Free Does Not Mean No Business Model
from the repeat-after-me... dept
As we get ready for The Free Summit, I was thinking about some of the recent posts here on Techdirt, and realizing a really common fallacy that seems to destroy all debates around “free.” It’s the implicit assumption that “free” means no business model. We saw it with law professor Justin Hughes’ defense of copyright in The Economist debate over copyright, where he states:
What we have now is a mixed economy for expression in which some expression is produced under a patronage model (foundation grants, universities), some expression is produced under the open source model (Linux, blogs), and some expression is produced under a profit/incentive model of copyright.
And we see it when David Simon goes to Congress and says:
It costs money to do the finest kind of journalism. And how anyone can believe that the industry can fund that kind of expense by giving its product away online to aggregators and bloggers is a source of endless fascination to me. A freshman marketing major at any community college can tell you that if you don’t have a product for which you can charge people, you don’t actually have a product.
Both of those statements are based on the implicit assumption that “free” means “non-profit” or “not a business.” Yet, nothing is further from the truth. Free has always been a part of many business models, and when most supporters of “free” are talking about isn’t that content creation and journalism go to an “all amateur/all non-profit” model. No one is saying that at all. We’re saying that they need to learn to embrace other business models rather than rely on copyright as a kind of crutch.
When you’ve been relying on that crutch for so long, you forget that you have two legs of your own and can make do without the crutch. We’re seeing it all the time, with content based business models that don’t rely on copyright which have been shown to be more successful than the old copyright crutch business models. There are lots of ways to make money that involve “free” as a part of the business model.
So, from now on, whenever you see someone arguing against free, and implicitly assuming that “free” means there is no business model, correct them. Let them know that they’re arguing against a total strawman. No one says the professional class of content creators or journalists is about to go away. We’re saying that they’ll earn their money in a different way, and it won’t rely on charging directly for their content, but on other goods that their content makes much more valuable.
Filed Under: business models, free
Comments on “Free Does Not Mean No Business Model”
Umm...
“We’re saying that they learn to embrace other business models that rely on copyright as a kind of crutch.”
Not sure what you mean there, it might be:
We’re saying that they learn to embrace other business models that DON’T rely on copyright as a kind of crutch.”
Re: Umm...
Oops. Poorly constructed sentence. Cleaned it up.
Bull.
It costs $30 million to staff a cohesive newsroom — be in online or in print, the delivery system doesn’t matter — that covers the major institutions and societal issues of a major metropolitan area and to do so in a systematic and professional way — which the internet has not yet managed to remotely achieve through blogging and citizen journalism. The dishonesty and double-speak of new media advocates who refuse to acknowledge either this cost or the inability of blogging to achieve comprehensive daily beat reporting — not just attending hearings or taking press releases, but working sources and countering institutional spin — of police departments, school systems, mayors, city councils or state legislatures, well, it’s downright embarassing. Simon is calling for standards in journalism that are like the water in everyone’s well — when it goes dry, and it is already happening, they will be sorely missed.
If they don’t charge for content online they have no way to pay the extraordinary cost professional journalism save for online advertising and that has proven to be miniscule in its rates and utterly insufficient to replace the losses in print circulation and advertising revenue.
That’s just fact. Everything above amounts to the theory of dilettantes.
Re: Re:
It costs $30 million to staff a cohesive newsroom
Uh, no. It doesn’t. We recently talked about a company covering Chicago at $2 million.
http://www.techdirt.com/articles/20090317/0312314149.shtml
But, the mistake you’re making is that the newsroom has to be staffed in the exact same manner as it did in the past. That’s wrong. If it costs you $30 million to staff a newsroom, you’re doing it wrong.
Simon is calling for standards in journalism that are like the water in everyone’s well — when it goes dry, and it is already happening, they will be sorely missed.
Bull. We’re seeing better, more thorough, more useful investigative reporting from new media sources than we normally see from the “old media.” There are very few real investigative reporters working in old media anyway.
