Anderson's Law: Everything that Becomes Digital Becomes Free

Chris Anderson, best known in publishing for his "long tail" concept, wrote the feature article in the March issue of WIRED magazine. Anderson's prophecy in "Free! Why $0.00 Is the Future of Business" is that "everything that becomes digital becomes free". Anderson cites examples like free email, free news websites, and free music, but the article only hypothetically addresses free as a viable business model. While Anderson's article offers a "taxonomy" of revenue models for digital content, he fails to address the tricky prospect of making money on content that has become digital but which was once paid, non-digital content. In other words, how should a producer of a good, not a service, make its product digital, free, and profitable?

Anderson's Law
Anderson's prophecy seems as undeniable as Moore's Law. Cheaper computing power and storage space combined with fast, affordable internet connectivity places an inexorable downward pressure on the price of all things digital. Why?

Supply Side
1. Once you've made the original digital file, making copies takes just split seconds, a little electricity, and some platter space to store it. There's no need for manufacturing equipment or a warehouse. The marginal cost of production is nearly zero.
2. Distribution costs as much as an email or file download. No more containers on ships or crates on trucks.

Demand Side
1. Peer-to-peer networks, email, content hosting websites, and easy self-publishing tools make global distribution inevitable.
2. Hackers (and even the merely tech savvy) will eventually crack DRM systems.
3. Web 2.0 content licensers like Hulu.com create a sense of urgency for content providers not to be left behind.

Once digital, content is on an inevitable price decline to free. It's easy to pick out digital content that's approaching free to the end-user: online TV, streaming movies on Netflix are now bundled free with the mail-order movie rental service, downloadable albums on iTunes are $5 cheaper than on disc, music streaming sites like Pandora or Epitonic charge nothing. Clearly, the music recording industry is a case study in Anderson's Law. Also obvious is that the recording industry, once in the business of printing physical CDs, is still losing huge amounts of money even though pay-per-download and subscription sites have provided a revenue model.

So Why Go Digital?
If everything digital is marching toward freedom, why should a content producer even consider going digital? The answer that book publishing has created is that readers want digital books. More on this later.