Pet Peeve: Anyone Who Says 'Free Is Not A Business Model'

from the no-one-is-saying-free-is-a-business-model dept

It amazes me how otherwise very intelligent people have their brains stop thinking as soon as they come across a zero. Of course, it's been going on for thousands of years. Our brains just seem to have trouble with the concept of zero. Hell, there was a time where believers in zero were considered heretics who should be killed. These days, everyone insists they believe in zero, but when they come across it as a price, they seem to have any additional thought processes stop. It's as if the brain hits a "divide by zero" error and just gives up -- or returns nonsense.

The latest example is in a recent David Carr column in the NY Times. The column itself is nothing new. It's the same old whining from an old school media guy, wishing there were some other business model by which newspapers could charge again. The main points in the article have been ripped apart by those who understand the news business quite well -- but what struck me was the following comment in Carr's article from Craig Moffett of Bernstein Research:
"Free is not a business model."
That's the zero-brain-stop point. As has been discussed over and over and over and over again is that no one says that free is a business model. What people say is that free often makes sense as a part of the business model. And that's been true in tons of businesses throughout history. Free samples. Buy one, get one free. First one's free. Buy twelve, get the thirteenth for free. All of those use free as a part of the business model. No one says those models don't work. And, no one is saying that "free" by itself is the business model. People merely point out that it often makes sense as a part of the business model.

But, for some reason when folks like Moffett get to the point where they see the price of $0, they stop considering that that's only the first part of a wider business model. That certainly doesn't mean that there are plenty of businesses that haven't thoroughly planned out the rest of the business model, but Moffett falsely implies that many companies actually thought that "free" was a business model by itself -- and ignores how pretty much every business was actually looking to use free as a part of a larger business model.


Reader Comments (rss)

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  1.  
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    Phillip, Jan 15th, 2009 @ 9:21am

    It's okay mike, I understand. It annoys the snot out of me too.

     

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  2.  
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    james (profile), Jan 15th, 2009 @ 9:51am

    lol

    lol Mike, another prime example is the RIAA, who repeated stop thinking (when did they start) when the word "zero". The can't comprehend it either. If you want proof, look at the "zero" new lawsuits.

     

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  3.  
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    Ima Fish, Jan 15th, 2009 @ 10:01am

    So let me get this straight, David Carr has never watched broadcast TV, where the broadcasters do not charge the viewers to watch?! He has never listened to broadcast radio, where broadcasters do not charge the viewers to watch?! He's never been to a bakery which gave out free samples?! Has this guy been living under a rock for decades?! And if so, who let him live under that rock for free?!

    Heck, even the newspaper industry is basically free for readers. Newspapers don't make their profits from selling newspapers. The price charged for a newspaper is only there to convince advertisers that people are actually reading it.

     

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  4.  
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    AC, Jan 15th, 2009 @ 10:32am

    Smart people make this mistake, too

    http://www.baseballprospectus.com/unfiltered/?p=1153
    In discussing how many baseball writers are working for failing newspapers, and in danger of losing their access to hall of Fame voting, Will Carroll notes, "Here on the net, we’re at risk of losing a lot of great writers and great information. Free is no longer a business plan."

    Apparently he thinks the only viable business plan is to lock up as much content as possible behind a paywall, something BP is famous for. The problem is, over the past few years, literally dozens of new baseball analysis sites have popped up that provide virtually the same content for free. BP (and many of these other sites) sell books and other tangible goods, as well as advertising. The subscription model only serves to limit the audience, while providing a pretty small income stream ($40/year).

    The consumer will ultimately dictate what the proper business plan is, but from my viewpoint, it's NOT locking out potential customers, hassling casual readers and handing a golden advantage over to the new competitors.

     

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  5.  
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    Nobody, Jan 15th, 2009 @ 10:35am

    One of my favorite little sayings (don't remember to source to quote) is that Black Holes are where GOD divided by Zero.

