The Cost of Free

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freeChris Anderson’s most recent book, Free, argues that the future of many forms of commerce revolve around giving away their products to consumers without any financial cost to the buyer. Anderson believes pretty strongly in this principle – in fact, you can read the full book for free over at Scribd.

I agree strongly with Anderson, actually, It’s hard to beat “free” in the eyes of a consumer. My free “Everything You Ever Really Needed to Know About Personal Finance On Just One Page” has been downloaded roughly 35,000 times, while my $2 “31 Days to Fix Your Finances” document has been downloaded about 2% as often (and has been available for longer). The difference? Free versus $2.

Many people seem to view free things as a tremendous bargain. There are countless “freebie” websites out there that will gladly point you in the direction of free things – product samples and the like. Visiting a grocery store on a Saturday afternoon will often load you up on free samples, especially if you go to a warehouse club like Costco or Sam’s Club. There’s mountains of free content online – you don’t have to pay a dime to read The Simple Dollar or virtually any other blog, and most media sources have large websites with lots of free content.

I don’t view them as a bargain at all. Instead, it’s just another type of value exchange – the consumer pays a cost, but not directly out of their wallet.

Take the free grocery store samples, for example. These samples are given away as an enticement to get you to buy something impulsively. The items that are sampled often have a nice fat profit margin for the store, so not only are you buying something you didn’t want, you’re overpaying for the item, too. “Well, I’m not going to buy it…” If that’s true, it’s not in the economic best interest of the store to give away the sample. Samples are free, but they result in elevated prices and impulse buys for you.

What about product freebies? Fill out a form and get free stuff in the mail, right? Sure, you can get a four pound bag of dog food for free, but then you’ll find yourself with a mailbox full of advertisements for the product, coupons for the product, constant visual reminders to buy the product. You might get a free item to use, but you give away some of your mindspace to a product that you’re interested in enough to actually go get the freebie. Companies that do this do it because they have a huge advertising budget, and that huge advertising budget comes from the difference between the value of the product and the price you pay.

What about the dentist? The dentist gives me a free toothbrush every time I visit, right? How can that be bad? The reason a business gives away a freebie is to get repeat business, and their margins are fat enough that they can advertise by giving away their product. Your dentist gives you a toothbrush because it’s a reminder of the dental visit and it subtly encourages you to go back. The toothbrush manufacturers give (or sell at extremely low cost) toothbrushes to dentists because it gets that brand’s foothold in your house. Again, you pay the cost by becoming accustomed to a particular product.

This blog is yet another example. I write these articles and give them to you to read for no financial cost. However, the site is supported by advertisements. Advertisers pay me to place ads on the site in the belief that you’ll either click through to investigate the product or the name/image of the product will stick in your mind. Without their support, The Simple Dollar couldn’t run. In effect, you “pay” the cost by seeing those little ads on the site. It’s very similar to why some magazine subscriptions are lower than the cost of shipping them to you, like a subscription to Entertainment Weekly or Real Simple for $5.

Freebies aren’t a bad thing. We have a free calendar on our wall and mostly use free pens from hotels. Freebies can provide enough usefulness to overcome their drawbacks for you (for example, hundreds of thousands of Simple Dollar readers must feel this way).

But it’s important to recognize that a free item isn’t free. You’re always exchanging something for it – ads in your visual area (like those on freebie pens), product familiarity, or inflated prices.

There is no such thing as a free lunch.

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42 thoughts on “The Cost of Free

  1. I can recall in college credit card companies offering “free t-shirts” just for applying for a credit card. Talk about the cost of free. That shirt probably costed about $3K once I was done with that Visa!

  2. I’m shocked that you are giving a spotlight to a book that has plagiarism in it without mentioning it. I know that the publisher is correcting it, adding the footnotes to show that the author copied directly from Wikipedia, but still…just because the information on Wikipedia is FREE to read doesn’t mean you can take it and claim it to be yours to make a profit.