If they don’t charge for content online they have no way to pay the extraordinary cost professional journalism
Again, bull. Subscribers have never paid for reporting.
That’s just fact
Except it’s not. You’re quite wrong. But, if you want to keep believing in your wrong theories, have fun. We’ll see you on the other side when journalism is thriving.
Re: Re: Re:
30 or 2 million there is still a cost that must be exceeded to produce profit
Re: Re: Re: Re:
…which can easily be gained from advertising revenue. Thank you for stopping by.
Re: Re: Re: Re:
30 or 2 million there is still a cost that must be exceeded to produce profit
Indeed. No one said otherwise. What we said is it’s wrong to assume “free” means you can’t produce a profit.
Re: Re:
countering institutional spin
Heh, like yours 🙂
Re: Business Model.
What a pile of crap. The newspaper is the business model that is dead, Google could pay the $30M for the reporters and get it’s own news and still be a viable business. Do you want Google to do that and really intentionally kill the newspaper business? The same for the musicians, the value that the recording companies used to provide is no longer, because that technology (promotion and recording) is now in the hands of the musicians and fans, no more need for recording companies. Do they see this, do they want to change their business models? Just like the newspapers NO! NO! NO! Studebaker used to make horse drawn carriages, then with much screaming and gnashing they started to produce automobiles, did they survive using the horse and buggy business model??? You need to move on, into the 21st century.
Re: Re:
You saying it costs $30M to run a newsroom is like me saying it costs $30M to run a local telephone exchange.
Well, it would, if we still had to hire a massive team of women to answer the cranks of subscriber’s phones, say hello, get the instructions to connect to Penn-65000, and pull the wires and plug in the call. But in fact, we put in automated machines to do that work a few years back, and it lowered the costs.
It turns out, technology has advanced and lots of things can be done cheaper than before. Much cheaper. Journalism included.
Welcome to 1995.
The thing is, there will always be quality journalism. You say “when [the well of journalism] goes dry…they will be sorely missed”. Yeah. And I, as an economist, would identify that as DEMAND. And guess what a free market does when it identifies a demand. It finds a way to supply that demand at a fair market clearing price. In capitalism, we consider that to be a good thing.
Quality journalism will persist. The research, presentation, and dissemination of news and knowledge will still exist in a few decades. It just won’t take place in the same way as it did in the ’80s. Change can be painful. Tough luck. Best course of action is to find a way to deal with the change, be at the front, and make a killing. Opportunity is the traveling companion to change.
Re: Re: Re:
Hey Derek, nice commentary! How did CTIA go? Looking forward to a writeup.
Re: Re: Re: Re:
Interesting you should ask. I did not do a CTIA summary for Techdirt, although I often write summary blog posts of the big telecommunications conferences for this site. I would have done so this time, but I have limited resources, so can’t always get a Techdirt post up.
However, I did summarize the activity from CTIA at a private CTIA debrief held through the Telecom Council of Silicon Valley, seen here
http://guest.cvent.com/EVENTS/Info/Summary.aspx?e=614be418-e430-4755-bafe-369ee2db6759
with photos here:
http://www.telecomcouncil.com/photogallery.php?event_id=83
You see, this is very on topic. As a Telecom Consultant and Analyst, I often put my thoughts out on Techdirt free of charge. In so doing, I get some exposure, some recognition, and ostensibly some amount of a reputation for quality. My past articles (since 2002) also stand for building a reputation of having been right on predictions.
And I give that away for free.
But the CTIA debrief was a scarce resource, in-person meeting in a room full of smart telecom execs from the region. I led a discussion on the hot topics out of the CTIA show, and we discussed the relevance and importance of key trends. I think I offered some intelligence on the issues, and I’m positive that the others in the room contributed to the overall value. An interactive session such as this is a product that cannot be easily reproduced. So, following the economics we discuss here, for this event, there was a fee.
Re: Re:
I agree.
Re: That's a lot of money, for what we get.
