SXSW ’09 Wrapup: Interactive Festival Closes With Wired EIC Anderson in Fiery Final Keynote On ‘Free’

webnewser_sxsw01.gifThough this year’s South by Southwest Interactive conference in Austin, Texas, got off to a slow start in the keynote department, and often drove us to distraction with its near-unilateral avoidance of external factors such as the nation’s crumbling economy and the continued deterioration of the media-industrial complex, it picked up steam courtesy of the many smaller presentations and panels surrounding community, social interaction and ways to share and make portable online data and identity.

In our view, however, the biggest payoff at SXSWi didn’t stem from any one announcement, launch, speech or celebration, but instead spanned many of them, often at the same time…

With Twitter’s ubiquity across the 10,000+ attendee conference, we found the spontaneous creation of session-, speech- and shindig-specific hashtags to be among SXSWi 09’s greatest takeaways. The sheer volume of Tweets coming out of the festival rendered the dedicated #SXSW tag all but useless, so attendees and panelists quickly created the DIY hack of hatching hashtags specific to individual talks at the start of many sessions. From #webfem and #hotttsex to #free, the tags helped those interested in specific sessions but who couldn’t attend — whether they were in a different panel across the Austin Convention Center, or across the country — stay abreast of sessions and topics that interested them. It also enabled them to lob questions in real time at panelists and speakers, including venture capitalist and Alltop creator Guy Kawasaki, who kept a laptop open onstage for exactly that purpose while conducting the conference’s closing keynote yesterday.

A quick video interview with Kawasaki shortly before the Tuesday keynote, suggested it would be just the high-energy debate we were hoping for. However it got off to a rocky start, with Kawasaki and Wired editor-in-chief Chris Anderson trading onstage barbs directed at journalist Sarah Lacy, whose 2008 keynote interview of Facebook CEO Mark Zuckerberg clearly lives on in infamy. At one point, Kawasaki even cracked in a warbly falsetto, “I’m not wearing my skirt today…” to boos and hisses from the same audience that nearly broke into open revolt in response to what many considered Lacy’s ineptitude on the SXSWi stage last year.

However, things soon improved, with Kawasaki deftly engaging Anderson about the latter’s upcoming book, Free, which advocates open and available digital goods — specifically through a “freemium” model, through which basic services are delivered at no cost while enhanced ones come at a price — as a means to drive business. Below are some of the many intriguing points advanced in the rapidfire exchange that closed SXSWi with a bang, and made us wish other sessions had been as energetic and timely:

Anderson: “Paper still matters. I believe in books, I believe in some kinds of paper. The trick is to figure out which kinds of paper add value to the Internet. Paper with high production values, beautiful photography, long-form journalism, stories that are 8,000 words — you put these online, it tends to fall apart. In terms of paper, I think books matter. You [to interviewer Guy Kawasaki] publish books, I publish books. Hardcover is still the premium version for delivering that information.”

Kawasaki: “Will there be a PDF free version of Free? You’ll be a hypocrite if you don’t give something for free.”

Anderson: “Yeah, I thought about that. Yes, Free will be free, but how and in what ways I can’t say right now.”

“Free is the best way to maximize your reach. The barrier to entry is zero. If you believe in physical books, you have to believe that some people will buy a book to have on shelves, give as gifts.”

Kawasaki: “Gd. bless you if your publisher will let you give your book away for free.”

Anderson: “When [my publishers] signed me up, they knew what they were signing up for. I had one advantage: I reserved the audio book rights to myself, so I am free to do what I want with that.”

Anderson [On explaining abridging to his kids]: “Daddy is a writer, and this guy is an eraser.”

Kawasaki: “Which is harder [online], to achieve popularity or then to monetize it?”

Anderson: “I think it’s harder to monetize it. Each one of us are our own platform [online]; each one of us has to figure out a way to convert from reputation to money.”

Anderson: “The key problem of free in [book] publishing right now is the same as the problem of it in music: misaligned interests. The music industry is fine except for one single part of it: publishing. Only the sale of recorded music has problems.”

