Mike Masnick followed on TechDirt with an insightful post in which he attributes some of Gladwell's confusion to the way that Anderson wrote the book. Masnick says that the book does not provide enough details on the mechanics and applications of Free. (I haven't read the book, so I can't comment on that.) Fred Wilson joined the conversation with a sharply delivered post on Freemium and Freeconomics. He gives examples of the kinds of Free that actually work.

So, as Albert Wenger wrote recently, there is "continuous confusion about free."

This is because the topic is broad, and everyone is taking a different angle. In this post, we will break down Free into three separate classes: the kind that actually works, another that struggles, and the last that can be dangerous.

Freemium: When Free Really Works

Fred Wilson nails it on the head when he identifies the two instances when Free actually works. The first instance is the service or software that offers a free trial and then converts users into paying customers. There are different flavors of this approach, the most popular being, give the basic version for free and charge for the advanced version.

An early example of this model was online email, where you got a certain amount of storage for free and had to pay for more (see more about this, though, in the section on when Free is dangerous). Other examples in this category include project management software, like 37signals, and online photo collections, like Flickr.

The second instance that Wilson identifies is the consumer service that manages to build a massive audience. Citing Facebook as an example, Wilson says, "Free gets you to a place where you can ask to get paid." He argues that because Facebook has managed to amass such a valuable asset, it is able to monetize in any number of ways. Citing Business Insider, he lists Facebook's revenue:

• $125 million from brand ads,
• $150 million from its ad deal with Microsoft,
• $75 million from virtual goods,
• $200 million from self-service ads.

Interesting that all but one revenue source here (the virtual goods) is advertising. The only thing that consumers of this Free service were willing to pay for was a supplemental service in the form of virtual goods.

In any case, the main point is that, given a truly massive audience, monetization opportunities present themselves, at the very least in the form of advertising.

Old Media: When Free Cries

It is ironic that the very thing that makes large consumer services successful also makes old media cry. Online advertising does not seem able to deliver the kind of revenue that old-fashioned subscription services did. The culprit? A drastic drop in the cost of publishing, and complete destruction of barriers to entry. Even at the turn of the century, publishing was a closed game. Today, anyone can be a publisher, thanks to the read/write Web (no pun intended).

What really angered Gladwell was Anderson's verdict on journalists. Gladwell writes:

"It is not entirely clear what distinction is being marked between 'paying people to get other people to write' and paying people to write. If you can afford to pay someone to get other people to write, why can't you pay people to write? It would be nice to know, as well, just how a business goes about reorganizing itself around getting people to work for 'non-monetary rewards.' Does he mean that the New York Times should be staffed by volunteers, like Meals on Wheels?"

While this question is valid, it misses the point. It does not matter whether journalism should be free or not. The issue is that those old media profit margins are nowhere to be found anymore. And so the money dissipates, the way that the big VC money from the '90s can no longer be deployed in tech.

To answer Gladwell's question, journalists will still get paid, but they will get paid to work at smaller outfits, like ReadWriteWeb.

Free, abundant content and more nimble, agile news sources from the blogosphere and Twitter are striking a deadly blow to old media. Old media cries because it can't figure out how exactly to remain the way it was. Ultimately, it can't.

Monopoly: When Free Bites

Most of the discussion around Free focuses on the freemium model and media. When we wrote about Free earlier, we focused on a different side of it: how Free can be dangerous.

The problem is that large companies can exploit Free in a way that is essentially monopolistic. A large company could enter a brand new market to undermine competition. Consider Google Docs, a completely free consumer product that serves no ads and competes with Microsoft Office. A subtler example is Gmail, which does display ads (even if they don't attract many clicks) and has limited storage, but the limit is so high (2.5 GB) that the product is essentially free.

Free can also be used to kill off competition and create a barrier to entry. IBM was the main player behind the open-source project called Eclipse, a platform for building software applications. Seemingly innocent and even good for the world, the initiative managed to kill off all of the small and mid-sized players in the market within five years. In doing so, it killed innovation and became the de facto tool for building Java applications.

