NEW YORK--As he kicked off the Wired Business Conference on Monday, Wired magazine's editor in chief, Chris Anderson, started talking about Jell-O.
Anderson was explaining the thesis of his forthcoming book, "Free," about the realities of making a profit and building a business in an environment rife with digital goods that can be replicated at almost no cost. The Jell-O angle came from an anecdote that detailed how, in the late 1800s, the manufacturers of the then-bizarre dessert got the word out about it by distributing free Jell-O recipe books around the United States.
"Giving away one thing free could help them enter the market, create brand recognition, and create demand for something that was paid," Anderson said.
The Jell-O reference probably resulted in quite a bit of head-scratching, as this was not the Wired crowd of wacky futurism, sci-fi fandom, and gadget hacking. With a slant of "Disruptive By Design," the Wired Business Conference's target audience was corporate New York, a city full of suits who have been operating in lockstep for decades and yet have seen all hell break loose in the past year.
"(These are) seemingly unprecedented times because the time is right for disruption," Howard Mittman, Wired's publisher, said in the morning's first talk, as he introduced Anderson onstage at the Morgan Library & Museum, a historic space with deep ties to business innovation in New York.
The conference was also, in effect, a marketing pitch for Wired itself, which has seen the media industry's crisis take a massive bite out of its advertising pages. By bringing the likes of Amazon.com CEO Jeff Bezos and Tesla Motors founder Elon Musk to a day of panels and talks, the Conde Nast-owned brand was attempting to give the hard sell about its own portfolio of ideas and open it up to a crowd that's historically been more likely to pick up Fortune or Forbes at a newsstand.
As he discussed disruptive business models, Anderson revealed that his take on "free" is that businesses have to accept that some things just do not, and should not, have a price tag attached anymore because the Internet has driven their costs to zero. Companies should focus on where they can charge money.
"In the 21st century, with virtual stuff...you've got swords and other digital goods in games and online spaces, and you're looking at a different economic model," Anderson said. In many video games, you can play for free, but the game experience can be enhanced with paid services. The Disney-owned kiddie virtual world Club Penguin, for example, makes most of its money with paid virtual enhancements: many a parent in the audience was familiar with their kids' desire to buy a better "igloo" for their virtual penguins. Playing for free is an incentive not unlike the Jell-O recipe book.
In a less silly context, there'sadvertising company OpenX, whose CEO Tim Cadogan was on a panel that followed Anderson's talk. OpenX gives away its open-source ad platform software but charges for consulting and other services.
One of the biggest innovators in the "free" model, Anderson said, is actually Microsoft--derided for years by geeks as the quintessential plodding software company. He explained that Microsoft didn't do much to derail piracy of its products in China because it saw the proliferation of the Microsoft brand as a way to get a foothold in a developing market that would eventually be able to pay for its products. (Not everyone would agree with this assessment, to say the least.)
"What you see in piracy is essentially the marketplace imposing "free" upon you," he said. "With a little bit of looking the other way, (Microsoft) let pirates be their best marketers...so that someday, that would come back as revenues as the country developed. They accepted piracy as a term of gray marketing."
Virtual goods are a huge business indeed, especially when it comes to online gaming, but the audience at the Wired Business Conference might not have the same take on it. The music industry is still in turmoil over the decade-plus of proliferation of free music on the Web that caused sales to plummet. Newspapers and magazines, meanwhile, are suffering due to declining revenues, and everyone's still afraid of Google (even if Google has now shown some vulnerabilities). An entire economic model based on the success of World of Warcraft's magic spears and Radiohead's onetime name-your-own-price experiment are radical, to say the least.
Or maybe the audience will prove more receptive to "free" and its manifesto. We have learned in the past year, after all, that Wall Street was dealing for decades with a whole lot of stuff that was about as tangible as a Club Penguin igloo.