  3. His book is only free to Americans, or others that take the time to go through proxy servers.

  4. I’ve been sending away for stuff off freebie sites for a few months now, fully expecting to be inundated with junk mail and junk email. So far that has not been the case – not a single piece has been generated by my freebie frenzy. I’ve tentatively concluded that manufacturers and wholesalers, who are behind most of the free samples, aren’t the big junkmail offenders – it’s the retail folks. While this point is certainly valid, you can limit the potential for this particular “annoyance cost” by only getting samples from reputable companies, like P&G or Unilever or Costco.

  5. Ads aren’t necessarily such a bad thing. They can provide you with useful information about products you’re interested in.

    Same goes for free samples. In addition to a few bites of food, you’re also getting information: information about whether you like the product or not. This can be really useful, especially at someplace like a farmers’ market, where you can’t necessarily tell the difference between high-quality produce and low-quality produce just by looking at it. Sure, you end up paying a little more for the things you do buy. But I’ll gladly pay a small premium in order to ensure that I’m not wasting money buying things that I’ll end up not liking.

    In my view, it’s a flawed mindset that views economic transactions as a zero-sum game (i.e., if somebody wins, somebody else has to lose). You can have transactions where everybody wins – in fact, that’s how it should be. When you pay $5 for a basket of peaches, it’s because you want the peaches more than you want the $5, and the peach vendor wants $5 more than he wants the peaches. Everybody’s happy.

  6. The biggest difference on the internet between giving away something for free and collecting a payment is not the amount of money, it is the process you need to go through to pay for something. You cannot just drop $2 on the counter for something. You need a password, a username, likely an email address. You need to hook this in to some other existing account (like PayPal), which has its own hurdles, or you need to type in your credit card info by hand.

    I think you’d find the information requirement a larger impediment to small purchases than the dollar amount.

  7. I just requested this book through the Chicago public library. Looking forward to your review! I have been planning an online psychotherapy referral service that includes a FREE phone option, and this came along just as I was thinking some of these same ideas.

  8. Advertisers pay me to place ads on the site in the belief that you’ll either click through to investigate the product or the name/image of the product will stick in your mind.

    In my case, the jokes on them since I tune out the ads completely.

  9. We use Mozilla Firefox pretty much exclusively in our house. This is a result of two reasons. One, my husband is a software architect who hates Microsoft on principle and prefers to download free software. He contributes his skills to various open source software projects. Two, Firefox offers a really good Adblocker. I haven’t seen ads in well over a year. This doesn’t help Trent’s advertisers, but it does help our eyeballs and our wallets.

  10. @Perry #7. I’m fairly certain that it is impossible to actually “tune out” visual ads unless you have an adblocker like Anne mentions.

    Even if you don’t click the ads, it’s almost impossible for you to ignore the brand and your brain subtly becomes more comfortable with the idea of that brand.

    Companies wouldn’t spend so much money on advertising if you could just “tune them out”. You might think you are doing so, but more than likely they are slowly affecting your purchasing decisions over time.

  11. The difference is that Anderson’s not talking about loss leaders, like product samples, or giveaways, or toothbrushes at the dentist. He’s talking about the internet having created a hyper-efficient marketplace for certain goods and services. In economics, what happens in fully efficient markets is that the price of a good or service converges with its marginal cost – which, in the case of things like blog posts, software, and other kinds of intellectual property, is nearly zero. Note that it is not actually zero, which is why many economists have a problem with Anderson’s book beyond the plagiarism allegations.

    Indeed, his “free” is more like Anne KD’s example of Firefox – software designed and supported by a community that does not expect any compensation whatsoever for its time. In fact, to my knowledge, the only way the Mozilla Foundation meets its costs is by selling t-shirts and the like. No one would say that Firefox is just a tool to sell t-shirts.

    I also agree with Johanna – not all economic transactions are zero-sum. In fact, that’s kind of the point of Free. I don’t know if you’ve read the book or whether you were just riffing on the title, but there’s a pretty significant difference between what you’re saying and what Anderson says in the book.