When I spoke about the danger of Free during a recent summit on Freeconomics, I brought up a point that did not seem to resonate with the audience. I wondered, what are the moral implications of Free, and what specific impact does Free have on children? For example, what is it like to grow up in a world in which most software is Free? Does Free create a sense of entitlement? Does it lead people to wonder why they should pay for anything at all? Where do we draw the line on what should and should not be free? These questions are not simple and are certainly far from being answered.

Conclusion

Clearly, Free and Freeconomics are broad and complex topics. No single post could begin to address all of the issues involved. Anderson's book is timely and important. While we need to be careful, Free is also inevitable. Not only is it our future, it is already our present. So we need to understand what it is and what impact it has on the Internet, our lives, and our children.

The debate that is unfolding around Free is fascinating to follow and even more fascinating to participate in. So join the conversation with your posts, comments, and tweets!

Like an increasing number of private companies, Blurb is starting to report its financial results publicly, almost as if it were a public company. This presumably serves the purpose of both reassuring customers that the business is healthy and attracting potential acquirers.

Allow us to quote shamelessly from Blurb's press release (at least it prevents errors):

"Blurb, the creative publishing platform, today reported a year of record growth in 2008 with revenues approaching $30 million. The company reached profitability and achieved nearly 200% year-over-year revenue growth in 2008."

Quiz: which would you prefer: a company with $200 million in advertising revenue that is burning cash, or a business with $30 million in subscription revenue that is profitable? The first describes Facebook, the second describes Blurb. Yes, it is almost absurd to make the comparison. But the point is that old business maxim: revenue is vanity, and profit is sanity.

What Does this Tell Us About the Economy?

On the face of it, not much. Blurb's business is partly seasonal; people buy more during the holiday season. We asked Eileen Gittins, the company's CEO. She sounded almost surprised, not at all triumphant, and generally cautious. Which is a reasonable reaction of anybody doing fairly well in today's economy. Eileen confirmed that January is also looking good: 30% over projections. So this is not just a holiday buying story; it's more about what specifically Blurb offers.

What Does this Tell Us About Blurb's Market?

Eileen attributed the good results to three factors:

1. Pent-up demand to write books. Who doesn't have a book they have always wanted to write? It is now easier than ever to publish (if not write) a book.
2. The cultural shift of people becoming more active contributors to media, as writers as well as readers.
3. The forced leisure that layoffs create, and the desire to do something that one has some control over and can point to as an achievement. This may be exacerbated by the bad times: get laid off from a big job, take three months to write a book about what you know, do it well and you'll be back in demand pretty soon.

There is one simpler explanation that we see. In tough times, affordable luxuries that provide a high level of emotional satisfaction do well: think movies, roses, and booze.

Today's news from One Laptop Per Child was about layoffs due to difficulty in raising money. But the mission remains, and the core driver remains technology, as one of the commentors points out:

"You have done a great job so far, revolutionizing Moore's Law for X86 computing, initiating the industry-wide rush to sell netbooks in the developed countries, thus accelerating the shift to cheaper and lower-power computing.

"The next step I think should be shifting the PC and laptop to the ARM architechture. This would lower cost and lower the power consumption further. And it would accelerate also the industry-wide shift from the wasted CPU cycles and empty processing of X86 to the optimized embedded process and the complete removal of all bloatware from computers. How soon could XO-1.5 or XO-2 be ready with an ARM Cortex A8 core, running some Linux OS with a Sugar interface in collaboration with Google Android as software platform?"

OLPC is not the only outfit with this mission. In India, Novatium has the same mission, and it has a for-profit model. It has been pointed out regularly for a long time that selling to the "bottom of the pyramid" is a good business strategy. It is now more apparent that these strategies will impact developed markets as well. The current downturn will accelerate this as individuals and companies seek to reduce costs.

The Google Price

In manufacturing, we have the China price. In outsourcing, we have the India price. In software-as-a-service, we now have the Google price. Reading the Forrester report on the cost of managing email, what jumps out is how radically lower the Google price is: $8.47 vs. $20.32 for the lowest-priced alternative. Despite all the chants of "You get what you pay for," most businesses will take that differential pretty seriously. Google has set the new benchmark. Every vendor that sells for more will have to spend a lot of marketing dollars explaining why.

