Free Doesn't Mean Devalued

from the more-to-life-than-money dept

The concept of zero took ages for societies to recognize, let alone understand. Mike has explained before how it's been a stumbling block in economics for some libertarian and "free market" types more recently. People who think about economics in terms of scarcity get upset when abundance pushes price down towards zero, as if the economic equation were broken. But if you flip the equation and think of it as a cost of zero, you realize that the trick is to use as much of those abundant goods as possible, adding value to complementary scarcities for which you can charge. Zero doesn't break economics, it just requires a different approach.

But artists and other creators hit a different stumbling block than libertarians (libertarian artists aside...). Zero is a problem because they feel like their art is worthless; they aren't hung up on scarcity, they're hung up on "devaluation." We've heard it from journalists. I hear it most often from fellow songwriters. The economic theory makes them feel as though their work is just viewed as some sort of cheap commodity. The thing is, value and price are not the same. Price is monetary value, but value is so much more than money. Price is what gets driven down to marginal cost, but value factors into the demand side of the equation. Expensive things aren't necessarily valuable, and valuable things aren't necessarily expensive. I value oxygen a lot, but it seems silly to pay for the air I breathe each minute, given the abundant supply.

More importantly, songwriters who get hung up on "devaluation" confuse recordings with music. They equate the two. A recording is not the song, it's just an instance of it, and a digital audio file is just an instance of the recording. Equating these reduces music to recordings to files. As important as recordings are, there's so much more to music. When you think of a song, do you think of the recording, or a memory you had connecting with the music? Do you think of the file and how much it cost, or the emotions, people and experiences that the music conjures up? The recordings are just a means through which we experience the music. Songwriters (of all people!) should know that the value in music is so much more than the price of a recording. It's not devaluing music to give it away for free, but it can increase its value by allowing more people to connect with it, to know, love and understand it -- to value it. It's through that experience that music is valued, not price!

Ironically, the underlying concern ends up being economic -- how will we make money? A price of zero for digital audio files doesn't mean that no one values the songwriting profession, or that no one is willing to spend money on music and keep songwriters in business. Sharing digital audio files makes the music more valuable and leads to more opportunities for monetization. When you give music away and connect with an audience, the opportunity for monetization is in the associated scarcities -- access, containers, community, merchandise, relationships, unique goods, the creation of new music, etc. -- by giving people a reason to buy. Getting hung up on "devaluation" is a distraction from the opportunity -- the necessity -- to experiment with new business models.

So, can we please stop complaining that free means devalued?

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

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Apparently Even VCs Get Confused Over Ratio Ownership Compared To Total Value

from the and-those-are-the-VCs-you-don't-want dept

Venture capitalist Fred Wilson recently had a great post where he calls out a bunch of his colleagues in the venture capital business (not by name) for insisting on owning a certain percentage of a company in order to invest. Fred notes, correctly, that it's not the percentage that matters, but the actual value (and the appreciation of it) of the equity that one holds. In simplest terms: owning 10% of a $1 billion company is always going to be a hell of a lot better than owning 40% of a $1 million company.

But, what I find amusing -- and what Wilson doesn't mention -- is that this very argument is quite commonly presented to entrepreneurs from VCs. That is, when an entrepreneur frets about giving up a portion of his or her company, a VC will often make the point that "with our investment, we can take your company's valuation way up -- so even if you own a smaller percentage, your absolute value will increase." And it's a true argument (if the value increase happens). And, in many cases, it's the very same VCs who will use a line like this that then insist on owning a certain percentage. It makes you wonder if they believe what they're saying themselves, or if they're just using all of it as a negotiating tactic to take a larger cut of the deal.

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Comes With Music... But No One Cares

from the thank-you-drm dept

Nokia got a lot of attention when it launched its "Comes With Music" concept -- where you buy a phone that comes with "free" all-you-can-eat music downloads for one year. Of course, the music comes wrapped in annoying DRM, though the music will keep playing (thankfully), after the year is up. Still, it seems like people aren't buying for the most part. A recent report shows only 107,000 users worldwide. This must be a blow to the major record labels who always seem to insist that "free music" drives pretty much every other business model. For example, BPI continues to insist that ISPs are basing their own business model on people sharing "free music." And you have record labels who are pissed off because they think that video games Rock Band and Guitar Hero aren't paying enough for all the benefit they get from the music. And, of course, there are all those collection societies claiming that every business that plays any kind of music needs to pay more, because it must be all that music that brings in the business. Well, it looks like Nokia is proving them all wrong. The music, by itself, doesn't seem to attract all that much business at all. Perhaps everyone should be asking for a refund.

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Focusing In On The Value: Google Books Provides An Amazing Resource

from the how-can-you-be-against-that dept

With all of the fighting over the Google Book settlement, it seems that an awful lot of people have lost sight of the key issue, which is that the tool itself, Google's Book Search, is amazing. We had mentioned this a couple of years ago. But if you step back from any of the legal issues, and just think about Google's book search as a tool, you realize what a wonderful cultural milestone it would be to make pretty much every book searchable. The more you think about it, the harder it is to take seriously anyone who is against this project. It's the equivalent of saying we should burn down all libraries because authors don't get paid every time someone checks out a book.