  12. You’ve given some good examples of how ‘free’ really isn’t (could add walmart which saves on paying pensions and healthcare for staff, passes the savings on to the customer, who then has to pick up the slack in taxes when these poverty stricken employees end up dependent on the state).
    But I also think there are more non-zero-sum (win/win) situations.
    For example (without offering a free sample) the post office in the UK made ads to encourage you to send stuff to your friends (obviously letters go by e-mail now). Sure they want you to post things and spend money on stamps, but sending small gifts to friends is never bad. Everyone wins.

  13. More people might have paid for your 2 dollar e-book if it weren’t for the fact that it’s available for free as well from the very same page, just not in PDF form.

    Not that I want you to make it unavailable for free! Just saying.

  14. Interesting post. Since you define ‘ad space in your brain’ as making it not free.. I will count it as “discounted” then.

    If you purchase an item it does exactly the same thing. I get countless advertisements from businesses who’ve given me nothing for free. I pay for their services. The ones offering me something “free” have just given me something extra.

    Let’s take cable television for example. You pay $50 a month for the privilege of watching TV, and you are still subject to half of it being advertisements that are associated with ‘freebies’.

  15. @Corey,

    Actually, Mozilla gets a lot of money (almost 90% of its revenue) from Google for making them the default search engine in its browser bar. Here we have an interesting case of free (Google search) supporting free (Firefox)… but it’s still all supported by ads somewhere down along the line, since Google makes virtually all of its money from AdWords and AdSense.

  16. I used to work @ Starbucks and they are famous for cutting up the dented pastry and giving away samples. I’ve seen professional people loose their manners to get a free pice of so-so pastry.

    When I was in university I thought it was great anything more then 12 credit hours a term were ‘free’ tuition—-my Dad pointed out that at a few thousand dollars a quarter nothing @ OSU was ‘free’.

  17. As consumers we may find advertising to be irritating, but the reality is that for most of us, our jobs are dependent upon it to one degree or another–if your employer isn’t peddling it’s wares to the public you probably wouldn’t have a job. It’s even more true if you have a small business.

    Take away the ads and not as much would be free any more, including the many websites we all like to frequent. They’d have to be monetized in other ways.

    I sometimes wonder if the bad economy isn’t in some way being caused by CanSpam, Do Not Call and other attempts to flush out advertising. Door to door isn’t allowed in most locales now either, so what choice does a small business have any more? Take away internet advertising and all that’s left is TV advertising, which is super expensive.

  18. I didn’t realize that the book can be read for free. I was just watching Colbert and he started off by saying the book is called Free and it’s 26 bucks :)

  19. Why not ask the dentist for a 2nd free toothbrush…that way you never have to pay for toothbrushes because you should replace them every 3 months & visit the dentist every 6. Problem solved! :)

    That was the point of the article…right?

  20. @ Nick #9, I don’t think it is impossible to tune out the adds. As a matter of fact, if you were to ask me what ads were on TSD, I wouldn’t be able to tell you because I have been reading blogs for a long enough time that my eye picks them up and my mind ignores them. Its great!

  21. I have to admit, as a starving college student many, many years ago, I would stop by a bar during the happy our free munchies, and have dinner that way. Gallery openings too.

    When I was equally poor (as in skipping meals to pay the rent) as a newly divorced single mom, I survived with a gift BJs membership, and the samples of food.

    My payment for these? A feeling of obligation to direct my business to these places when I actually got some money!

  22. I received a coupon in the mail today for a free pint of Starbucks ice cream. Go, me!

    I’m a big fan of free samples. I’ve been able to try all sorts of things I’d never pay for, and would certainly never pay for after having tried them. Although I did get a sample of a specific high-end dog food that I was so impressed with that I now occasionally buy.

    When I was mid-way pregnant, and flipping out because it had become apparent that the spouse was not going to finish his PhD until several months after baby came, and I knew full well I was going to get laid off in the meantime, I “lunched” at Costco on free samples a couple of times. Invariably, the food was overly processed, high in salt, and I swelled up like a balloon. You get what you pay for.