Skype on an Unlocked Mobile Device

The rumor (based on a broken embargo, it appears) that Skype Lite will be available on Android and Java-enabled phones gets us closer to the deal we all want: Skype on an unlocked mobile device. Like many people, I don't use a landline at work anymore. I use Skype and a mobile phone. So I am okay when in my office, my home, or a friend's office or home where I can open my laptop and use Skype.

But my mobile bills are way too high. I was intrigued by Validas' offer to reduce mobile bills by untangling their complexity. But I really want a more radical option, and Skype on an unlocked phone gives me that. I get free Skype-to-Skype and cheap Skype-Out calls wherever I have Wi-Fi. Wherever I don't, I use a pre-paid mobile calling card. No fixed costs. Big mobile bills... gone! Hint: don't buy shares in telephone companies.

Don't Worry Apple, There Will Always Be a Luxury Market

Aston Martins may not be selling so well today, but iPhones and Macs are flying off the shelves, and they are surely not cheap. Affordable luxury -- something that makes you feel good but does not really break the bank -- does well in a downturn.

But this is a small counterpoint to the massive main trend of cheaper products driven by both technology and the need to sell to the billions who are joining the global economy. Now, if we can only figure out how to enable billions to join the global consumer economy without doing worse damage to the environment, we will be in great shape. Come on Mr. Tata, what about an electric version of the Tata Nano?

Wild Apricot is a young technology company out of Toronto, Canada. We provide Software-as-as-Service for associations, clubs, and non-profit organizations. This is our story of an investment round that fell through due to economic conditions.

Originally financed by our founders, the company wanted to grow faster and in December 2007 decided to seek additional financing from outside investors. Things progressed quickly, and by February 2008 we shook hands on a deal with a new investor: a very entrepreneurial investment company out of UK. Closing was planned for April 2008.

Of course, things never go as planned (and this is one of the lessons many startups learn the painful way). First, due diligence protracted much longer than expected. This was partially due to the fact that our Canadian-based company has a subsidiary office in Moscow, Russia, where the bulk of software development work takes place. The investor was keen to ensure that the intellectual property was properly protected, and it required changes to the legal setup of the Russian subsidiary, new employment contracts for all employees, and a bunch of other changes.

Then the MBAs and lawyers got their hands on the deal, and it quickly deteriorated from a relatively simple original term sheet to a thick stack of very complicated contracts.

This was to be the first Canadian deal for the investment company, and the deal stalled for a while as the investor's lawyers struggled to reconcile the terms sheet with their standard templates and the wording of UK contractual law with the Canadian legal system and its way of doing things. (That's another lesson for start-ups: making a deal outside of your home base frequently takes much more time and energy.)

The shareholder agreement, articles of association, board by-laws, and all the other fun documents multiplied in versions like rabbits.

Everybody got exhausted, and the deal almost derailed a few times and was only saved thanks to the open dialog between our company and the majority shareholder of the investment company.

Dmitry Buterin, the Chief Apricot (aka President of Wild Apricot), got the final documents on the morning of October 9th, 2008. He was visiting the Moscow office at the time and went to work having the documents signed and faxed between Moscow and Toronto.

Alas, it was not to be. At 4:00 pm, he got a call from the investor. "We are not going to close the deal after all. Our shareholders are panicking and withdrawing their money. We cannot do any new deals now." The financial crisis finally hit home.

After seven months of due diligence, many thousands of dollars spent on accountants and lawyers, and countless hours invested by the management team, Wild Apricot had to write it all off.

It was even more disappointing because our company was delivering on its promises. Back in January 2008, we provided a detailed financial projection, and at the last check-in with the investor team we were proud to show the September and year-to-date numbers were right on the projections.

As the saying goes, in every crisis there is opportunity. So, the Wild Apricot team went searching hard for those opportunities.