Luckily, even as the legal dispute continues, we're starting to see more people realize what a terrible thing it would be to kill off such a valuable resource. In that last link, law professor Peter Friedman not only discusses the Google Books project, but also Scribd, and makes a key point:

Why would you use copyright to stifle marvelous new innovations? Copyright exists to encourage, not stifle, invention.

What's scary about the discussions on the settlement, though, is that they don't seem to focus on this at all. Instead, almost all of them seem to be a weak excuse to attack Google because people don't like -- or don't like having to compete with -- Google.

Now, I've been clear since the day the settlement was announced that I thought it was a bad thing -- but not for the reasons most are stating. I thought it was bad because Google had a strong case for claiming that the project was covered by fair use. It was effectively no different than creating a fantastic card catalog -- again, something that should be encouraged. But, as Tim Lee brilliantly notes in a recent post, even if this whole lawsuit was over "fair use," what was so troubling about the settlement was that it deals with a bunch of other issues and sort of ignores the fair use issue! And yet, that was the center of the lawsuit.

In case we've forgotten, this is a copyright infringement case. The dispute between Google and the plaintiffs is not about orphan works, online book sales, or the structure of the publishing industry. It's about whether copyright's fair use doctrine allows the creation of a book search engine that displays "snippets" of in-copyright books in search results. Google says yes. Some publishers and authors said no. Absent a settlement, a judge would have been asked to rule on that question.

In a rational world, the settlement of the case would focus on that same question. Instead, we got a settlement in which the underlying infringement claims are treated as an afterthought. Instead, the focus is on the creation of an elaborate new structure for selling books online. It's as if Sony Pictures sued NBC for copyright infringement and then wound up with a "settlement" that focused mostly on Sony becoming a partner in GE's light bulb business.

And, indeed. So, why can't we bring the whole thing back into focus. Having a resource like Google's book search is an incredibly important and valuable cultural tool. It should be celebrated, not hated. But the key question is Google's legal right to create it. Any settlement should be focused on that issue, and not all of these extraneous things that are being shoved through the class action process. The settlement is bad, but Google's Book Search is an unequivocally good thing. Keep that in focus, and a lot of the sideshows melt away as meaningless.

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Dean Singleton: Please Explain How Charging For Something Magically Gives It Value

from the it-doesn't dept

Mathew Ingram points us to a ridiculous quote by MediaNews CEO, Dean Singleton, who also happens to be the Chairman of the Associated Press, talking up his decision to make one of his papers start charging for online news, claiming that charging magically imparts value:

"When you give it away for free it has no value. When you begin charging for it it has some value."

That's wrong on both counts, and you would think that a major American media CEO would understand the difference between price and value. It's a bit scary that he seems to think that putting a price on something automatically gives it value. Unfortunately, he may have to learn that lesson the hard way. I could say that the blank pad on my desk has a price of $10,000. But that's meaningless, because no one would value it that high. The price you put on something is entirely independent of the value that buyers have for it. If the price you put on it is lower than the value they get from it, then they may decide to buy. But that value isn't created by the price.

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Patry: It's Not Copyright That Creates Value, It's Consumers' Willingness To Buy

from the indeed dept

One of the great disappointments around here was William Patry's decision to (mostly) shut down his old blog about a year ago. His contributions to the discussions on copyright were incredibly valuable, and the loss of his voice in the debates left a huge void. In part, it's why I was thrilled to read his book (which, yes, is available as a part of our Book Club), as it reminded me again of Patry's insight on these subjects. I'll be posting a full review of his book next month, but I was going to say that it was certainly a must read for those who missed the blog... However, with the book almost available, even better news came about, as he recently launched a new blog related to the book.

On it, he's hosting a back-and-forth discussion with an entertainment industry lawyer who disagrees with him, Ben Sheffner, which goes into the same discussion we had last week concerning Sheffner's highly questionable claim that the jury rulings against Tenenbaum and Thomas somehow represent the views of everyday people on copyright. In that ongoing discussion, Patry does a nice job highlighting how the entertainment industry keeps trying to kill off innovation and protect its old business models via copyright while failing to do the one thing it should have done all along: build a real business with new business models that embrace the changing market:

I don't deny the RIAA was entitled to bring all the suits it did (aside from the many false accusations of course), but the business of companies that want to sell mass market goods to consumers is not suing those consumers. The business of the RIAA may be doing that because it has to justify its own existence, but the business of business is business, not litigation. One would never know that from the industry's reaction to virtually every new digital technology that has come along; for example, the suit against MP3.com over storage lockers, and the eventual bankrupting of that company was, in my opinion, a terrible mistake and certainly anti-consumer. (I represented the defendant for awhile). There was no evidence that Mp3.com's security -- which required verification that the consumer had bought a legitimate CD -- had ever been broken; instead, the industry wanted to force consumers to buy multiple CDs of a work they had already bought, rather than letting them listen to it regardless of where they were.