At least 30 million huh? All that money for legitimacy – yet too many people are fed up with too much about how stories are covered/reported. Also you throw that kind of money at anything and there will always be compromised integrity.
Hey but CNN got those snazzy screens right?
Re: Re: That's a lot of money, for what we get.
Sure. Arr, Matey.
http://img145.imageshack.us/img145/6893/screenshot01p.jpg
The next time somone makes this mistake...
…simply ask them how much they paid for their Google-related services last month.
Then ask them whether or not they think Google has a business model.
Re Mr. Hughes, it is useful to bear in mind that he was assigned the task of arguing the counterpoint to Mr. Fisher. This is what lawyers do, i.e., be prepared to present both sides of an issue.
Interestingly, the argument in favor of the motion did not advocate the elimination of copyright. What it did argue was the possible need of amendments to copyright law to take into account technology changes and certain societal attitudes.
Unaddressed Assumption
I recently found this blog and it is very good in my opinion. You however seem to have an unexamined assumption. You seem to be assuming that there is always a scarce product that content producers can sell… I think there is a question to ask: What if that scarce product is insufficient to cover fixed costs? I mean, that is a possibility. Now, in those cases, we might see at the very least under-provision of the content type. How can we deal with that? How can we even detect it? Or perhaps you have something to back that assumption.
Re: Unaddressed Assumption
dunno about anyone else, but my response would be ‘add another scarcity to the list of things you sell’ or something to that effect.
Re: Re: Unaddressed Assumption
Exactly my thought too. If you’re trying to sell something that isn’t scarce (worst case; infinitely reproducible at zero cost) then you don’t have a very good business model. Artificially trying to make it scarce by passing laws that give you a monopoly on reproduction doesn’t make it a better business model. You might as well just pass laws that say people have to give you free money for doing nothing.
Re: Re: Re: Unaddressed Assumption
Do we have an example of a non-scarce product? Even with he music industry, assuming music is distributed online, they do not have an infinite number of people who will consume their product. Even if everyone is forced to listen to the song it must have a calculable cost that cannot be assumed to be zero. Even if your audience is infinite the equation is asymptotic with the zero cost line thus by definition it will never touch it.
Re: Re: Re:2 Unaddressed Assumption
Air is a non-scarce and essential product, available for free to everyone. Do you think that maybe they can find a way to create an artificial scarcity of air and then charge for it without the risk of being charged with murder?
Re: Re: Re:3 Unaddressed Assumption
You betcha. Already being done in many parts of the world, actually. Just Google “Oxygen Bars.”
Re: Re: Re:4 Unaddressed Assumption
Already being done in many parts of the world, actually. Just Google “Oxygen Bars.”
Usually where there has been created an artificial scarcity of clean air due to pollution.
Re: Re: Re:3 Unaddressed Assumption
I’m thinking Perri-Air from Spaceballs.
Re: Re: Re:2 Unaddressed Assumption
Yours is a common, honest mistake made by anyone who has not studied economics.
In our first year of studies, most econ students are suprised by the not-entirely-intuitive fact that price (in a competitive free market) is a function of Marginal Cost, NOT Average Cost. It is the cost of RE-production that determines price, not the cost of production.
It is because this is not entirely intuitive that scads of people, most notably on the side of copyright, refuse to acknowledge that fixed costs are irrelevant to price in a free market. That may sound strange to you, just as it does to Freshman Econ majors. But once we learned the numbers and the math, it turns out it’s fact. FACT. Not something we want or don’t want to be true, just FACT.
So the commenter directly above you stated it very well when he said “infinitely reproducible at zero cost”. He/she used layman’s words to say MC=0, so trying to charge for such a product is in contravention of economic laws, and thus would need artificial government intervention (regulated monopolies) to be a model. He suggests that is not a good model, and by and large, the Techdirt writers agree.
Re: Re: Re:3 Unaddressed Assumption
In our first year of studies, most econ students are suprised by the not-entirely-intuitive fact that price (in a competitive free market) is a function of Marginal Cost, NOT Average Cost.