The story is still being written because the crisis is still unfolding, but here is what we have achieved so far:

1. We asked nicely, and the investor agreed to reimburse part of Wild Apricot's legal expenses, even though there was no legal obligation on the investor's part.
2. We contacted local media right away to capitalize on all of the hoopla about the crisis and ended up on Canada's CBC television.
3. The founders put together another round of their own money, and while they had to scale back some growth ambitions, we feel comfortable about riding out the current storm and bridging this and the next investment round. (we knew that any deal had a risk of falling through, so we had backup financing arranged in advance, and it came in very handy.)

Wal-Mart has been reporting record growth as of late and McDonalds is stealing market share from Starbucks. So we think Wild Apricot might do even better in these tough times. Non-profits are hurting and have to trim their budgets (just search Google News).

To tell you more about our software: the basic premise is that for a simple, flat monthly fee of $25 to $200, Wild Apricot replaces up to seven separate pieces of software: the content management system for your website, a members database, a secure private website for members and the board, an event registration system, online payments processing, software to send bulk emails and newsletters, and online community facilities, such as blogs and discussion forums. Technical support and updates are free.

For a small association or club, this set-up saves thousands of dollars in software, countless hours of volunteer time usually wasted on copying and pasting and reconciling the data between a dozen Excel files, and paying through the nose for IT services.

Wild Apricot delivers a custom-built website project that would cost the equivalent of $20,000 or more (not to mention hefty ongoing maintenance and support fees).

October 2008 has been our best month in terms of absolute financial growth (meaning our monthly revenue has increased by the biggest amount ever). Percentage-wise, our revenue grew by 11.3% in a single month! And November so far is shaping up to be an even better month for us.

We we are very confident in our ability to keep growing by staying agile on our feet!

And here is the silver lining:

The US dollar is shooting up against most other currencies. Wild Apricot software is priced in US dollars, while its expenditures are largely in Canadian dollars and Russian rubles. This adds a healthy boost to its bottom line.

What are your war stories? How are you navigating these waters, and what new opportunities are opening up for other technology startups?

If you're curious to know more about this 'gritty startup', please click through to Wild Apricot's website and support a RWW sponsor!

He enters an IRS that the General Accounting Office said last week suffers from technology so outdated it leaves the agency with inadequate integrity, reliability and security for sensitive taxpayer information. Check out our coverage of the first IRS CTO and the daunting problems he'll face on our new blog the RWW Jobwire, sponsored by VisualCV.

"Do not go gentle into that good night. Rage, rage against the dying of the light." - Dylan Thomas

Who will turn this crisis around? We will. Who else? And how else but with innovation and entrepreneurship? Entrepreneurs: this is your time to step up to the plate. Hard as the times may be, you must remember, many, many great companies were born during recessions. And many others almost died in the midst of recessions but managed to survive through their founders' tremendous grit and resilience.

I also have a special message to convey to those of our readers who have experienced the misfortune of a layoff: do not give up hope. If you've ever dreamed of becoming an entrepreneur and imagined that you would, after all, like to be self-employed, this is your time. You have nothing more to lose. The job that held you hostage in its golden cage is gone. You are free. Free to try something new and different.

Listen to what Steve Jobs has to say about being laid off from Apple: "I didn't see it then, but it turned out that getting fired from Apple was the best thing that could have ever happened to me. The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything. It freed me to enter one of the most creative periods of my life." (You can read more from Jobs here.)

And here is how Rafat Ali found a job: he created his own.

Now, the best way to start a company of your own right now is to bootstrap. I have dedicated the first two chapters of my book to bootstrapping. In the recent roundtable here at ReadWriteWeb, I advised all of the entrepreneurs present to structure themselves in ways that permit bootstrapping, which means that capital-intensive ideas are out. You can listen to the roundtable recording here. I may do more of these in the future with ReadWriteWeb.

And I am also working on getting three more volumes of Entrepreneur Journeys out -- on Bootstrapping (Volume Two), Positioning (Volume Three), and Innovation (Volume Four) -- within the next 12 months.

Let's turn this crisis around together through entrepreneurship, through innovation, and through each of our personal, often unexplored capacities for leadership.

Read an excerpt from Mitra' book, Entrepreneur Journeys (PDF).