'Give It Away And Pray' Isn't A Business Model... But It Doesn't Mean That 'Free' Doesn't Work

from the once-again...-with-feeling dept

I've been noticing an interesting trend lately. While more folks aren't totally averse to the idea that they need to somehow embrace "free," they're mishandling what they do with "free" and then going on to complain how "free" doesn't work. The basic problem is this: they hear about the importance of "free" and so they give something away for free. But they don't have a business model around the free content. They don't understand the economic forces at work. They just give stuff away and pray... and then whine when nothing happens. As we've pointed out before, no one says that "free" by itself pays the bills. You need to have a more complete strategy than that -- and it involves a lot more than "give it away and pray." It's good that they're at least trying, but if they don't understand the real issues and fail at the experiments, they suddenly come back and claim that "free" isn't the answer, and suddenly rule out all business models involving free. And that is a real recipe for failure.

The latest to head down this road is NY Times columnist David Pogue, who bashes the idea of digital publishing of books by pointing to a long and interesting blog post from author Steven Poole, who did the "give away and pray" option along with a tip jar. It didn't make him much money. That shouldn't be any surprise, because tip jars aren't a real business model. But, because Poole seemed to have an expectation in his mind, he ends up being quite disappointed, noting that 1 out of every 1,750 downloads (0.057%) left some money. What's left implicit here is that that figure is too low. What this really means is that Poole didn't really give away the book for free. He had an expectation that people would magically pay for it. But, that's not a business model. That's not tying the free and infinite good to other scarce goods that will help you make money.

Unfortunately, both Pogue and Poole then use this to bash the entire concept of free-based business models, with Poole getting unnecessarily offensive in his response:

"I'll call it, for short, "the Slashdot argument". It says that books, music, films, software and so on ought to be freely distributed to anyone who wants them, simply because they can be freely distributed. What is the writer or musician to do, though, if she can't earn money from her art? Simple, says the Slashdotter: earn your money playing live (if you're one of those musicians who plays live), or selling T-shirts or merchandise, or providing some other kind of "value-added" service. Many such arguments seem to me to be simple greed disguised in high-falutin' idealism about how "information wants to be free". Perhaps it's not empty pedantry to point out that "information" doesn't want anything in and for itself. The information in which humans traffic is created by humans. And most information-creating humans need to earn dollars or yuan to survive.

While I'm sure there may be some Slashdot-types who may make this argument, it doesn't mean that it's an accurate representation of the more important discussion of these business models. The main problem is his use of "ought," as in people saying things "ought" to be free. It's not that things ought to be free because they can be free -- but that things will be free because that's just basic economics. Price gets driven to marginal cost in a competitive market, and the reason it happens is because others do learn to put in place business models that work, and then if you're the lone holdout, people start to ignore you. Also, I'll note that that Poole brushes off the (indeed, simplistic) business model suggestions as being "high falutin' idealism" but fails to actually try out any real business model.

And then he weakly follows it up by implying that you can't earn money by giving away stuff for free. But, again, he's blaming the wrong thing: he's blaming free for his own failure to use a real business model where the free offering was closely tied to additional scarcity he could sell. He continues, getting even more insulting as he goes:

In any case, I think the Slashdot argument can actually be disposed of rapidly with one rhetorical question, as follows.

Oh Mr Freetard, you work as a programmer, do you? How interesting. So do you perform all your corporate programming duties for free, and earn your keep by selling personally branded mousemats on the side?

Didn't think so.

This misleading and mistargeted argument has been debunked so many times, it's disappointing to see both Poole and Pogue repeat it. But, since it needs a response, let's do it again: you give away the infinite goods, not the scarce goods. Your time is a scarce good. No one is saying that everything needs to be free -- they're saying that infinite goods will be free, because of it's very nature in economics. In fact, Poole's argument is particularly weak when it comes to programmers, because most programmers don't earn any kind of royalties for the software they write. They are paid a salary, for their time -- but not for the software itself (which is an infinite good). And, I won't even get into the number of programmers who work on open source projects for free... or the fact that Poole is blogging for free...