    Ties into this because I think that is kind of what happens for those people mentioned above. They hit that Zero and suddenly their brain turns into a Black Hole...

     

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  6.  
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    Bill, Jan 15th, 2009 @ 10:35am

    Prime Example?

    Isn't Google a good example to give? They offer most of their services for free and you can pay for some of them if you want enhanced ones. They seem to be doing just fine giving away most of their products/services for free.

     

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  7.  
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    Hulser, Jan 15th, 2009 @ 10:36am

    Whining?

    Having read the David Carr article myself, I don't really see it as "whining" or an example where "any additional thought processes stop". The Carr article seem to be mostly about a desire for a workable business model for newspapers in light of the widespread expectation that news content should be "free".

    The quotation of "free is not a business model" notwithstanding, I think that Carr gets the idea that free is part of a business model and not the entirety of the business model. Here's a quote from Carr...

    "Mr. [Steve] Jobs saw music as something else -- as an ancillary software business to generate sales of the iPods and iPhones. That's not a perspective that flattered people in the music business, but it did persuade listeners to pay for their wares."

    I don't think anyone would deny that newspaper are facing a dilemma which has its root in the changing expectation of its traditional target market. But, at least in this article, Carr doesn't appear to be making any wrong-headed or backwards suggestions on how to fix the problem. He appears to me just to be hoping for someone to come along and come up with a workable business model.

     

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  8.  
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    Noah Callaway, Jan 15th, 2009 @ 10:37am

    Free is not a business model

    "Free is not a business model"

    All you have to say is:
    "Yea, and Google makes no money"

     

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  9.  
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    Ed Kless, Jan 15th, 2009 @ 10:43am

    On Zero

    For more on the topic of Zero, read Charles Seife's Zero: The Biography of a Dangerous Idea.

     

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  10.  
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    Twinrova, Jan 15th, 2009 @ 10:48am

    It's not the zero causing problems.

    In most of the articles I've read (whether linked from here or elsewhere), I find it's not the zero causing problems, but finding the business model to work with zero.

    I've challenged many times here that not all businesses can use the "freeconomic" model and I stand by this. While newspapers are struggling, I've also noticed not many are even trying to do something different.

    I'm sure we've all seen this before.

    A business can not offer free without making up the cost of the item being given away for free. The "buy one, get one free" isn't true as much as it is a business gimmick, especially since most of these offers are for a limited time.

    I know Techdirt has offered some ideas for the newspaper industry, but as I've contested before: Not every one can adapt the model, especially in markets where more than 1 paper exists.

    The problem with "scarce" goods is that, well, in some industries, the scarce is too scarce even for the business to acquire it, let alone adapt it into the market.

    Yesterday's blog over the bookstore was interesting, given they're at least trying. I would love to see how they're doing in 2010-2012 to see if this model truly works.

    But I seriously doubt we'll ever see a follow-up story.

     

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  11.  
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    PaulT (profile), Jan 15th, 2009 @ 11:03am

    Re: Whining?

    "Mr. [Steve] Jobs saw music as something else -- as an ancillary software business to generate sales of the iPods and iPhones. That's not a perspective that flattered people in the music business, but it did persuade listeners to pay for their wares."

    Actually, that doesn't address free at all, unless iTunes has adopted a free business model I'm not aware of. Apart from a few promos, everything the still costs 99c. In fact you can argue that he's saying the opposite - that Apple merely gave people something worth paying for instead of the free pirated material, not that they used free as part of their own business model.

    Unless you're referring to the generally assumed position that Apple don't make a profit from iTunes, but even then it's a stretch to think that Carr actually understands free in the manner that's been discussed here for several years.

    What's rather telling to me is that Carr seems to be concentrating on new technology to get his industry out of the pit it's in. I disagree, they simply have to do something that people want to pay for. Dead trees ain't cutting it any more, people go elsewhere for classified and their own paywall backfired miserably. There's a solution out there, but I don't think "a large screen iPod touch" is it (wouldn't people just visit nytimes.com or Google news on it for free anyway?). It's a difficult time for the industry, but this is, at best, half pointing in the right direction, 10 years too late.

