AUSTIN - If there is something South by Southwest has in common with run-of-the-mill conferences and trade shows it's the mounting piles of free stuff you get. Schwag, tchotchkes, trinkets...and outright crap.
It's free. So what is it's value?

The answer is...it depends.

A free bottle opener or pen? You may be dubious of the quality. But then there's Google.

"No one questions Google being free," said Chris Anderson, editor-in-chief of Wired.

Anderson is the pied piper of free - which is a pretty appealing economic philosophy these days. His new book "Free: The Past and Future of a Radical Price," is set to drop this summer and has been generating buzz since Anderson wrote about the concept in Wired.

So coming to talk about the power of "free" at SXSW in front of a friendly crowd could easily have been a walk through the park and a series of book plugs. Instead, Anderson spent his keynote discussion with AllTop CEO Guy Kawasaki defending the idea of "free" and how it will impact physical and online economies.

Anderson said "Free" started as a research project, following up on his previous book "The Long Tail: Why the Future of Business is Selling Less of More." The idea behind the long tail is that the era of the "one-size-fits-all" business model, in production and product demand, is over and that the future will be made up of a collection niches.

But as the No. 1 fanboy for free, why not give away the new book free of charge, Kawasaki asked.
"I would love for you to try 'if you follow me (on Twitter), I will give you a PDF of Free,'" Kawasaki said.
Anderson countered that the book could be made available for free, but there would have to be different ways to offer and monetize the book, from the actual print version to audio books, portable eBooks and online versions.

In someways the online version would almost have to be free. With so many online services free is the default expectation. And the reason for that is it's the easiest way to reach a broader audience, Anderson said.

Still, with so much available for seemingly nothing, the question now is, how do you make money, Kawasaki said.

"What would you do if you were Twitter? How would you make money," Kawasaki asked.
There are fewer options than before, Anderson said, when a plan could have been as simple as sell the business off to a larger corporation (like, oh...I don't know, MySpace). Now companies like Twitter have a few options, like creating different types of service. While there could be a free service, there could also be a "premium" service with special features for members willing to pay, he said.

What works now? The "Freemium" model. That means give it away and find another way to pay. Anderson pointed video games and massively multiplayer online role playing games as one example of how free works.
Kids can technically play games like Club Penguin or Webkinz for free, but to outfit their characters or access special features it costs money.

Another example? Think of your cellphone. If you're service provider offers a free phone you still have to pay for basic service, not to mention extras like text messaging or ringtones, he said.

But when you think about it, what is it about "free" that grabs people's interest? Free buttons or keychains? Sure. Free online search? Absolutely. Free samples? Why not? Free beer (and there was plenty around SXSW) and you get a crowd.
Anderson said free is hardwired into our psychology. All the difference in the world on deciding to spend money can come down to what Anderson called "The Penny Gap," that place where a flag goes up for someone between whether they would pay or not.
"Every time we see something we go through these calculations," Anderson said. How much is it, is it useful, will I regret it later?
Conveniently enough free never raises that flag, he said. "The simple act of charging causes people to value something in ways they don't realize," Anderson said.

There are of course, other factors that can come into play. As much as we all love something that's free, we tend to buy lots of stuff that isn't.

"Do you think people are more motivated by fear of something they have or not having something they could," Kawasaki said.

"The things you don't have loom large," and people are willing to pay a lot for that, Anderson said. Fear can motivate that, and Anderson said that's been a staple of marketing for a long time. You life would be better by buying a Coke or a Lexus. And when you have that Lexus, you life would be even more better if you got it tricked out with premium features.

Again - not so much a problem when it comes to free...because it's free. There's no guilt or fear there.

While Anderson is a big proponent of free, he made a point that it may not be a business model for everyone. In the end not everything can be free, he said, because it's a business model that is built around making real money. And companies still need to make real money.

Still, that doesn't mean you shouldn't consider the power of free.

"Free wants to be the natural price," Anderson said. "If you don't do it someone else will take advantage of those falling prices."

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