Another 'Free' Business Model Experiment

from the they're-all-over dept

When we discuss the basic economics having to do with infinite goods, sometimes the debates in the comments accuse me of promoting one "business model" over all others. The truth is quite different. The economics at work are fundamental. Price gets driven to marginal cost. The business models that then result, however, are numerous and varied. The key is simply recognizing that the infinite good works as a resource, increasing the value of all sorts of scarce goods. Thus, you release the infinite goods widely, and sell scarce goods that are made more valuable. How you do that can take all different concepts into account. Just in the music space alone we see so many varied models, from Radiohead's name your own price to Trent Reznor's tiered premium model to Jill Sobule's tiered support model to Maria Schneider's fan-supported production model all the way to things like The String Cheese Incident setting up their own travel agency to help fans follow them around for gigs. The key isn't a single business model. In fact, each of these individual business models might not work for any other artist. But all recognize the promotional power of the music in making something else much more valuable.

And we're seeing that show up in totally unexpected places as well. Take, for example, this recent post on Boing Boing about what's happened with a bunch of experimental video games, developed originally as part of a Carnegie Mellon project. Each game was developed in 7 days and many are given away for free. However, now a company has taken those games and made t-shirts (yes, t-shirts) using images from some of the games. Even better, though, is that with each t-shirt, you get a copy of the video game itself, and the shirts are now for sale at Target. In other words, these games are helping to make the t-shirts more valuable, even though the games themselves are free. It's yet another example of understanding the difference between infinite and scarce goods and how to use one to make money from the other.


Reader Comments (rss)

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  1.  
    identicon
    Bill Waggoner, Mar 28th, 2008 @ 4:06pm

    The trouble is ...

    that most people (and I count myself as a charter member of this group) have ABSOLUTELY NO IMAGINATION in this respect. I'm a "techie" and have been for more years than I want to count. But I couldn't sell my brother's own liver back to him! My approach to "selling" is either "You don't want to buy this, do you?" at the low point to "Here! Buy this!" at the "high" ...

    Although I can see exactly what you have been preaching for as long as I have been reading, "knowing" it and being able to "do" it are, for me, at opposite ends of the spectrum. Luckily, my income does not rely on my marketing expertise ... well, it does of course, I think everyone's does ... but not in selling to the "public" ...

    Hmmm, maybe that's why my raises have been small ...

     

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  2.  
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    Danno, Mar 28th, 2008 @ 5:06pm

    Sadly, the shirts are no longer on sale at Target (didn't meet their sales expectations).

    Rumor has it that they'll be showing up at Hot Topic: http://kotaku.com/373221/target-dump-indie-gaming-shirts

     

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  3.  
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    Anonymous Coward, Mar 28th, 2008 @ 5:08pm

    This from the guy who is also against copyrights, patent, and trademark protection. So, in your world, I spend my time, money, and resources developing a game to promote a T-shirt, give the game away for free, then someone else comes along who makes a better T-shirt, no one buys mine, and I'm SOL. Now, how will this be an incentive for me to create another game?

     

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  4.  
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    Mike (profile), Mar 28th, 2008 @ 5:22pm

    Re:

    This from the guy who is also against copyrights, patent, and trademark protection.

    I'm not against trademark protection.

    So, in your world, I spend my time, money, and resources developing a game to promote a T-shirt, give the game away for free, then someone else comes along who makes a better T-shirt, no one buys mine, and I'm SOL. Now, how will this be an incentive for me to create another game?

    These games were created for fun in a quick project, not for profit. The fact that they've been turned into a business venture is a total bonus.

    But the answer to your actual question is that this should provide EXTRA incentive to create a new game so you can create a NEW t-shirt that more people want. Besides, true fans will want to buy from the original creator, not some copycat.

     

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  5.  
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    Debunked, Mar 28th, 2008 @ 5:39pm

    A Run on T-shirts Fable

    So let's see
    1. Indy Musicians monetize thru t-shirts
    2. Label Musicians push t-shirts to add to profits
    3. Book authors decide to go the t-shirt route
    4. Game makers give the game away and make it off the t-shirts
    5. Everybody's selling t-shirts
    6. An avid t-shirt after market develops with some early musician models selling speculatively for 100 times the original cost.
    7. Musicians come to places like this a complain how yet again someone has "taken advantage of them". "We should get a cut of the increase in value in secondarily traded t-shirts"

    In the future the Cotton Industry of America hires Mike Smart Dossier service and takes his advise and its members buy more farmland for cotton and make a killing.

    Eventually everyones closets get overstuffed with t-shirts and consumers realize that buying a t-shirt and storing it is stupid compared to just having the digital file. The overblown Cotton 2.O market collapses and leads the economy into yet another recession.