  23. TANSTAAFL! In the words of Robert Heinlein, There Ain’t No Such Thing As A Free Lunch. You pay for freebies one way or another, often as a hidden cost or one that’s shared with many other people.

  24. Down south in New Orleans, we had laniappe…means “a little extra” and many businesses do this, 1/4 lb of extra shrimp when you buy a pound, a handful of nuts when you pick up your dry cleaning, etc. Good idea! I took it to my dog boarding facility. Small bag of cookies now and then when I find a good buy on them, a rawhide bone that costs about 50 cents to those who spend over a certain amount here. We recently had a couple of new kennels opening up locally so I am thinking about offering a free day now and then. Middle of the week, depression busting type of arrangement. I think it will go over well. And we aren’t full then so can maybe get some new customers out here this summer to see how nice our place is.

  25. Free is a great way to get people hooked on things too. How many people wouldn’t be drug users now if their first few experiences wouldn’t have been free.

  26. Freecycle is FREE and so are in-store giveaways if you just take it and walk away. Don’t listen to me, though, cuz I’m one of those former college students who got a “free” T-shirt that ended up costing me thousands in debt to Visa.

  27. All this talk about the ads here made me stop and look at them. Huh. I didn’t even know Trent had ads for gadgets, I thought he had financial ads. Maybe that was a couple of years ago, the last time I looked! If everyone’s focusing on content so well, the advertisers are in trouble.

  28. I post on my blog and don’t accept ads. I guess I’m working for free? I have considered ads as a way to supplement my income, but just can’t bring myself to do it (yet).

    “mostly use free pens from hotels” – I have a habit of picking these up and bringing them home. The other night we were cleaning and I threw away about 50 of them (and kept over 100).

    Regarding free samples, we went to a wine tasting (free) and sampled the wine. Didn’t like anything we tasted. Talked to the owner and he recommended something different. He brought out a bottle, we tasted, we liked, we bought. Since we were staying at a hotel, he “comped” us two glasses. Lots of free. Next time we visit that city, we’ll go back.

  29. I was interested in the difference in downloads between Trent’s $2 book and the free book. I would have expected a difference, yes, but not so significant. I’m not trying to be sanctimonious, but if you enjoy Trent’s free articles, shouldn’t you either buy something, donate a dollar, or click on an ad instead of trying to block them? Heck, if you don’t want to buy anything, just let the ads load. While he gets miniscule amounts for the display of ads, blocking them just seems like you’re going out of your way to not compensate him. I’m not trying to speak for Trent, you can fill in any blogger, online artist, musician’s name.

    I’ve got Trent’s ebooks and his paperback for the express reason that the $15 – $20 I’ve spent is truly a small price to pay for the value I’ve gotten out of the articles the last few years. There are other bloggers I similarly support such as Leo at Zen Habits and Jonathan over at Illuminated Mind. Seemingly, a fair few people just want everything for free without showing their appreciation toward the hard work that Trent has put in. Sorry, this may be an unpopular opionion, but none the less, I’m stating it. Maybe my opinion is colored because I am a writer/artist/musician myself. I do totally agree that you should give as much of you as you can (as an artist) without expecting a return, but I am just tweaked a bit when folks perform actions so that the blogger/artist/songwriter doesn’t get compensated.

    - Humbly,
    Charley

  30. I agree with Charley. Anytime someone puts something out there for “free” I try to support it in some way. I’m a music publicist and I know the value of “free” when dealing with fans and potential fans. Free often helps build a fan base and attract attention, whether it’s a free tee shirt, cd or cap. But at the end of free, we really like to see support in the form of buying a cd or a ticket to a show or gathering a group of friends to take in a performance.

  31. I love your statement, “you give away some of your mindspace to a product.” If you subscribe to Dave Allen’s premise in his book GTD, it’s clear that our individual mindspace is valuable real estate and not to be too heavily squandered on “noise” like the lash-back of a mailbox full of unrequested and unwanted flyers and direct mail, each of which we have to “process,” even if it’s only into recycling…or to spend the time to get off yet another mailing list.