I don’t know where you studied economics, but I think you should ask for a refund if that’s what they were teaching. Most economics programs teach that price is a function of supply and demand, not cost.
Re: Re: Re:4 Unaddressed Assumption
I don’t know where you studied economics, but I think you should ask for a refund if that’s what they were teaching. Most economics programs teach that price is a function of supply and demand, not cost.
Actually, Derek is correct. I’m assuming you didn’t study economics, or you would know that price = marginal cost is really the same thing as price equaling the intersection of supply and demand. It’s two ways of saying the same thing, just using a different frame of reference.
Re: Re: Re:5 Unaddressed Assumption
Actually, Derek is correct. I’m assuming you didn’t study economics, or you would know that price = marginal cost is really the same thing as price equaling the intersection of supply and demand.
Actually, I have studied economics and your assumption would be wrong. And frankly, I’m placing a little more faith in the professors I studied under than yourself.
Marginal cost does not necessarily equal the intersection of supply and demand. While marginal cost can be a factor affecting supply it is not always so, and that is why it is not equated to price. This most often happens in the case of artificial scarcity (such as may be created by lack of competition).
The idea that price = marginal cost can be easily disproven. As an example, take a unit for which the marginal cost is $10 and supply and demand supports a price of $100. Lowering the marginal cost by a factor of, say, 10 to $1 will have no effect on price so long as supply and demand remain unchanged. In fact, the marginal cost can tend to zero, so long as supply and demand remain unchanged, and the price will remain the same.
Of course I realize that “sometimes” price is a function of marginal cost impacting supply. But that isn’t what was stated.
Re: Re: Re:6 Unaddressed Assumption
Actually, I have studied economics and your assumption would be wrong. And frankly, I’m placing a little more faith in the professors I studied under than yourself.
Sure, and perhaps you don’t understand that there are multiple economic theories and ideologies. Because your professors probably advocated one school of thought over another doesn’t necessarily mean that you’re correct.
Marginal cost does not necessarily equal the intersection of supply and demand. While marginal cost can be a factor affecting supply it is not always so, and that is why it is not equated to price. This most often happens in the case of artificial scarcity (such as may be created by lack of competition).
This is Microeconomic Theory. The description Mike offered is one of “Market Equilibrium”.
Please take some more classes.
Re: Re: Re:7 Unaddressed Assumption
Sure, and perhaps you don’t understand that there are multiple economic theories and ideologies. Because your professors probably advocated one school of thought over another doesn’t necessarily mean that you’re correct.
OK, I’ll bite. Maybe graduate level economics courses at The University of Texas aren’t up to snuff. Could you please point me to the university economics program that teaches that price = marginal cost? Harvard? MIT? Perhaps I’ll learn something more than my professors knew.
This is Microeconomic Theory.
Yes, of course it is since that’s essentially what we’re discussing. What else would you expect?
The description Mike offered is one of “Market Equilibrium”.
Which is still microeconomics, so I still don’t see your point there. To tell the truth, you’re starting to sound like you don’t know what microeconomics is.
Please take some more classes.
I’d still like to know where you recommend that teaches price = marginal cost because that would sure simplify microeconomics. No more worries about supply and demand to determine market price, just look at the marginal cost! And then to raise market prices all you would have to do is raise your marginal costs. That would be a pretty neat trick indeed. The more inefficient you are, the more you make! Woo hoo!
Re: Re: Re:8 Unaddressed Assumption
Maybe graduate level economics courses at The University of Texas aren’t up to snuff. Could you please point me to the university economics program that teaches that price = marginal cost? Harvard? MIT? Perhaps I’ll learn something more than my professors knew.
The Red McComb’s School of Business teaches this? After seeing a 2 hour special on Red McCombs on CNBC, I thought he was a little loony, but hey.
Thanks for the chuckle. Enjoy the ride.