The industry's suit against Launchcast, brought deliberately while it was being bought by Yahoo, was a similar anti-consumer suit. (Yes, I represented defendant there for awhile) too. Launchcast was engaged in the authorized streaming of music, in conjunction with intelligent software designed to learn consumers' test and that helped introduced consumers to new music. The service could never result in loss of sales; quite the opposite. The functionalities the industry objected to had nothing to do with violation of any rights remotely granted by the copyright act. There are many more examples in addition to MP3.com and Launchcast.

The industry's failure to offer any alternative after Napster isn't just a small oversight; in my view, when coupled with the industry's repeated suits against almost any business it had not authorized (read controlled), and the decision to send out massive cease and desist letters and suits against individuals, that failure is directly responsible for the highly negative attitude many people have toward the industry. The failure of the industry to provide a way for people to access legitimate product led consumers both to unauthorized product and to rightly conclude that copyright was the primary weapon being used to thwart consumers' desires. I really don't think these assertions should be controversial. I repeat that copyright doesn't create economic value, a statement that is not intended to disparage copyright; it is merely to state the obvious: it is only consumers' willingness to buy something that creates economic value.

Indeed. Read the whole thing and be sure to subscribe to the blog...

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Newspapers' Plan For Survival: Charge Money, Beat Up On Craigslist And Keep Repeating To Ourselves That We're Needed

from the good-luck-with-that dept

There's been plenty of coverage about the potentially antitrust-violating meeting of newspaper execs in Chicago recently, and late last week reports came out about some of the recommendations put forth by the American Press Institute at that meeting. The API apparently handed out two whitepapers, both of which are amusing, only in that someone actually thinks they're useful. The first was effectively saying: "Craigslist really sucks, so let's try to beat up on Craigslist." The second, more thorough whitepaper, rehashes a bunch of debunked ideas about how newspapers should lock up their content in order to charge for it, including such gems as: "Establish that news content online has value by charging for it." Apparently someone at the API is unfamiliar with the difference between price and value. You don't establish value by putting a price on things. You are able to put a higher price on things by creating scarce value. But the industry isn't looking to do that. It's looking to pretend its content has value, by locking it up. Unfortunately for the newspapers (but good for everyone else), economics doesn't work that way.

Apparently part of the plan to get around anti-trust issues is to create an intermediary, sort of like an ASCAP for the newspaper industry, which suggests a near total misunderstanding of the differences between news and music -- but if that's where the industry wants to go, why not let them and watch smarter business folks mop up the mess for profit.

In the meantime, an absolutely fantastic teardown of the API's whitepapers comes from John Temple, the former editor, president and publisher of the now defunct Rocky Mountain News. If anyone were susceptible to the backwards looking "let's try to recreate the way things were" argument, you would think it would be him. But, instead, he responds to the API's reports by describing just how backwards looking it is and why it should scare anyone in the news business:

Imagine you're a young business school graduate trying to decide where you want to start your career. (OK, I know there are no jobs, but imagine it anyway.) You attend a newspaper industry summit and hear one of the big ideas from an organization at the heart of this world is to compete with Craigslist. What do you think you would think? Talk about an industry looking in the rear view mirror. Isn't that an idea that might have had legs, oh, maybe five years ago? How could it represent in the eyes of that young business school graduate any kind of exciting opportunity today? The advice boils down to, "Let's win back our business from the guy who's eating our lunch." How is the newspaper industry going to attract any of the best and brightest into its ranks if its ideas are stale, at best?

What might even be more troubling about this proposal is how newspaper people seemed to denigrate the Craigslist brand, when all they need to do is talk to people -- including in their own buildings -- to find out that most of those who've used the site seem to genuinely value it. Why? Because it gets results and it's free.

Temple also points out two big problems with the API's suggestions. The first is that it's suddenly trying to get people to pay for what they're used to getting for free -- without adding any additional value worth paying for. And, the second (though related) is that they're not actually looking to do anything really new or unique to embrace what the internet enables. While plenty of other websites and services are embracing the technological power of the internet, the best this report suggests is "people who work at newspapers should start experimenting with social networks":

Of course leaders should always be learning. That's a given. But are they serious? Isn't this a little late? If newspaper industry leaders aren't doing this already, do they really belong in their positions? Why should shareholders pay executives to learn all they can when they should be able to find ones who already know what they're doing? If people need advice like this, should they be running newspaper companies?

All in all, the meeting itself, and the recommendations from the API certainly show an industry that's not looking to compete or add value. It's looking for ways to rebuild the walls that let it exist without competition in the past. It's a recipe for suicide.