Kawasaki: “Give us more free models — are there various types of things I can somehow monetize? Just saying ‘free and don’t worry’ isn’t enough.”

Anderson: “This book started as economic research project, but it turned into semantic research project. ‘Free’ is one of the most misunderstood words in the English language. We have a love/hate relationship with it; we’re drawn to it, but we’ve been burned by it; its meaning has changed over years.”

“The 20th-century version of free… isn’t really free: ‘There’s no such thing as a free lunch; buy one get one free.’ The idea is that products have real costs, and you have to pay that back somehow.”

The 21st century version of free… is truly free. Everything online is produced at near zero cost; you can now take the quotation marks off free. In the 21st century, it’s really free because cost is close to zero.”

“With ‘freemium’ … if you can convert 5 percent of your [free] users to paid, you can cover costs; convert up to 10 percent and it becomes extremely profitable.”

Kawasaki: “People misunderstand how hard it is to get 5 percent of any population to pay for something.”

Anderson: “There are different ways. You need to start up front by differentiating committed customers, and see what they’ll pay for… things can be seat-limited; class of customer limited.”

Kawasaki: “What can we learn from China where everything’s copied? Ironically, the Chinese are going to teach us capitalism… there’s no such thing as intellectual property there.”

Anderson: “China is the future of free.”

“The Internet is the first truly competitive market in history. In a competitive market, price will fall to the marginal cost. This is physics, this is gravity… If you do not make your product free, piracy will do it for you. You can’t fight digital piracy, but China has found a way of using it. There, you don’t fight piracy, you use it for marketing. It creates celebrity, which they then monetize. So, create celebrity — ‘microcelebrity,’ if you will — then convert it into cash. This is done through public appearances, advertisements, product endorsements.”

Kawasaki: “Will upselling work for an analog business?”

Anderson: “There’s nothing new about a free coffee. It’s called your company kitchen. They try to keep you in the office with free coffee and make their money that way, off the extra time you spend there.”

Kawasaki: “Why is free so much more powerful than ultra-low cost? One versus zero gets you a very different result.”

Anderson: “Kopelman, a venture capitalist, calls it the ‘penny gap.’ When you decide whether to buy something, there’s a flag that goes off in your head, asking ‘Is it worth it?’ Every time, we go through that calculus. That cognitive transaction cost is enough to stop you [from purchasing]. This is the curse of micropayments, and why it has never taken off: It’s not about the money, it’s about that flag, the cognitive overhead of asking yourself ‘Do I really want this?’ The simple act of charging any amount causes people to value something differently.”

In the nondigital world, the physical world, you need to cause people to think hard about using that. There, the waste of resources is significant. Digitally, waste has no cost. Google search is free.”

Kawasaki: “Is there any scenario in which the next generation will pay for digital content? Why do they pay for ring tones?

Anderson: “They’re willing to pay for a superior version of something, something that’s not a hassle, something that eliminates risk. You can make your own ringtone, but that’s a hassle, so it’s the simple utility, the fact that buying the ringtone makes it easier. It saves us time and time is money.

Kawasaki: “Is there any scenario digitally in which people think ‘If it’s free, it’s not as good?'”

Anderson: “I can’t think of any. Do you think Twitter or Facebook are less good because they are free?”

“[With paid products,] problems arise if your product is close to something that people get for free.”

Twitter question, read aloud by Kawasaki: “I was hoping this would be like the Oprah show, and we would all find a copy of Free under our seats.”

Anderson: “You’ll all get a copy of Free under your mouse.”

Audience question: “How has the current economic crisis changed free?”

Anderson: “In terms of business models versus free, you have to have one. The crisis has driven businesses toward the ‘freemium’ model… New York is very institutional, there you see the institutions like publishing starting to crumble [cites Conde Nast as an example]. In San Francisco where Guy and I live, we’re more driven by individual action; there, you’ve got the idea that this is a great time to start a company. I don’t think people feel as disempowered by this crisis in San Francisco as they do in New York.”