Re: Re: Re:8 Unaddressed Assumption
“I’m placing a little more faith in the professors I studied under than yourself.”
No. You’re placing faith in *your understanding and recollection* of what they said, as we all do when we cite our education.
So, here’s a refresher course from free online material. I’ll cite a work by Dr. Shane Cabonneau, University of Texas at Austin – Department of Economics. All I can get for free is this abstract of his work:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=594442
in which the abstract says:
“If there is price discrimination, at least one of the prices is not equal to marginal cost. Therefore, if there is price discrimination, there must be market power. While this logic is sound”
Now, sadly, I couldn’t find any quotes for free that directly proved you wrong. But this U of Texas prof quoted above implies that in cases where P MC, we are not dealing with a competitive market. Since I referred to a competitive market, the U of Texas prof supports me, and disagrees with you. That’s your school.
Keeping with the U of Texas theme, I would direct you to this Sophomore economics exam from the U of T.
http://www.utdallas.edu/~ixm024000/ECO_2302/Resources/s06_prac_exam2_eco2302.pdf
Please note in particular questions 9, 12, 16. But most importantly, have a go at Q18. You ARE right, the U of T does appear to have a quality economics education on offer. Only it is Mike and I who seem to understand the course material, not you.
You see, in competitive markets (which is the case I stated at the top of the thread), MR = Price, and the market supply curve is the MC curve. The market clears at MC = MR = P. Average cost is irrelevant to price. This is the point I stated, and you disagreed. Here’s a refresher course (with graphs and visual help) from the University of Maryland.
http://umbcnotes.f-sw.com/econ%20101H%20notes/Chapter%2014%20Lecture%20Outline.pdf
Re: Re: Re:6 Unaddressed Assumption
Actually, I have studied economics and your assumption would be wrong. And frankly, I’m placing a little more faith in the professors I studied under than yourself.
Either your professors were wrong (unlikely) or you heard them (or interpreted them) incorrectly. The intersection of supply and demand is the same thing as marginal cost. This isn’t an opinion. It’s not even up for discussion. They’re the same thing.
Marginal cost does not necessarily equal the intersection of supply and demand. While marginal cost can be a factor affecting supply it is not always so, and that is why it is not equated to price. This most often happens in the case of artificial scarcity (such as may be created by lack of competition).
Um. Again, you seem to have interpreted whatever economics you learned incorrectly. The scenario you are setting up is a non-perfectly competitive market. In any such market, it may be true that price will not equal marginal cost and (again, this is redundant) price may not equal the intersection of supply and demand.
The idea that price = marginal cost can be easily disproven. As an example, take a unit for which the marginal cost is $10 and supply and demand supports a price of $100.
You are talking about a non-perfectly competitive market. Otherwise the intersection of supply and demand would equal the marginal cost.
The point that we are making is that as a market tends towards a competitive market, price will tend towards marginal cost, and price will tend towards the intersection of supply and demand which (yes, despite your denial) is the same exact thing.
In fact, the marginal cost can tend to zero, so long as supply and demand remain unchanged, and the price will remain the same.
Nope. Only if the supply is artificially restricted. Which is a non-perfectly competitive market.
Re: Re: Re:7 Unaddressed Assumption
Either your professors were wrong (unlikely) or you heard them (or interpreted them) incorrectly.
No, I suspect, rather, that you are making assumptions and failing to consider non-perfectly competitive markets.
The intersection of supply and demand is the same thing as marginal cost. This isn’t an opinion. It’s not even up for discussion.
My, my, you certainly are closed minded.
The scenario you are setting up is a non-perfectly competitive market.
Exactly.
In any such market, it may be true that price will not equal marginal cost and (again, this is redundant) price may not equal the intersection of supply and demand.
Wait, I thought you said that wasn’t an option. You’re contradicting yourself now.
You are talking about a non-perfectly competitive market.
Sigh, yes of course I am. One that is perhaps distorted by a government granted monopoly like copyright, which is what was being discussed.
