Despite the fact that Wired editor-in-chief Chris Anderson’s latest book, Free: The Future of a Radical Price, wasn’t released until this week, it has still managed to generate much pre-publication discussion about the future of the digital economy. Anderson found himself enmeshed in a pre-publication plagiarism scandal two weeks ago when the Virginia Quarterly Review found that some passages in the book directly matched Wikipedia entries. (Anderson quickly apologized, blaming inaccurate citing and overall carelessness.)

Then, of course, there’s the actual content of the book, which has been received by journalists and business-minded folks in decidedly polarizing ways. Malcolm Gladwell unleashed a scathing review of Free in last week’s New Yorker, scolding Anderson for adhering to the freeconomy as an “iron law” and writing, “The only iron law here is the one too obvious to write a book about, which is that the digital age has so transformed the ways in which things are made and sold that there are no iron laws.” (Plenty of responses followed.)

But for Anderson, Free is indeed the ultimate destiny of our economy. “Sooner or later every company is going to have to figure out how to use Free or compete with Free, one way or another,” he writes in the beginning of the book. This assertion will probably look depressingly familiar to journalists who’ve watched their traditional business models fall apart in the wild west of the web, where “free” is the gold standard.

Mental transaction costs

Some continue to push for a system of micropayments to support news sites, but Anderson argues having to pay anything — even a penny — for online content radically drives down readership. “It’s as if our brains were wired to raise a flag every time we’re confronted with a price,” he writes. “This is the ‘is it worth it?’ flag. If you charge a price, any price, we are forced to ask ourselves if we really want to open our wallets. But if the price is zero, that flag never goes up and the decision just got easier.”

Anderson borrows a term from George Washington economist Nick Szabo, labeling this flag the “mental transaction cost.” Laziness has made us all want to avoid making any decision, no matter how inconsequential. Even if something is financially affordable, once we begin to question if it’s “worth it,” we’ve already spent cognitive energy considering the decision, and will most likely choose not to spend the money, even if it’s just a penny. Anderson says micropayments “are destined to fail, Szabo concluded, because although they minimize the economic costs of choices, they still have all the cognitive costs…many potential customers would be put off by the payment and decision process.” While TimesSelect wasn’t exactly a system for micropayments, perhaps this principle helps explain the failure of The New York Times’ experiment with premium content. News fiends or not, once we’re forced to create an account and enter our credit card numbers — even to be charged a reasonable, affordable amount — we shy away and seek out similar content elsewhere for free.

Anderson also touches on advertising in Free, segueing from his disdain for micropayments to a section titled “The End of Paid Content.” He gives six reasons (borrowed from entertainment lawyer Jonathan Handel) for the evolution to a free economy:

— Supply and demand: The Internet has made the available amount of content functionally infinite, while the demand for content has remained the same.

— Loss of physical form: It feels much less like stealing when what you’re stealing isn’t a tangible object.

— Ease of access: Downloading makes nabbing content more seamless than having to go to a store and buying it.

— The shift to ad-supported content: Now that we’re used to everything being free online, what else should be free in our real lives?

— The tech industry wants content to be free: Free content means you have to buy more products to host that content (think free music to put on your not-free iPod).

— Generation Free: Growing up post-Napster, younger generations find copyright irrelevant.

Newspapers’ most common solution to the giving-it-away-online problem has been making up for it with advertising. But Anderson addresses that by quoting Scott Karp, the founder of Publish2. “Advertising in traditional media, whether newspapers, magazines, or TV, is all about selling a scarce resource — space,” he says. “The problem is that on the web, there’s a nearly infinite amount of space. So when traditional media companies try to sell space online the same way they sell space offline, they find they only have a fraction of the pricing power.” While online advertising has expanded beyond selling raw CPM, newspapers will be hard pressed to support themselves through online ads alone.

The impact on journalism

So if micropayments are futile and ad-supported models are limited, what does Anderson see as the future of newspapers? Since Free has shrunk the gap between professional and amateur journalists, he believes that “as more people create content for nonmonetary reasons, the competition to those doing it for money grows…all this means is that publishing is no longer the sole privilege of the paid. It doesn’t mean you can’t get paid for publishing.” J-school students already buried in competition can be forgiven for finding Anderson’s stance a little bleak. He blames the loss of journalism jobs on news organizations’ inability to adapt to a technologically shifting landscape: “The professional journalists who are seeing their jobs evaporate are typically those whose employers failed to find a new role in a world of abundant information…the top tier (The New York Times, Wall Street Journal, etc.) will probably shrink a bit, and the tier below that may be decimated.” Such is the world of the freeconomy, where the future isn’t an economic leveler, but a place where a few leaders win and the broad middle loses out.

Anderson closes his chapter entitled “You Get What You Pay For” with an outlook on the future of journalism that some may find hard to swallow. “Journalism as a profession will share the stage with journalism as an avocation,” he writes. “Meanwhile, others may use their skills to teach and organize amateurs to do a better job covering their own communities, becoming more editor/coach than writer. If so, leveraging the Free — paying people to get other people to write for nonmonetary rewards — may not be the enemy of professional journalists. Instead, it may be their salvation.”

[Anderson has released the electronic copy of his book for — you guessed it — free. Read the whole thing below, or at Google Books here.]

Photo of Chris Anderson by James Duncan Davidson used under Creative Commons.