    As ever, they simply need to give people a reason to pay for something they can otherwise get for free. There are many ways, discussed here ad infinitum, the question is whether they've avoided the need to do so for too long.

     

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  12.  
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    IFR Pilot, Jan 15th, 2009 @ 11:09am

    FlightAware

    Have a look at flightaware.com, a company that started doing flight tracking against a bunch of entrenched incumbents and, like, immediately became the largest and most visible by giving away the flight tracking that the others were charging ten to hundreds of dollars a month for, selling advertising, and doing commercial data deals, selling reports online, selling access to their database via SOAP/WSDL, and so forth.

     

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  13.  
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    nofreebreakfast, Jan 15th, 2009 @ 11:39am

    Free? Doubtful...

    The problem I have with free as PART of a business model is that normally what ever piece of free they are trying to push is tied to something that is NOT free. For example, if you buy one and get one free, I promise you, the price of the one you are paying for is making up for anything you might get for free. Relating to new media, you might have a free online news outlet, but the free part is the invasion of privacy in the form of ads, requiring you to have an "account" to login to see the free content or SPAM in the form of "reminders" that you haven't logged in in X number of days, or they you are missing out on the latest widget that the site has. I want to surf the internet or go to the store and have NO ONE keeping track of what I bought, or what my toilet paper buying habits might be!

     

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  14.  
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    Hulser, Jan 15th, 2009 @ 11:46am

    Re: Re: Whining?

    Actually, that doesn't address free at all, unless iTunes has adopted a free business model I'm not aware of. Apart from a few promos, everything the still costs 99c.

    Yes, literally speaking the iTunes model is not based on "free". Point taken. However, I think the iTunes model and the models discussed on TechDirt which use free music to sell scarce goods both fall under the loss leader category. They both are using the model of making one product available (for free or for a small price) for the purpose of selling another (non-free or higher priced) product. In other words, the price of the leader, 0 or 99c, isn't the important factor. It's the price of the scarce good that follows.

    There's a solution out there, but I don't think "a large screen iPod touch" is it (wouldn't people just visit nytimes.com or Google news on it for free anyway?).

    Neither do I, however...I just took this as a suggestion for one possible solution, not "whining" or a declaration that this was the only solution. When you think about it, Carr was doing the same thing that TechDirt does, point out the problems and offer suggestions for improvement. But I wouldn't consider TD's analysis of other people's attempts to come up with new business models, which oftentimes includes criticisms, as whining. Just analysis.

     

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  15.  
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    usmcdvldg, Jan 15th, 2009 @ 11:53am

    Re: Prime Example?

    good one!!! The vast majority of people who use google, something on the order of 90,000,000 a day(just for searches) and gmail ect... don't pay a penny.

     

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  16.  
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    Anon Cow, Jan 15th, 2009 @ 12:03pm

    Same article

    I love Techdirt, but please stop rewriting the same article! This one seems like it has been rewritten 10 times. I agree with your assertions, but continually reasserting them, that's not news.

     

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  17.  
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    SteveD, Jan 15th, 2009 @ 12:05pm

    Scott Rosenberg makes an important point. People often dismiss 'free' not because it can't be part of a successful business model, but because it generally doesn't bring in the same magnitude of revenue they're used too from the old models.

    The big problem with trying to recapture that old revenue is that much of it was built on the status of these institutions as information gatekeepers, an age we all know is over.

    Ultimately the newspapers have to face up to the same truths as the record companies, and recognise that doing business in the digital age doesn't just mean swapping one revenue stream for another but fundamentally changing the way you do business.

    Unfortunately the change we've seen so far in the UK is far from positive. UK newspapers have responded to the challenges facing their US cousins by lowering the bar just about as far as they can, as the ever fantastic Charlie Brooker explains; http://uk.youtube.com/watch?v=WHBN-CvCXW4

     

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  18.  
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    Mike (profile), Jan 15th, 2009 @ 12:20pm

    Re: On Zero

    For more on the topic of Zero, read Charles Seife's Zero: The Biography of a Dangerous Idea.