Again, Poole and Pogue are so focused on free, that they fail to distinguish between infinite and scarce goods or the business models involved in what's going on. Poole then weakly dismisses the Radiohead experiment:

Perhaps I could have tried distributing Trigger Happy the Radiohead way, making sure you had to pay a minimum to get the goods. Would I still have attracted 30,000 readers like that? I doubt it. The sublime In Rainbows seems to have been a nice little earner for Radiohead, but that's because they're Radiohead -- and they became Radiohead through the nasty old music-industry business model. So did Nine Inch Nails, whose recent internet release of (the excellent) Ghosts was very clever -- the first nine songs of a triple album for free in compressed mp3; the whole thing in a lossless format for $5. But if there's been a comparable success by a band that hasn't already gained its cultural capital and name-recognition through the evils of copyright and corporate promotion, I'd like to know about it.

Poole and Pogue (who quotes the same snippet) both miss the fact that in both cases described above, the bands in question didn't "give away and pray," but both put together real strategic business models that were focused on using the infinite goods (the music) to sell more scarce goods. In the case of Radiohead (despite some claims to the contrary) at the same time Radiohead announced the downloads it also told fans that it would be selling a beautiful "discbox" for the album as well. This was a very valuable scarce good -- that the free music made a lot more valuable by increasing the demand for it. As for Nine Inch Nails, Trent Reznor offered a tiered system of scarce goods that were all made more valuable by the availability of the music -- proven by the fact that Reznor quickly sold out of his limited edition deluxe offering.

And I still chuckle about the argument that these models "only work for big bands." That's because a few years ago, when we pointed out how this worked for some small up-and-coming bands, people would whine "but that only works for small bands -- big bands would be screwed!" The model, when well designed works for small bands just as well as big bands. No, it might not turn around millions in a week, but it can certainly help an artist make a living. Witness the case of Maria Schneider, who ended up making a Grammy-winning album using some the concepts discussed around these parts. And, of course, we've worked out the details of the type of business model that an up-and-coming band could use to embrace these concepts to grow.

So, it's nice to see someone at least willing to explore the concept of free without shutting out the possibility. But free alone isn't a business model. And it's wrong to blame free for the lack of establishing a complete business model. Just because "give it away and pray" isn't a workable business model, that doesn't mean that there aren't business models that do work. Hopefully, Poole and Pogue will eventually recognize that they're dismissing the wrong thing. They shouldn't be complaining about free (or making misleading accusations about those who simply recognize the economic forces at work) -- they should be complaining about a failure to put in place a real business model to take advantage of what will be free.

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The Internet Is Not Especially Dangerous For Kids -- Which, Tragically, Isn't Newsworthy To Some

from the should-be-common-sense dept

It's repeated so often that it has almost become a cliché: the Internet is a dangerous place for children. We're regularly treated to alarmist stories about the growing problem of child predators on the Internet. But David Pogue has a great post putting the danger in perspective -- fitting well with recent studies showing the danger is overstated. He says he was asked to write a story on the subject, and when he submitted a story arguing that the dangers were over-hyped, his editor pressured him to track down some examples of Internet-based violence. Pogue says that he "could not find a single example of a preteen getting abducted and murdered by an Internet predator."

The examples he was able to find were almost comically tame. One mother, for example, leapt to unplug the computer to prevent her child from seeing a pornographic image. While I'm not in favor of showing porn to children, it seems unlikely that seeing a naked women will cause a child permanent damage. Pogue points out a PBS documentary with some striking facts. For example, "the data shows that giving out personal information over the Internet makes absolutely no difference when it comes to a child’s vulnerability to predation." And "all the kids we met, without exception, told us the same thing: They would never dream of meeting someone in person they'd met online," -- again just as studies have shown. The real problem here isn't that the Internet is especially dangerous, but that some parents are absurdly over-protective. The Internet, like every other aspect of life, has some risks. But those risks are, if anything, less serious than the risks children encounter in the real world. If kids use their common sense, they'll be perfectly safe. Unfortunately, that's not the message we tend to get from the media.

Timothy Lee is an expert at the Insight Community. To get insight and analysis from Timothy Lee and other experts on challenges your company faces, click here.

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