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The Value Of Twitter As Compared To Google

from the it's-growing dept

I recognize that it's becoming fashionable among many to bash Twitter, but for those who have learned how to use Twitter well (as opposed to many who use it poorly), the value of it is quite impressive. I now spend a lot more time using Twitter to find news than I do my feed reader -- and that's amazing to me. However, I think Mark Cuban actually has made the strongest point, noting that in many ways, Twitter is becoming more useful than Google. This isn't to say that Twitter is "killing" Google (x killing y stories are lame), but that many people are finding information via Twitter now, where they used to find it via Google.

Cuban gives an example of trying to buy a car, where there may be a lot of value in being able to message a guru on the type of car he wants to buy via Twitter (or, better yet, finding a few of them). I know I've found Twitter to be useful in this manner. A few months ago, I was looking for a new backpack for my computer -- and I had very specific requirements (such as the ability to carry both a laptop and a netbook at times comfortably). It was quite difficult to come up with a Google query that made sense for such a thing, but I could ask it easily in 140 characters and plenty of people could easily understand it, and then provide thoughts and recommendations. It comes back to two points:

• Having real humans respond to a query works well for more specific queries that simply aren't well automated.
• Perhaps much more importantly, real people can better offer recommendations or explanations than an automated query on Google, which simply seeks to find data or answers.

Basically, what Twitter is enabling is an entirely different form of information gathering online: via conversation, rather than via data dump. Each has it's place, but the reason many of us find Twitter so compelling is that it's opening up tremendous new possibilities to enable useful information flow that simply wasn't possible before.

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You Can't Raise The Price For News If You Don't Actually Add Value

from the let's-try-this-again dept

It's no secret that plenty of folks tend to confuse price and value, falsely thinking that if price = $0 then it means that the value is also 0. That's not true at all, as we've discussed multiple times. But, there's a flip side to that discussion that many in the news business seem to be struggling with as well: they believe that if they raise the price of their product, then by that very same equation, they've somehow increased the value, and people will suddenly pay for the news. Except... that's obviously a fallacy. Just because you raise the price on something it doesn't mean that people will suddenly pay.

Yet, Stephen Brill's new operation is based on this very premise. The fine folks at NPR's Planet Money spoke to Brill about his new venture, but what was frustrating was that they didn't directly challenge a number of his highly questionable assertions. They did bring on someone afterwards who disagreed with Brill, but it could have been a lot more powerful. For example, Brill claims that readers have always paid for a share of the news -- while the truth is subscribers usually barely (if at all) covered the costs of printing/delivering the physical paper, but not for the reporting itself. Brill claims that the decision by newspapers to go online was "group suicide," but neglects to note that almost everyone (with a very few exceptions) who tried to charge online -- including Brill himself -- found that people just didn't want to pay. It wasn't "group suicide," it was economic survival to recognize that charging wasn't working. He also claims that giving away content for free online is why newspapers are in trouble, which is shown as wrong later in the program, when it's pointed out that most newspapers are still profitable -- but the real problem was how much debt the papers took out. It's not about getting readers to pay, it's about how screwed up management has been.

Brill also seems to totally misunderstand iTunes, saying that it works because it's simple and cheap, so his Journalism Online project will be that way too. He leaves out the key point of why iTunes worked: the iPod. People wanted to fill up their iPods and iTunes made that easy. But in the case of news, there are already lots of other options that are easier and more efficient.

Yet, at the same time, folks like Alan Mutter (who will be on the "news" panel at The Free Summit), are suggesting that newspapers should raise their prices. But, again, this seems to be mistaking price for value, assuming that if you just raise the price, people are more than willing to pay.

Instead, the opposite seems to be true. Mark Potts recently pointed out how the online price of the Wall Street Journal (usually held up as the example of online news people will pay for) has gone up so much that he's reconsidered subscribing. Every time they raise the price, it just becomes an increasingly questionable expense, for no added value.

In contrast, however, Potts points to the Cedar Rapids Gazette in Iowa, who unlike most of these other papers, actually does seem focused on actually providing more value, not just talking about how everyone should value the paper, or nostalgically reminiscing about the "good old days" before there was competition. Instead, the paper has absolutely everyone talking and thinking about ways to really become the central hub for everyone in their community. They recognize that they can't rest on their laurels and be the voice of the community because there's no one else. Instead, they know they need to work at it, embrace new technologies, and actually strive to provide a better solution than what else is out there. That's a paper that's focused on value first, rather than complaining about price. Who knows if it will work, but it's a much better strategy than just focusing on price, like so many others.

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WWII Era Advice On Newspapers Still Relevant Today... If Only Newspapers Would Listen

from the it-ain't-that-hard dept

We've been among those slamming newspapers who are complaining about Google somehow harming their business when they've done little to nothing to upgrade the value they offer readers. Who knew that this was the same advice that newspapers were getting 50 years ago as well? Mathew Ingram points us to a profile of Bernard Kilgore, who ran the Wall Street Journal for many years -- and helped reinvent the paper to take on the "threat" of radio news. Subscriptions were falling, and people questioned why they needed a newspaper to tell them what the radio had told them the day before:

Kilgore observed that then new media such as radio meant market news was available in real time. Some cities had a dozen newspapers that had gained the Journal's once-valuable ability to report share prices.