  32. @Nick I’m fairly certain that it is impossible to actually “tune out” visual ads unless you have an adblocker like Anne mentions.

    Even if you don’t click the ads, it’s almost impossible for you to ignore the brand and your brain subtly becomes more comfortable with the idea of that brand.

    It is possible that I subconciously pick up the brand, but I focus exclusively on the left side of the page, the side with the content. Whenever, Trent or somebody mentions the ads it comes as a surprise to me as I completely forget that this site even has ads. And no, I don’t use an ad blocker on this site.

  33. Charlie Forness (22)–On the difference between Trent’s free and $2 ebooks–a couple of weeks ago I watched a podcast presented by a successful blogger. Though this wasn’t the main theme of the podcast, he mentioned that according to his market analysis, people who visit frugal related websites are only 5-8% as likely to buy as other people! Kind of makes sense, doesn’t it?

    If that’s true, then maybe we take this frugality thing a bit too far. We should support people and activities that we benefit from. Sometimes you really do need to spend some money to make money.

    Gotta go now and do some click throughs on this site…

  34. I think people overreact to the offer of things being “FREE”. Dan Ariely wrote about it in his book, Predictably Irrational. He experimented with setting up a jar of Lindt chocolates in a cafeteria and priced them at 15 cents each. He also set up a jar of Hershey’s kisses and priced them at 1 cent each. More people bought the Lindt chocolates in this situation, but when the price of these chocolates went down to 14 cents and the Hershey’s Kisses were free, the Kisses ended up being the more popular choice. The difference in price is still 14 cents, but people LOVE free stuff!!

  35. I love free. I love it. But ya got to be disciplined. I get lots of free stuff, and I have kept a local mens shelter in shampoo and deo and shavers…although they might be getting a bit smelly and hairy right about now, waiting for another free deal. For them it really is free. They will never buy their own, so the advertising is irrelevant.

  36. The thing I wonder about is why people think a free puppy or kitten is really free? For example, people on Craiglist are looking for free pets. But if you look at free pets vs. pets adopted from a shelter for, say, $200, you’re getting quite a deal at the shelter. The shelter (in my area) immediately worms and vaccinates the animal and has a vet evaluate its health, then the animal is spayed or neutered, given a rabies vaccination and a microchip then a certificate for a free vet visit during the first 30 days. At my local shelter, if the animal has bad teeth, the shelter vet will do a dental cleaning before the animal is put up for adoption and for a small dog, X-ray the knees to see if the dog has patellar problems. If you price all those services out at a vet’s office (not including the dental or X-ray), you would pay at least $500, probably more if the vet is spaying a large dog. So is a “free” puppy really free?

  37. I’m pretty sure that the companies that give out contact info to the advertisers are companies you fill out job applications to work at.

  38. There’s nothing wrong with liking “free” things, even if it’s a company’s way of entincing you. I think most people take “freebies” for what they are. I find it hard to believe that anyone is being tricked into buying items after getting a sample. I look a sample as a way to test a future purchase.

  39. I find this blog extremely useful, and I especially enjoy the comments. Getting different perspectives on a subject means a great deal to me. So THANK YOU all of you!

    It’s quite obvious there no free stuff will come from for-profit companies.. but there are the two sides of it: and from a consumer or customer’s point of view, he/she should simply analize the total cost . Take the free dog food for instance. If the company giving it for free has competitive prices and quality, and you would consider making that purchase anyways, then its worth it if either they give a sample, a membership card with bonuses or whatever. Same rule applies with all purchases. Then, one of the major reasons companies are giving freebies away is competition (getting a bigger share of the market) so the freebies might not include hidden costs for you.

  40. while I agree with alot of chris andersons tips i also agree that nothing is ever free BUT wiith the site ecofreek.com it proves chris wrong! because evrything is free!!!

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