The best way to make money on the Internet may be to give it away, a leading thinker on the online economy says.

"Every business, one way or another, is going to have to compete with free," says Chris Anderson, the editor of Wired magazine and author of The Long Tail, an acclaimed book on Internet commerce. His next book -- tentatively titled Free! Why $0.00 is the Future for Business -- will discuss opportunities created by the Internet's ability to deliver goods and services for almost nothing.

Anderson spoke at Washington CEO Magazine's annual Economic Insight Forum in Seattle. During the speech, and in an interview with Washington CEO, Anderson argued that the ability of the Internet to deliver services for next to nothing has fundamentally changed the way companies do business.

There is no one business model, he says. However, there are a number of traditional strategies and models that work well in the new online free-for-all.

The Internet has hurt old-school media companies badly, stealing readers and viewers and classified advertising, which has migrated to free sites like Craigslist. But the Internet represents the triumph of the media's business model, he says. For decades, broadcasters have given away their content for free while generating profits by selling advertising. That model works well on the Internet for entertainment companies, but also for those providing products or services to small niche audiences, including specialized lawyers and accountants.

The smaller the niche, the better. "You're often willing to pay the highest price for things you don't share with everyone else: 'I really, really like it and I'm willing to pay almost anything for it.'"

That's exactly the kind of people advertisers want, and they'll pay a premium to connect with them.

There's also the old Gillette model, of giving away razors and making money selling the blades, Anderson says. For example, Irish airline RyanAir -- one of Europe's most profitable carriers -- has slashed ticket prices in some cases to zero.

To make money, RyanAir sells all the services travelers need once they get to their destinations -- hotel rooms and rental cars, for example. It runs a profitable air freight business, filling the cargo holds of its passenger planes. And it has stripped down its air service to a barebones level, to squeeze even more marginal revenue out of its passengers. "They make money selling sandwiches and water," he says. "They turn the airplanes into flying casinos."

Then there's the idea of the "freemium" -- where you give away 90 percent, even 99 percent, of your product, then charge a premium for the rest. The musician Prince illustrated this concept brilliantly last year, Anderson says, by giving away a new CD in London newspapers -- then pocketing record revenues from 21 concerts that sold out instantly thanks to the buzz.

As marginal costs shrink to zero, managers will have to shift their thinking, Anderson says. For generations, the role of the manager has been to reject plans that would waste company resources. But now, he explains, "the cost of experimentation in this new world is basically zero. The new model is, 'Do what you want and we'll tell you when to stop.' They can't do much damage. [Experimentation's] cheap and moving to free and the costs of failure are low."

Anderson says we all have to get used to thinking about ways to profit from free. Stockbrokers, insurance companies, travel agents, tax attorneys, accountants and lawyers all are competing online with rivals who give away services. So are signature Northwest software companies like Microsoft.

"Anything that touches the Internet is inevitably going to go to zero." So go ahead, he advises. "Let's get to free before our competitor does."