The Journal had to change. Technology increasingly meant readers would know the basic facts of news as it happened. He announced, "It doesn't have to have happened yesterday to be news," and said that people were more interested in what would happen tomorrow. He crafted the front page "What's News -- " column to summarize what had happened, but focused on explaining what the news meant.

On the morning after Pearl Harbor, other newspapers recounted the facts already known to all the day before through radio. The Journal's page-one story instead began, "War with Japan means industrial revolution in the United States." It outlined the implications for the economy, industry and commodity and financial markets.

It seems like newspapers today could actually learn a lot from that core message: focus on providing additional value beyond what they can get elsewhere. And, if your fear is that aggregators or bloggers are somehow "stealing" from you, you're not providing enough value.

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WSJ Editor Claims Google Devalues Everything

from the no-wonder-no-one-uses-it dept

This has been clueless newspaper guy month around here, and it's kept up with the appearance of Walter Isaacson (yet again), Mort Zuckerman (owner/publisher of both the NY Daily News and US News & World Reports) and Robert Thomson (managing editor of The Wall Street Journal) on the Charlie Rose program, where they spend plenty of time whining about the way things used to be and why people have to start paying -- but never touch on any reason why people should want to pay. Still... that's a dead horse at this point. Instead, I wanted to focus on the rather stunning claim from Thomson concerning Google:

But one of the -- Google -- I mean, the harsh way of just defining it, Google devalues everything it touches. Google is great for Google, but it's terrible for content providers, because it divides that content quantitatively rather than qualitatively. And if you are going to get people to pay for content, you have to encourage them to make qualitative decisions about that content.

This is wrong on so many levels it's hard to know where to begin. Google doesn't devalue things it touches. It increases their value by making them easier to find and access. Google increases your audience as a content creator, which is the most important asset you have. It takes a special kind of cluelessness to claim that something that increases your biggest asset "devalues" your business. Thomson's mistake seems to be that he's confusing "price" and "value" which is a bit scary for the managing editor of a business publication. Yes, the widespread availability of news may push down the price (that's just supply and demand), but it doesn't decrease the value at all. It opens up more opportunities to capture that value.

As a content publisher, I can say, definitively, that Thomson is completely off base if he thinks Google is terrible for content providers. Google has been a huge help to us because it has helped us build our audience and our community -- which is the biggest asset we have. Thomson's mistake seems to be that he thinks the asset of publishers is the content. It's not. It's the community. It's the community. It's the community. Sorry for the repetition, but it doesn't seem to be getting through.

He's also wrong if he thinks Google divides content "quantitatively." Google's ranking mechanism is the exact opposite. It works out ways to measure the value of content at a qualitative level -- pushing the best content up. If the WSJ is afraid to compete with other content providers, you can understand why they'd be afraid -- but if they truly believe they have good content, that content will rise to the top (of course, the WSJ is harmed by its practice of making that content harder to read).

Finally, he's very wrong that the key to getting people to pay is to have them "make qualitative decisions about that content." If they've reached that stage, they're not paying. The value of the web and Google is that it lets people look at many sources and compare and contrast them qualitatively. Putting up a paywall is what devalues the content. It makes it harder to access and makes it a lot less useful. People today want to share the news and spread the news and discuss the news with others. As a publisher, your biggest distributors should be your community. And what does the WSJ want to do? Stop the community from promoting them. I can't think of anything that devalues their content more.

In that one paragraph, Thomson seems to be wrong on every single point. Is there a way to short the Wall Street Journal? It's really stunning that these newspaper guys (Isaacson goes on to agree with Thomson) can be handed the greatest mechanism for building their audience and adding value to their sites, and they whine about how it devalues them. It's the horse carriage company owners complaining about how automobiles destroy the value of a beautiful horse drawn carriage. Guys: you're looking in the wrong direction. Turn around and look forward at all that opportunity.

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Fart Apps Prove, Once Again, That The Market Is The Best Decider Of Value

from the economics-101 dept

Over the couple months of existence, Apple's iPhone App Store has received a considerable amount of attention. The successful phone has created an exciting new platform for developers seeking to leverage the advantages of mobile devices. The only problem was, Apple has insisted upon managing the applications in the store - oftentimes without clear guidelines or enforced through NDA.

Apple was in the practice of individually deciding which applications to allow and which to ban, regardless of customer demand. The most curious and paternalistic of Apple's App Store policies was the ban on applications of "limited utility." As a result, developers weren't sure if their hard work would be deemed useful enough to warrant acceptance into the store. Yet, like so many centrally planned economies in the past, this policy failed and Apple began letting in silly applications. However, what may be silly to Apple's gatekeepers may actually prove to be valuable to consumers. Such is the case with a suite of applications that simply produce fart sounds. Dozen exist, and one developer of a fart application is reportedly making nearly $10,000 per day with his crass software. That is the beauty of free markets - consumers and producers can better decide what is valuable than any individual person or firm. The distributed intelligence and preferences are far more capable than Apple's gatekeepers.