     

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  6.  
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    Mike (profile), Mar 28th, 2008 @ 5:55pm

    Re: A Run on T-shirts Fable

    Very funny. Since you seem to have trouble understanding the basic concept, I never said that anyone needs to monetize via t-shirts. I just pointed out this as an interesting business model.

    I note, of course, that you don't actually explain what's wrong with it. You just mock it.

    Eventually everyones closets get overstuffed with t-shirts and consumers realize that buying a t-shirt and storing it is stupid compared to just having the digital file

    Did you miss the part where the digital download is available for free? Oh, yes, you did.

    Try again.

     

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  7.  
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    chris, Mar 28th, 2008 @ 7:04pm

    It's sad that it's come to this. Put in the effort to create a product that people want, but won't pay for....give the product away for free...and hope they buy t-shirts???

     

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  8.  
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    Mike (profile), Mar 28th, 2008 @ 7:14pm

    Re:

    It's sad that it's come to this. Put in the effort to create a product that people want, but won't pay for....give the product away for free...and hope they buy t-shirts???

    Actually, did you read my comment above yours? That's not what happened at all. No one was selling these games at all. It wasn't "hope they buy." This was coming up with a new business model for an area that had NONE before. They created something worth buying out of nothing.

     

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  9.  
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    JM, Mar 28th, 2008 @ 10:47pm

    Cant agree more

    In the actual business model companies creates a product and then pays for marketing and adverstising to sell it.
    This model is the other way, you create a service or product that works as your promotion tool to sell merchandise, support or even other services. This model requires a lot of outside of the box thinking and innovation to come up with ideas for making revenue and maybe this is why not everyone is interested, because they have a tunnel vision(so it is not about selling t shirts)

     

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  10.  
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    Lawrence D'Oliveiro, Mar 29th, 2008 @ 12:06am

    Speaking of T-shirts...

    ... what do you think of this?

     

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  11.  
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    mike allen, Mar 29th, 2008 @ 12:53am

    Re: Speaking of T-shirts...

    Answear is surely that the sculpter who spent three years on his work now has his work known (and worn) by meny more people than would even have seen his work before its good marketing to shut up about the T shirt and use it as a promotional tool to gain more commistions.

     

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  12.  
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    Ronald J Riley (profile), Mar 29th, 2008 @ 12:26pm

    Chop Shop Loss Leader Business Model

    “Red Hat And The Power Of Infinite Goods (Earnings, IPOs, and the like)
    by Timothy Lee from the economics-of-free dept on Friday, March 28th, 2008 @ 5:39PM”
    “The New York Times has a great write-up of the continued rapid growth of Red Hat. Despite the looming recession, Red Hat is predicting 30 percent revenue growth in the coming year, to more than half a billion dollars. For a few years, Mike has been talking about how to make money while giving away infinite goods, and Red Hat could probably be the poster child for his argument. Despite the fact that virtually all of its "products" are available for free on the Internet, Red Hat is still convincing companies to pay it hundreds of millions of dollars.”

    And

    “Another 'Free' Business Model Experiment (Culture)
    by Michael Masnick from the they're-all-over dept on Friday, March 28th, 2008 @ 3:16PM”
    “When we discuss the basic economics having to do with infinite goods, sometimes the debates in the comments accuse me of promoting one "business model" over all others. The truth is quite different. The economics at work are fundamental. Price gets driven to marginal cost.”

    In these comments they freely acknowledge the point I have been making for some time concerning the loss leader business model where someone gives away something in order to drive sales of their services or of other products.

    Now there is nothing wrong with this business model as long as they are giving away their own property. But most of these businesses are founded on giving away other’s property without their permission. In other words their business model is like that of a chop shop which installs stolen auto parts and charges to install those parts. They are still crooks, and all the rationalization in the world does not change the unvarnished truth of this.

    These crooks will rationalize that they are really Robin Hood reincarnated. Yet when caught no one buys their claims except their fellow thieves. The same is true in the free software community. To the degree that their business model is based on giving away property which is not theirs to give they are simply another bunch of thieves who reinforce each other’s incredibly wrong thinking.

    The leaders of the anti-software patent movement frequently make their living by supplying services, authoring books, etc. Many claim their work is inventive but this is questionable and in the absence of having their work judged via the patent process they simply cannot make a credible case that they have done anything more than copy other's inventions by coding a solution in a marginally different way. Even if they are inventing they are not teaching others the invention and therefore have chosen to keep their work essentially secret, much as guilds used to jealously guard the secrets of their trade to exclude others from practicing the inventions. In many ways they are treating their knowledge as a trade secret.