    Yup. If you follow the links back, reading that was what set off my thought process on how $0 gets people the same way zero did years ago.

     

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  19.  
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    Phillip, Jan 15th, 2009 @ 12:22pm

    Re: Same article

    Good thing Techdirt is a blog and not a news site ;)

     

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  20.  
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    Overcast, Jan 15th, 2009 @ 12:43pm

    Good thing Techdirt is a blog and not a news site ;)

    Yeah, they'd be more biased, censor more, and put more political spin on things if they were.

     

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  21.  
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    teh Angry Commenter, Jan 15th, 2009 @ 1:35pm

    I see this akin to all the free burgers that Burger King recently gave away on facebook. They capitalized on developing a simple app which accomplishes something that people are inclined to do anyway (clean up their facebook connections).

    But I am truly struck by the sheer genius and simplicity of this facebook app: In one week, over 230,000 people learned their friendship was worth less than 39 cents, or 1/10th the cost of a burger. The app was so successful, and something Madison Avenue should learn from.

    CP+B should be the choice comapny do do business with: Understand that by playing devil's advocate has it's pre-requisites. CP+B also prepared with a website that allowed people to send an angry message back to the person who un-friended them.

    Now, I didn't understand the whole idea of an "Angry Whopper" when I saw the ad plastered outside me on New Years Day when Taco Bell decided to close early. I won't even begin to comment on my 45 minute experience outside a TacoBell with their lights on, no one home, and the damn thing at the drive-thru saying every 5 minutes "We'll be with you in a few minutes".

    So after an hour in the line, pulling up to the window and finally realizing the lights were on by no one was home, we went to the Angry Whopper place.

    Sure, we were Angry, but didn't expect to see an ad for an Angry Whopper. It was 3:30am, but they took the order for 6 whoppers and 6 fries that TacoBell couldn't even hire someone to take the order for.

    It's noted that others decided to venture off to the Burger King as well. We were angry, in fact, some 230,000 people were alerted to their poorly-performing friendship status. Can't turn off the lights? Yeah, I'm freaking angry.


    But what CP+B did was amazingly brilliant. We all invite others to our personal life but they have no value in it. Are you a part of a band? Well, maybe they should have wrote on their wall, or come by their Facebook page or poked them more often.

    So Sparky, you need to consider the thought process of a GenY-er.
    Usually it goes like this: "I'm a friend of (Insert crappy band name here), buy their CDs, T-Shirts, and go to their concerts, live on facebook, and they don't me anything! Burgerking will at least give me a free burger."

    So in this moral challenge, one which a company would GIVE you something for saying (crappy band here) doesn't mean anything, and only wants to share tourdates (which you can get through other means) can create some level of animosity when presented with a few steps to get something for free. All this is quite reflective of possibilities of Teh Facebook, but are yet untapped. It's interesting that people who actively engage in monetary transactions with (insert crappy band here) have difficulty getting a poke or message from them, but offer a free burger.. Well, at this point, all bets are off.

    It took a while, but CP+B proved that you can judge the effectiveness of your marketing campaign by how the engagement numbers look. Engagement is marketing if you can effectively engage all users.

    So in all this, a dilemma comes forward: Mike along with the Crispin Porter + Bogusky folks are on genius level when it comes to free economics. I think there's a large market for bands such as (insert crappy band here) to at minimum, use this thing called "free". There comes a point where you need to accept that people who really want it, will be able to get something for free. Be it music, daily needs such as groceries a burger, or even Microsoft Office. The problem is that the marketing folks don't see how trading good will for word of mouth advertising can benefit the entire effort.

    Give people something in exchange for buzz, but make it limited-time. Let's face it, once the initial stigma that someone un-friended you for a burger, they too, will go to Burger King to see what the buzz was about.