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

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The Value Of The 'Wassup' Concept

from the it's-not-all-money dept

I'm almost afraid to post this because I worry that the comments will devolve into yet another totally wasted and pointless political battle. This post has nothing at all to do with the politics behind this ad, but about stuff that we actually do focus on around here: royalties and ownership rights of ideas and concepts. As you may have already seen (along with millions of others) the original actors behind the super famous Budweiser "Wassssssssssup!" commercials recently got back together to make a new political ad that's an update on the original Bud ad. The commercial makers make it quite clear that the message of the commercial is not in any way endorsed by or associated with Anheuser-Busch.

That raises some questions about both trademark and control over the concept. Luckily, Business Week got to the bottom of things and found out that, Charles Stone III, who created the whole Wassup concept, directed the first commercial and stars as the first guy who picks up the phone, never gave Anheuser-Busch full control over the concept. Rather, he sold them an exclusive on it for only 5 years for a grand total of $37,000. He admits that people laughed at him at the time for selling so "low," but he's quite happy with how it worked out:

"That I'm able to use an idea distributed by a huge company, who made a lot of money off it, so that now when I put out what I want to say, it's recognizable, and it sparks -- that's worth $1 million to me."

Now there's someone who recognizes long term value. Rather than focusing on pushing for more money upfront, he knew that there would be plenty of value down the road, so long as AB didn't take over control of the concept. Since no one knew how successful the commercials would be, $37,000 was probably quite a good deal at the time, and in the end it worked out well for both parties, with Stone recognizing plenty of additional value down the road, built on the success of the original commercials. Now, some traditional IP maximalists may whine that he's somehow unfairly profiting off of the success of the original commercial, but that's not true. AB got what they paid for and made their money. The fact that someone else can later take advantage of that themselves to gain value (whether monetarily or not) doesn't impact that earlier deal at all. In fact, the end result is greater overall value. The initial use increased value (for AB) and the new use increases value for Stone. It's a true win-win.

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Free Riding Isn't A Bug, It's A Feature

from the ditching-the-myth dept

Whenever we write about various business models around here that involve using free infinite goods to get people to buy some kind of scarce good, we always get some people who self-righteously exclaim that if they got content for free, they would never, ever buy those scarce goods, and somehow this disproves the model. This is similar to the common refrain that all of the "free riders" would destroy any such business model, to which I usually ask whether or not all those "free riders" who watched a BMW commercial and didn't buy a BMW somehow destroyed BMW's business.

In response to a similar question, concerning all of the "free riders" on Wikipedia, Tim Lee has done a fantastic job explaining why the whole concept of the "free rider" problem is a myth in most of these scenarios. In the case of Wikipedia, for example, all of those "free riders" who don't contribute are actually what makes it worthwhile for the smaller group of contributors to take part. Those "free riders" aren't a negative: they're the audience. If you set up the model right, then any free rider actually becomes a part of the solution, not the problem. The more "free riders" on Wikipedia, the more people want to contribute. The more "free riders" who listen to a band, the more other people want to hear it -- and the more some of those people will be willing to pay for scarce goods to associate themselves with that band. In other words, if you set up your model correctly, free riding isn't a bug, it's a feature that helps drive your model forward.

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Insight Community Participation Directly Through Techdirt

from the making-it-more-accessible-than-ever dept

As you hopefully read in my last post about our new branding, Floor64 has separated out the Insight Community brand from the Techdirt blog. However, that doesn't mean the two won't still work together happily. In fact, we're also launching a new effort today, that will allow Insight Community cases to appear directly within Techdirt. You will see the first such integrated Insight Community case on the site in a short while.

Starting a Real Conversation, Rather Than Advertising

The idea here is similar to what we started last week with American Express sponsoring an Insight Community case concerning how small businesses are responding to the current financial crisis, the results of which are starting to appear on American Express' Open Forum blog. In situations like that, where we believe the wider Techdirt community would be intrigued by, and benefit from, the wider conversation, we'll be placing those cases directly on the Techdirt blog. Thus, a selection of Insight Community cases that are relevant to the Techdirt community will start appearing directly on the blog, allowing members to jump right in to respond (and for non-members to join up and participate).

This evolution fits in nicely as one of the many ways that the new Insight Community can be used by companies to generate insight and engage with the broader community. Integrating Insight Community cases into Techdirt is based on our strong belief about content and its relationship to advertising. Traditional, annoying, intrusive advertising is a market that won't last -- especially in economically troubled times. It's based on the false belief that there are still captive audiences.

While the online advertising market is still a big one, it's going to need to change. It's entirely focused on a one way push. Companies that buy advertising are pushing a message to an audience. The site is just the one-way pathway to get to that audience -- and that audience often doesn't care about the message being pushed. That's simply not that effective for the advertiser. And yes, before people point it out, we do include some advertising on Techdirt, though we think that the companies buying those ads could spend their money more effectively by actually engaging the community here.