…price will tend towards the intersection of supply and demand which (yes, despite your denial) is the same exact thing.
Now wait a minute, I never denied that they couldn’t be the same, just that they are not always the same. Your argument is like that of the beginning algebra student who, when asked to solve x+y=5 for x, assumes the case y=0 and immediately writes down x=5. And then when told that is wrong argues “Hey, I never said x is always 5, but sometimes it is!” That doesn’t fly.
Nope. Only if the supply is artificially restricted. Which is a non-perfectly competitive market.
Yep. Which is why price is usually stated to be a function of supply and demand which does not assume a perfectly competitive market. I’m surprised you didn’t know that. It seems I may have learned a little more from my profs than you from yours after all.
Re: Re: Re:8 Unaddressed Assumption
Right.
I remain amused by changes to GAAP and Mark to Mark versus Mark to Market. What you say something is worth is great. But is that what the Market will pay for it?
Seriously buddy, your Texas professors may think that his Commodity Futures Modernization Act of 2000 was great stuff, and perhaps they decided to try to indoctrinate you with it, but hey, you’re an amazing person.
Now, go to work.
Re: Re: Re:8 Unaddressed Assumption
Which is why price is usually stated to be a function of supply and demand which does not assume a perfectly competitive market
Um. Actually, you are wrong again. Please go back to the texts… Price is only the intersection of supply and demand in a perfectly competitive market. Outside of that, it’s not. You actually have price at a different point on the curve.
This is sorta fundamental stuff…
Re: Re: Re:6 Unaddressed Assumption
Mike, I appreciate your going into the details here with this guy, but the argument ends right at his comment above. Our U of Texas alum is weak in at least one category: details and reading skills.
He says above:
“Of course I realize that “sometimes” price is a function of marginal cost impacting supply. But that isn’t what was stated.”
Yes it was! Very, very clearly.
One only needs to go up, up, up the thread to read what I actually stated:
“the not-entirely-intuitive fact that price (in a competitive free market) is a function of Marginal Cost, NOT Average Cost.”
Hey…wow, see those brackets Longhorn? Turns out that I have adequate attention to detail. I anticipated people misunderstanding that MC=P doesn’t always apply, so I specified the case where it does.
And in that special case (in a competitive free market), all the arguments that Mike made apply. The point where S = D is the point where MC = P.
You, sir, just engaged in a lengthy discussion on something you misread and mis-understood.
Now, do you wish to argue against what I actually wrote, or are we done here?
Re: Unaddressed Assumption
I recently found this blog and it is very good in my opinion. You however seem to have an unexamined assumption. You seem to be assuming that there is always a scarce product that content producers can sell… I think there is a question to ask: What if that scarce product is insufficient to cover fixed costs? I mean, that is a possibility. Now, in those cases, we might see at the very least under-provision of the content type. How can we deal with that? How can we even detect it? Or perhaps you have something to back that assumption.
That’s a good question… I tried to answer it in the past:
http://www.techdirt.com/articles/20070322/024237.shtml
The basic argument is that there are always more scarcities. I’ve yet to see a market where the scarcities cannot cover the fixed costs when the business model is properly designed. Now, I agree that there is a theoretical possibility that there could be an infinite good where that wouldn’t be the case, but I’ve yet to see one. The additional value to scarcities has always outweighed the fixed costs. However, it is an area I would like to study in the future to see if there’s a way I can prove that more concretely. I think you can see parts of the proof if you look at Paul Romer’s work on economic growth, which indicates how a properly used infinite good (or non-rivlrous, non-excludable good in his terms) is the key factor towards growth. So they always grow markets, and the trick is to capture that growth.
As you dig into the details, you begin to realize that the amount of growth should always outweigh the fixed costs. But… there hasn’t been a good full proof of that yet. Yet.
Re: Re: Unaddressed Assumption
from what I have read about Paul Romer’s work here: http://www.versaggi.net/ecommerce/articles/romer-econideas.htm :
“He believes that companies must derive some monopoly profits for taking the risk to develop new ideas. In fact, without the incentive of capturing such profits, he concludes, companies would not engage in research.”
