“We have built a country-sized economy online where the default price is zero — nothing, nada, zip,” writes Chris Anderson in The Economics of Giving it Away in the February 2 Wall Street Journal.

Semantics are very important here. Anderson chooses his words (I should say “word,” because “Free” is the title of his upcoming book) carefully. The price of nearly everything online is “free,” but not the cost. Anderson calls this “the business model.” People who love cheesy buzzwords call this “monetization.” I call it “a fundamental misunderstanding of how things work.”

Anderson has done a great job identifying the most sweeping change in the free enterprise system in the past 100 years, the price which people are willing to pay for certain things, but has missed a key element. This idea that “digital goods” are free is an absolute myth. As my journalism prof said, “There’s no free lunch, only a few stale peanuts on the bar.*” What we have seen is not an evolution to “free,” but rather one in which the true costs of using many services are not as apparent as they used to be.

For example, even though you don’t pay to use Facebook, Twitter, MySpace, LinkedIn, etc., there is actually an exchange of services (use of the social network) for an easily determined cash value. Users of so-called free Web 2.0 services are making a tacit exchange when they sign up for a particular service, create a profile, build a network of friends, and contribute to the user base of that service. The user base is the chief capital asset of any social network or site, with a discreet dollar value per user. You have exchanged your valuable time and your friendships/relationships in exchange for use of the service. And if you’re at work, your employer is subsidizing that cost.

Anderson encourages entrepreneurs to innovate with new “business models” which, in some cases, involve charging for “digital goods.”

It’s interesting that Anderson mentions in his first paragraph that online music is free. While some emerging/independent artists are offering free music downloads, the music “industry,” both publishers like Sony Music and Philips Music Group, and distributors like iTunes and Amazon, have not gone “free.” Technology has made it so easy to perfectly duplicate music, that huge numbers of people have unilaterally decided music ought to be free and are downloading and “sharing” it without paying for it. There’s a big difference, however, between free and stolen.

Anderson is right, for the most part, that people are unwilling to pay up front for access to content and services, choosing instead to allow providers to extract cost/value through other less obvious means.

As John Yemma, the editor of The Christian Science Monitor, told NPR’s Terry Gross, free online news is “the only model that’s out there. I don’t think there’s an alternative… we’d have to go back in the time machine to try to change this, but the expectation online is that news is free, and that expectation won’t be altered.”

Indeed, we have seen massive changes to how information and communications are delivered and to what and how people are willing to pay for them. But it’s disingenuous to think that any of this is free. Nothing is free. Only the method of payment has changed.

* I have not given attribution for this quote because I found no reference to the “peanuts” version in my research and although some believe it was first said by economist Milton Friedman, there is much evidence that the quote is considerably older.

This post also appears on my Intridea blog.

Tags: Chris Anderson, Free, Web 2.0, Wall Street Journal, Myth