Engage the Community, Reward the Community and Get Value Back

So, rather than focus on that one-way street of merely pushing "message" at an audience, we believe strongly that the concept of "advertising" needs to diminish, and in its place, the focus should be on providing good content that provides real value to all participants. That means not just viewing things as a one way street, but actually engaging the community of folks a company is trying to reach by getting back insight from them and then rewarding those in the community who provide that insight. This is much more of a win-win situation than advertising. It's about actually creating value -- about building an insightful discussion that everyone benefits from, and then making sure that those who participate can be rewarded both monetarily and through reputation, rather than just being seen as a "target" market.

Thus, rather than focusing on "advertising's" one way street to pushing a message on our community, we're asking companies who are interested in the Techdirt community to actually engage with them via the Insight Community, where not only can they start a real dialogue, they can learn from the community, gain valuable insights that can be used elsewhere, and reward the community for participating. That seems a lot more effective and valuable than "advertising." It's about good content and a real conversation where everyone benefits.

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Activision CEO Suggests Record Labels Should Be Paying To Get In Video Games

from the this-ought-to-be-fun dept

Remember a couple months ago, when Warner Music's Edgar Bronfman complained that the makers of video games like Guitar Hero and Rock Band should be paying more for the music they used? He claimed, incorrectly, that the games were "entirely dependent" on the record labels' content. That was wrong, and totally downplayed the fact that the video games were actually adding value to the music. Now it appears that the maker of Guitar Hero, Activision, is hitting back. The company's CEO is pointing out how much being in those games has helped bands, suggesting that its really the record labels that are getting too good of a deal:

"When you look at the impact [the game] can have on an Aerosmith, Van Halen or Metallica, it's really significant -- so much so that you sort of question whether or not, in the case of those kinds of products, you should be paying any money at all and whether it should be the reverse. The bulk of our consumers will tell you they're not purchasing the products based on the songs that are included, they're purchasing based on how fun the songs are to play when they're playing them."

He's exactly right. The content industry always seem to over estimate how much "value" the content provides and almost totally ignore the value provided by anyone else in the value chain. It's going to be interesting to see what happens over the next few months, but I would bet that the video game companies have the stronger hand here, and despite Bronfman's statements, the record labels really understand that.

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Understanding The Difference Between Price And Value; Product And Benefit

from the let's-try-this-again dept

Earlier this year, in response to yet another editorial somewhere where someone insisted that if something has a price of zero, it means that people don't think it has any value, we pointed out that price and value are two different things. Price isn't determined by value -- it's determined by the intersection of supply and demand. Value plays into that, by determining what the demand part is. That is, if I value widget X at $10, then I'd be willing to pay anything less than $10 for it. If the intersection of supply and demand prices widget X at $5, it doesn't mean that I value it at $5, but it does make it likely that I'll buy it. The same is true if the market prices it at $0. It doesn't mean I place a $0 value on it. It just means it's worth getting at that price, since it's below what I value it at.

In the past few months, this discussion keeps coming up again and again -- and it's good to see folks pushing back and pointing out the difference between price and value. The latest is Amy Gahran, over at eMedia Tidbits, where she takes a journalism professor to task for asking whether journalism should even be done at all if people don't "find value in what we as journalists do." First, Gahran makes the point that, historically journalism has always been more supported by ads than people anyway, and then makes the price/value distinction:

just because people aren't willing to directly pay cash for something does not necessarily mean they don't "find value" in it. For instance, when was the last time you personally chipped in for a clinical trial? And how are you paying for that air you're breathing right now?

Some benefits are assumed to be part of the environment in which we exist. That's what it means to have an environment. If a benefit grows scarce to the point that people feel they must directly pay cash from their pocket to keep getting it, there's probably a far more dire calamity at hand than that single point of scarcity. Most people will almost always seek other free sources of a benefit first.

She then goes on to make another favorite point: too often, those in dying industries mistake the product they're selling with the benefit they're selling. The horse carriage makers mistakenly thought they were in the horse carriage business (product) rather than the transportation market (benefit). The best way to succeed is not to focus on the product, but the benefit you're providing your customers:

I think it's important to bear in mind that people value benefits, not necessarily forms. The key benefit that journalists and news organizations have provided has been relevant, timely, accurate information that helps people make decisions, take action, and form opinions. For over a century we've established an ad-supported business model around packaging that benefit in a form known as "journalism." But that's not the only form this benefit can take, and many parts of the "American public" (and the advertising industry) are figuring that out.

Good stuff.

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Recording Industry Testing Out New Theory: It Deserves More Money Because It Lets You Transfer Music

from the the-audacity-of-greed dept

William Patry has a long, but fascinating, discussion on the latest trick being used by the recording industry to try to squeeze more money out of you: telling governments that because it's now willing to let people transfer the music they legally purchased between devices, it deserves extra money for it. To back this up, it's claiming that there's obviously value in being able to transfer music around, otherwise why would people want that ability. The audacity of such a statement from the industry shouldn't be understated. After all, this is the same industry that has, for years, ignored pleas from fans all over the world to get rid of DRM because it would make digital files increase in value. And, now, that the industry has finally been forced to recognize this, it seems to be claiming that all of the value belongs to the industry itself, and it's the government's job to hand over that "value."

