limited version of the product with up to fifty people at no charge. That freemium model got me using it.
Information is Expensive but Wants to be Free
Chris quotes Stewart Brand:
On the one hand information wants to be expensive, because it’s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other.
What about law firms?
Let’s look at the most extreme examples, Orrick, Herrington and Sutcliffe‘s free business formation contracts and Wilson Sonsini’s Term Sheet Generator. There’s no cost to use the forms and no registration required to download them. Businesses can use them free. Other lawyers can use the forms as if they were their own and use them to serve their own clients. But the free product may help capture business. There are big segments of the legal market that can’t afford to hire these firms. Now, a business using these may be more likely to use the firm because some of the work has already been done. The firms could charge far less to review a completed form than if the firm were to begin the incorporation from scratch. It may offer them a competitive advantage if opposing counsel presents them with one of their own forms.
But those examples are new and few.
There is an incredibly common freemium model adopted by almost every law firm: Client Alerts.
When you had to mail these alerts there was a dollar cost associated with that distribution. To better phrase that, there was a stamp cost associated with distribution. Now distribution are costs are minimal. The costs are the same whether you email it to 500 people or 50,000 people. The same is true with viewing it on the law firm’s website.
I think it is quaint that some law firms still use the “client alert” label. I get more alerts from firms that do not represent me, than I do from the firms that do represent me.
Lawyers and their firms are giving away this valuable legal insight in the hopes that you will hire them to represent you in a matter related to the information in their publication. They use the publications to showcase their expertise, but in the process give away some of their substantive knowledge.
The book is worth reading. You should start thinking about how free may affect your business.
References:
- Malcolm Gladwell’s review of Free in The New Yorker: Priced to Sell
- Anderson’s respone to Gladwell: “Dear Malcolm, Why So Threatened?
- GeekDad – Wired’s parenting blog
- Nice but Tricky from The Economist
- Free and the Future of Publishing by William Landay
- Mark Cuban: When you success with Free, you are going to die by Free
- Seth Godin: Malcom is Wrong
Interesting post, Doug. Law firms are sort of removed from the whole “free” thing because their product, the lawyer’s time, “billable hours,” really doesn’t have a marginal cost of zero and can’t leverage the ability of the web to copy and deliver digital info for (nearly) free. So they’ll have to find inventive ways like the ones you’ve mentioned to use the web, and it will mostly be for publicity or to recruit clients. Some of it may be just building the firm’s public profile, which may lead to deals/clients seeking them out. This blog is a pretty good start, come to think of it.
(Thanks for the linkback, too.)
Bill –
Lawyers do not want their time to be free. That is the premium product they want to sell.
For authors like you (and Chris Anderson himself), the physical books are the premium product. Chris has a great blurb on this in Free:
“For all their cost disadvantages, dead trees smeared into sheets still have excellent battery life, screen resolution, and portability, to say nothing about looking lovely on shelves.”
Very interesting comment on how free affects the sellers’ business models and product offerings. By comparison, in Predictably Irrational, Dan Ariely compares the psychological effect on buyers of getting something for free in contrast to paying even a nominal amount:
What is it about FREE! that’s so enticing? Why do we have an irrational urge to jump for a FREE! item, even when it’s not what we really want? . . . . Most transactions have an upside and a downside, but when something is FREE! we forget the downside. FREE! gives us such an emotional charge that we perceive what is being offered as immensely more valuable than it really is. Why? I think it’s because humans are intrinsically afraid of loss. . . . For this reason, in the land of pricing, zero is not just another price. . . nothing beats the emotional surge of FREE! This, zero price effect, is in a category all its own.
Ariely’s findings may explain why the freemium model works so well. Buyers who use a limited version of a useful product will often see the value in paying for the full version. More often than not, that experience will engender trust in the seller’s product and minimize that intrinsic fear of loss.
I read an article on this book last month, in fact I found it so interesting I blogged about this in much the same way as you have (http://www.jasonplant.co.uk/2009/06/free-why-000-is-the-future-of-business/).
I like your comment Doug “Lawyers do not want their time to be free. That is the premium product they want to sell.”, that is true. At somepoint though someone is going to challenge this very point and find some way of giving it away free! For those that say “No way” I pointed to Spotify in the UK in my blog, who would have believed you 20 years ago if you’d walked into a record store and said “All these CD’s, you’ll be able to access and listen to any of them at any time free by the year 2009.
Jason –
A big chunk of what lawyers do is already free.
The primary law (statutes, regulations and cases) is already free. Lots of the end product of a lawyers work is free. Many court publish the briefs and other filings. The end product of many transactions is also free. Edgar is full of precedent documents for anyone to grab. The registry of deeds is full of real estate documents.
The value add for lawyers is bringing together the expertise to get this all working together. Where they are not adding expertise and value, a lawyers work will get marginalized and may get pushed towards free.
Don’t under-estimate the expense of producing a client alert. The stamps are cheap,but the manpower to create the alert takes considerable attorney and staff time to research and produce. One firm I know, has one attorney working almost full time producing a popular client alert. At a minimum, that is 160K to produce the client alert.
Librarian –
I am not underestimating the expense it takes to produce the content, run the email server and run the web servers. There is a lot of expense. But I want to draw a distinction between absolute cost and marginal cost.
That $160,000 is spent whether 5,000 people receive the content or 10,000 people receive it. Adding the next person to the distribution has almost no cost when sent electronically.
When they had to buy the paper, envelopes and stamps and pay people to put it all together, law firms were much more discretionary about who received the alert. There were real costs to the distribution.
Chris Anderson’s point is that when the marginal cost gets close to zero, it is better to round down to zero.
You need to make the money in the premium service. For lawyers that is putting the information from those client alerts into action.
Great post, Doug. We’ve been doing some similar thinking on this topic. I believe it will take law firms a verrrrry long time to get past the client-alert model and take a truly freemium approach. But those of us who jump first will be well positioned to take advantage of this phenomenon.
Nice work.