So IMHO he thinks that, there is not always(or never when we talk about hi-tech research labs?) a scarce good which is sufficient to cover the costs of the non-scarce good creation.
Do you disagree with Romer on this or do you view his ideas differently?
Re: Re: Re: Unaddressed Assumption
So IMHO he thinks that, there is not always(or never when we talk about hi-tech research labs?) a scarce good which is sufficient to cover the costs of the non-scarce good creation.
Do you disagree with Romer on this or do you view his ideas differently?
As I noted, Romer’s research doesn’t go all the way to this point. It just goes to the point of showing the infinite goods creating growth, but then he stops before he examines whether there will be enough monopoly profits from scarcities. I think it’s an important next area of research, but it should be built on his earlier work.
But, if you start to play around with his models, you’ll find that he didn’t take his own research far enough. You can apply a few tests and discover just how unlikely it is that there’s a model that fails to recover those costs.
I wouldn’t say I disagree with Romer. I just think he hasn’t taken his own work to the next step yet (though, I will say I disagree with some of the interpretations of his own work: there are a few places where he reads his own model incorrectly!).
Re: Re: Re:2 Unaddressed Assumption
Interesting what can be found within the archives at the USPTO. For example, a search using Publication No. 20080280280 reveals a newly filed application assigned to Aplia Inc. and naming as the inventor Paul M. Romer of Belmont, CA.
Re: Re: Re:3 Unaddressed Assumption
It is important for you to understand that my comment above is not intended as a criticism of your opinions, because even I do understand the points you are making on your blog at techdirt.
It is, however, interesting to me that Mr. Romer has elected to pursue an application that he has assigned to a company for which he is represented on its site as its founder. I would be quite interested talking with him to understand his motivation for filing the application in the first place, particularly for an invention that at first blush does not appear to be of the type that necessitated the expenditure of copious amounts of R&D funds.
Re: Re: Re:3 Unaddressed Assumption
Interesting what can be found within the archives at the USPTO. For example, a search using Publication No. 20080280280 reveals a newly filed application assigned to Aplia Inc. and naming as the inventor Paul M. Romer of Belmont, CA.
I’m not sure what that has to do with the topic of conversation (free business models).
But I never said that Romer was against patents. He’s not. He’s a supporter of the patent system. That’s one area where I believe he misreads his own research.
Even so, I’m not sure what it shows. Even if you dislike the patent system, why wouldn’t you abuse it by getting a patent yourself?
Re: Re: Unaddressed Assumption
For example: Mike Masnick Bobbleheads. I’d buy one!
Re: Re: Re: Unaddressed Assumption
I’m still waiting for a TechDirt polo shirt. Not only would I buy it, I’d wear it to work.
Yeah, infinite number of finite possibilities.
I think you fundamentally missed David Simon’s point. Before anyone condemns David Simon for idiocy based on the one quote above, do read his whole testimony. While you may vehemently disagree with some of his points individually, he skewers the bad behavior of the old media as well as the new.
Simon is not arguing that the government needs to protect some antiquated business model, or that “free”-inclusive business models are not workable. What he’s arguing is that if you want high-quality, socially-valuable journalism, the free market does not seem to be the best way to produce it. This is regardless of how good your business model is. In the free market, old media found that you could cut the quality of journalism substantially without losing too many ad revenues, and in fact (ad) revenues didn’t seem to be that closely connected to content quality at all.
Will the Internet change that? Will the best ‘free’-based business models optimize for the best, most socially valuable journalism? I don’t think so: no free market optimizes for quality, they optimize for whatever maximizes profit. Unless the Internet will suddenly increase the profitability of high-quality, socially valuable journalism, we’ll get something else. Arguably, the Internet has only exposed our insatiable demand for punditry and Paris Hilton.
