There was a life before the internet. It’s hard to imagine now, but when people wanted to find stuff out or read things, they had to stand up, walk to a bookshelf and brush away the dust. And, get this, people would, once upon a time, expect to pay for the movies they watched, the books they read or music they listened to.

The notion of media being free online, whether legally or illegally, is at the centre of Chris Anderson’s new book, Free: The Future of a Radical Price.

Anderson’s first book, The Long Tail, was much fêted. But his second work has attracted a fierce critic in the shape of Malcolm Gladwell, the lauded pop-thinker and author of the seminal books The Tipping Point, Blink and Outliers (for details see Two pop thinkers and their fight about zero).

Anderson argues that the ever-decreasing cost of processing, bandwidth and storage means that the annual deflation rate of the online world is nearly 50 per cent. Thus, the trend line of the cost of doing business online points the same way, to zero. This, the “freeconomy” model, means that if the cost of doing business is zero, pricing goods at zero is rational. Money can be made around the fringes of free. Google, or the “citadel of free” as Anderson calls it, makes extraordinary money out of advertising, but gives its services free to its customers. The more customers it attracts by giving away free tools, the more money it makes.

But can Anderson's model really work? And what does it mean for the future of the media as we understand it?

What follows is a complete transcript of a recent meeting between Mr Anderson and The Times.

Q: So you published The Long Tail and it kicked off in an astonishing way...
A: Right.....To everybody’s surprise. It was a tribute to fact that people are smart and ready to think statistically. But it was also that it’s pretty obvious that the effect was real. Now, how big it is and how you can turn it into a business model is something we can debate forever. The fact is that we live in a long tail word where we’re recognising that the culture we grew up in the 20th century was dictated by mass media, and it was mass media because of distribution scarcity. That wasn’t what we are and what we wanted, or it was part of what we are and now we’re seeing the rest. I’d imagine that your reading habits and mine, and music and everything else, even if we grew up in the same place at the same time, 20 years ago would have been virtually identical, and now probably don’t overlap at all – perhaps on a few things like the weather, politics or the World Cup.

Q: Then you come to write Free: The Future of a Radical Price. Obviously we’ll talk about the idea, but I’m interested in the second book as an idea.
A: Like the second album. What happens when you write a book is there’s always one bit you feel is unfinished. I kept banging on about the economics of abundance, which is a chapter in The Long Tail. I was thinking about what caused this explosion in diversity and variety and everything out there on the web today, and it was infinite shelf space. The only way you can have infinite shelf space is if it costs nothing. The moment the shelf space has a tangible cost you’re discriminating about what gets on the shelf, and once you're discriminating most things fail that test. It’s only if you’re completely thoughtless about what gets out there, can everything get out there. That’s what infinite shelf space can do, and if that space is free, that’s what free can do. Free can change the culture.

Looking around, the internet is a country-sized economy – you can argue whether it’s the size of Spain or Germany – but it’s a country-sized economy with a default price of zero.

We’ve never seen that before, we’ve never seen an industrial-sized economy with the default price of zero.

I wondered what the economic theory for that is, and I couldn’t find one. It was at that moment I realised that was going to be the next book. Whenever you have an extant phenomenon without an explanation there are grounds for a book. There are other things like predicting a phenomenon, which I’m not doing, or describing historical phenomena. But every now and then, when you have an economic transition, the phenomenon happens before the theory. I think we saw that with the long tail. I didn’t invent the long tail, I just named it.

It has taken us about ten years to realise that we had built an industrial model around free. Mine is the first book to try to explain it, but there will be others. That’s what economists do. I’m not a trained economist, but I feel that economics is my favourite tool kit. What economists do is look at the world around them and come up with models to explain it.

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