The reasoning for this seems to go back to the psychological explanation for why the recording industry keeps getting itself into trouble (and it's similar to the story we had recently about bloggers worrying about a new aggregator). They assume that all of the "value" needs to be captured by them, and not anyone else. In economics, this is effectively an industry telling the government that it needs to be compensated for all of the positive externalities it created -- even if it's better off at an absolute level. Basically, the industry is so overvaluing its own content, that it assumes that any additional value that people get out of music, even if it's through no effort of the recording industry itself, should be entirely converted to more revenue for the industry. As an analogy, it's like your automobile maker demanding an ongoing cut of your salary, since without the automobile, you wouldn't be able to drive to work. Unfortunately, though, unless you're a copyright wonk, you might not even notice that the recording industry is trying to do this. Instead, it presents its case in a logical fashion, focusing on how much "value" it's suddenly creating by "allowing" people to transfer the music they already legally purchased to the device of their choosing.

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Just Because Content Is Free Doesn't Mean It's Worthless

from the let's-try-this-again dept

A few folks have asked me to comment on a recent post by Jonathan Handel, an entertainment industry lawyer, bemoaning the idea that content has become "worthless." If this sounds familiar, it's because he's merely the latest in a long line of folks to confuse price and value. That's unfortunate, too, because the piece starts off really solidly, with an extremely accurate understanding of the basic economics impacting the content industry. He notes, as we have time and time again here, the reason that price is getting driven to zero. His mistake, though, is equating price with value. He gets really close to recognizing this in his fifth point, where he notes that: "Computers, web services, and consumer electronic devices are more valuable when more content is available." In other words, that content does have value, it's just not reflected in the price (due to the infinite supply).

What's really unfortunate, though, is he then comes to exactly the wrong conclusion out of all of this. Rather than recognizing that the fact that content increases the value of so many other things opens up a ton of new business models, he goes off and makes a bunch of statements that simply aren't true about what's happening in the content industry. First, he claims that there's now less money to be made today in content creation. That's simply untrue. There's a lot more money being made in content creation than ever before -- but it's much more dispersed. It's no longer all being made by a few big content companies. Then he says (and this is almost laughable): "Another effect is that the market for professional content is becoming more concentrated and less diverse." That's simply not true at all. The number of people producing content for money is larger than at any time in history.

The problem seems to be that Handel only considers content made by big content companies as legitimate professional content. This isn't just elitist, it's wrong. What these new models have done is created legitimate ways for totally new forms of professional (and, yes, it is professional) content creation. Professional content is coming from many sources these days, and while that may be a threat to the old infrastructure -- it's not a threat to professional content, which has actually become less concentrated and significantly more diverse. Anyone who thinks there's less diverse content available these days isn't looking very hard.

Finally, he claims, oddly, that "audiences are shifting more of their spending to hit properties" which pretty much goes against everything that most of us are seeing online with "the long tail" and such things. Since Handel seems to only define media as big media and assumes that all content that is free is "worthless" it's no surprise that he'd ignore it in his calculation. But, the simple fact is that he's wrong about what's happening. Content may be becoming free, but that's opening up tremendous value (which drives more content creations) and that content is coming from a much longer tail of diverse and varied content producers. It may be troublesome for the big entertainment infrastructure he's used to dealing with, but it's hardly bad for the real content industry.

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Competition Isn't War

from the scorched-earth dept

Ben Worthen theorizes that Microsoft is acquiring Yahoo not to increase its own profits but to damage Google. Worthen is suggesting that by slashing prices for its ads, Microhoo could "chip into Google’s profit center," slowing down Google's expansion. I haven't talked to Steve Ballmer about this, but I really doubt this what he has in mind. In the first place, it's not clear that aggressive price-cutting by Yahoo! would even hurt Google that much. Aggressive price-cutting only hurts your competition significantly if you've got enough inventory to satisfy the market at the new, lower price. But Yahoo! has significantly fewer eyeballs than Google, so even if Yahoo! gave away its ads for free, there would still be a lot of unmet demand that Google could cater to. Secondly, trying to "chip away at" Google's ad revenue seems like exactly the wrong way to attack Google. Google has plenty of cash on hand, and its still-astronomical share price makes it easy to raise more. Google employees have told me that the limiting factor for the company at the moment isn't money but the ability to recruit new employees.

More fundamentally, the war metaphor is misleading in this kind of discussion. In a competitive market like this one, companies make profits by creating value for their customers. Especially in a growing market like this one, there isn't a fixed pie to be divided. So there's no reason to think that lowering Google's profits would improve Microsoft's fortunes. Microsoft should acquire Yahoo! if the combined company will be more profitable than they would be separately. Obviously, competition with Google is a big factor to consider, but it gets things backwards to view hurting Google, in and of itself, as a win for Microsoft.

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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