    At the end of the day, realize that CP+B essentially sponsored a function of facebook that gave people a reason to clean up their connections. The only downside to this is that it changes the usefulness and freshness of the user's connection data, which would be helpful in advertising. But Facebook doesn't engage in efforts to proactively market connection and demographic data, does it?

    It'll be a few months before we see hard numbers, but I think silly little apps like this are the future of marketing and branding.

     

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  22.  
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    William, Jan 15th, 2009 @ 2:00pm

    Wow.

    The last post was difficult to follow, but I can agree that Wagged needs to go. While Wagged understands the Boomer generation, but doesn't have a full grasp on the GenY demographic. Be it Crispin Porter + Bogusky or another agency... I'm concerned that Wagged, and even Publicis doesn't understand the new direction.

     

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  23.  
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    Mark Blafkin, Jan 15th, 2009 @ 2:20pm

    Re: Smart people make this mistake, too

    AC,

    I believe you're making a few false assumptions.

    #1 - Free isn't a business model, as Mike says above. You can GIVE away content, but there still needs to be a business model somewhere if you want to have an actual "business." Last I checked, BP is a profitable venture and most of its competitors probably aren't (we can debate whether CBS and ESPN really count here).

    #2 - Your assertion that "Over the past few years, literally dozens of new baseball analysis sites have popped up that provide virtually the same content for free" is not correct. Yes, there are dozens of sites that provide baseball statistics and fantasy analysis, but NONE that I've found are in the same league as BP or Shandler's BaseballHQ.

    I'm someone who happily pays for both BP and Ron Shandler's because I find that information to be valuable enough to pay for. I and thousands of others want access to that data and intelligence because it gives us a leg up in the leagues we play in. It's valuable enough that many MLB teams pay for it. The point is, unlike general news and basic stats, they aren't providing commodity information. They are provide specialized information, that gives their customers an edge. If EVERYONE had access to that information, it would be LESS valuable, not more.

    Perhaps the best parallel would be one other bright spot in the media landscape: Bloomberg. Companies are still paying seemingly absurd amounts of money for acccess to their Bloomberg terminals because it gives them access to the best information in the fastest way possible, it gives them an edge they're willing to pay for. It is NOT simply "commodity" information that has no strategic value.

    There are plenty of successful business models that are built around free content as Mike intelligently writes about above. BUT, there also many business models built on proprietary information that remain profitable even in the era of ubiquitous free information.

    Sure each company needs to figure out a proper pricing strategy to maximize its profits, but it would be strategic folly for all publishers to eschew charging their customers to maximize their readership. If they are providing commodity information or generic entertainment, it often makes sense. If they are providing truly valuable, actionable intelligence/information to a limited audience, then that probably is not the best marketing strategy for that company.

    Perhaps Ron Shandler said it best in May of last year:

    "I have been fighting the "information is supposed to be free" faction of the marketplace since the site's debut 12 years ago. So let me start by reaffirming this position -- NO, information has no more right to be free than a filet mignon at Morton's or a 911 GT3 at a Porsche dealership. Raw materials, effort, creativity and time have gone into the production of that information, and the craftsmen who create our books and website deserve to be compensated just like any other premium product. There are people who want the finest cuts of meat, the finest performing vehicles and the finest caliber of information and they are willing to pay for the privilege of owning that type of quality, workmanship and exclusivity."

     

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  24.  
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    Mogilny, Jan 15th, 2009 @ 2:23pm

    I second

    Free, of course, is not a stand-alone business model. Stupid, lazy and non creative suits!

     

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  25.  
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    Urza, Jan 15th, 2009 @ 2:31pm

    Free to who?

    Another thing people often fail to look at is _who_ it's free for. Google is free...to the end user. But not to advertisers. A lot of software is free...for non-commercial uses. Or if you only need to use it for a short period of time. Hell, at my university newspapers are free...to students. It is entirely possible for the end user to get something entirely for free, as long as you can find some other method of funding it. And people seem to miss that point quite often.

     

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