    As long as there has been software, engineers have been making tradeoffs between implementing an invention in hardware or software or a combination of the two. As electronics have shrunk and processors have become more powerful an ever greater number of inventions are best implemented via software.

    Denying inventors’ protection via patents is sure to lead to the same problems which society had when guilds kept knowledge secret.

    One of the beauties of software based invention is that it has low capital requirements. Anyone who is willing to work hard and has a great invention can prosper. A software patent can be a great equalizer allowing a lone inventor to challenge a big vested interest and to win epic battles.

    Ronald J. Riley,


    Speaking only on my own behalf.
    Affiliations:
    President - www.PIAUSA.org - RJR at PIAUSA.org
    Executive Director - www.InventorEd.org - RJR at InvEd.org
    Senior Fellow - www.patentPolicy.org
    President - Alliance for American Innovation
    Caretaker of Intellectual Property Creators on behalf of deceased founder Paul Heckel
    Washington, DC
    Direct (202) 318-1595 - 9 am to 9 pm EST.

     

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  13.  
    identicon
    Nasch, Mar 29th, 2008 @ 7:40pm

    Re: Chop Shop Loss Leader Business Model

    Whose intellectual property is Red Hat infringing, and how?

    "Many claim their work is inventive but this is questionable and in the absence of having their work judged via the patent process they simply cannot make a credible case that they have done anything more than copy other's inventions by coding a solution in a marginally different way. Even if they are inventing they are not teaching others the invention and therefore have chosen to keep their work essentially secret,"

    If they're keeping their work secret, then you haven't seen the code, so you have no way of knowing if they're violated someone's copyright. In my experience, the leaders of the anti-software patent movement don't practice or advocate infringing others' intellectual property, but propose revising laws and writing and using F/OSS in a manner consistent with its license. Even Stallman, who says charging money for software is unethical, doesn't say we should pirate software that others have chosen to keep proprietary and charge money for.

    I know I'm wasting my time replying to you, but I feel better this way rather than letting your comments go unchallenged.

     

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  14.  
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    Kiba, Mar 30th, 2008 @ 7:30am

    Re: Re: Chop Shop Loss Leader Business Model

    Stallman never say charging money for software is unethical.

    In fact, one of the freedom of free software is the ABILITY to charge money for softwares. If you can't, than it is a violation of Stallman's Free software philosophy.

     

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  15.  
    identicon
    SomeGuy, Mar 31st, 2008 @ 6:05am

    Re: Chop Shop Loss Leader Business Model

    "Now there is nothing wrong with this business model as long as they are giving away their own property. But most of these businesses are founded on giving away other’s property without their permission."

    Hi, Ron.

    So, the businesses discussed in the articles you mention are RedHat selling it's support, a handful of mucisians selling access, or merchandise, or a handful of other things, and these t-shirt guys. The things being given away are RedHat linux, the artists' own music, or the free video games. So, I'm curious where all these businesses built on giving away other people's work are. You claim they outweigh these admittedly legitamate 'free' models.

     

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  16.  
    identicon
    Tommy Lieberman, Mar 31st, 2008 @ 7:41am

    Target Drops Indie Shirts

    Target Pulling Experimental Gameplay Project T-Shirts? I thought it was a genius idea, but I guess it wasn't genius enough for target shoppers.

     

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  17.  
    identicon
    Glenn Isaac, Apr 1st, 2008 @ 3:32pm

    Note to Commentators

    Commentators: Please read Mike's article(s) before commenting! Many of the comment posts completely ignore fundamental points in Mike's reasoning. Please be especially aware that economics is descriptive not prescriptive. What is being described is not an issue of what is moral or immoral. Nobody is telling you what to do. This collection of articles describes the present situation, and details how similar situations have turned out. This historical and rational information is then used to describe what the future will likely bring NOT to prescribe what you need to do. Mike, excellent train of thought. Thanks!

     

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  18.  
    identicon
    Nasch, Apr 5th, 2008 @ 8:48am

    Re: Re: Re: Chop Shop Loss Leader Business Model

    Stallman never say charging money for software is unethical.

    I misspoke, I meant to say proprietary software is unethical. My point is that even someone with such a radical view of IP doesn't advocate violating IP laws.

    FB: What do you think about proprietary software? Does it have low quality? Is it unsecure? Does it restrict freedom too much? Is it unethical?

    RMS: Proprietary software is unethical, because it denies the user the basic freedom to control her own computer and to cooperate. It may also be of low quality or insecure, but that's a secondary issue. I will reject it even if it is the best quality in the world, simply because I value my freedom too much to give it up for that.

    RMS Interview

     

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