The traditional solution (as with other public-good services like police, firefighting, and so on) is to nationalize the industry. Nationalizing journalism is probably even dicier than nationalizing police services, since good journalism is supposed to protect us from the state and be independent of it. Simon suggests alternatives: nonprofit models, models where news is still produced independently of the government, but where the free-market incentives are artificially modified to try to incentivize content quality, and so on.
Re: Government Regulation is a Grim Solution(If at all) to Your Concerns
What you’re doing is imposing your own idea of what consitutes “high-quality, socially valuable journalism”. If nobody doesn’t want it, than there isn’t a single onces of hope that it will be supported short of government intervention.
The fact of the matter is, the role of profits is to merely show where resource should be allocated to satisfy the demand, that is…the masses. However, there is no reason to think that the miniority will not get served. Indeed, if the minority really want “socially valuable news” to spend enough money on it, than an industry will naturally prop around it. That industry satisfy a niche and everybody get along happy.
Government regulations will be a very grim way to achevie what you desire, if it is at all successful. Regulatory agencies by their very nature are political machinery. It seeks to satisfy only the insiders, and nobody else. Even in a democracy, the insiders are the majority. It will then use the only thing it know how to solve any problems, the use of brutual violences and threat. To support the goal of the regulatory agencies, it must forcefully take money from the taxpayers to fund its quintoxic quest of reshaping society in accordance to an insider-view of how the world should be. In accordance of being unaccountable to the public at large, it will develop overly expensive ways of enforcing their content standard. This lead to less resource that can be allocated to other area such as health care.
A much more peaceful, easier, and cheaper method of acheving your goal without smashing your man’s fellow diginity is a matter of convincing your fellow man that objective, well researched journalism should be supported and that they shall take actions to promote this views by voting with wallets.
Indeed, it won’t eliminate all the pockets of alarmist headline journalism that men are so gulliable of. However, this is the nature of the market, to satisfy all and any desire for a price.
You have the freedom and rights(within reasonable limit) to try to convince them that their consumption of poor quality news is a bad idea but under no circumstances that you have the right to lord over other people’s lives unless it directly involve you.
I’ve yet to see a market where the scarcities cannot cover the fixed costs when the business model is properly designed. Now, I agree that there is a theoretical possibility that there could be an infinite good where that wouldn’t be the case, but I’ve yet to see one. The additional value to scarcities has always outweighed the fixed costs.
I’d like to see this discussion expounded upon, because it really depends on what you mean by “properly designed” or “market.” There are plenty of markets for individual infinite goods where the scarcities did not, in fact, cover the fixed cost, and somebody lost money on the deal.
What is a properly-designed business model? You have to define this in a way that doesn’t devolve into tautology, for example by defining a properly-designed business model is one that extracts more value from selling scarcities than the fixed cost.
What is a “market”? Is an individual, unique song a market? Is an individual songwriter a market? Is a genre of music a market? Or music as a whole?
Re: Re:
A market boardly speaking is the sum total of all voluntary exchanges within an economy.
However, we specify the market further with categories called industries such as entertainment, and subclass it into various niches. Sometime, we refer to places. This effort of categorization make it easier for us to talk about specific exchanges in an economy.
IANAE
Re: Re:
What is a properly-designed business model? You have to define this in a way that doesn’t devolve into tautology, for example by defining a properly-designed business model is one that extracts more value from selling scarcities than the fixed cost.
That would depend on your business objective. If operating at a profit is an objective then a business model that does not produce that is certainly not properly-designed.
” if you don’t have a product for which you can charge people, you don’t actually have a product. “
In that case you have a scam.
If you want to have a business you first must find what people want and then make a product.
No Such Thing As Non-Profit
There is no such thing as human dedicated to an unprofitable cause. If charities were indeed non-profit, no humans would join the cause.
The fact that they continued to work on a cause in despite of economic loss mean that the cost associated with it does not outweigh pyschological profit. The idea that certain things are worth the cost in the mind.
Pyschological profit is the quinessential motivation that propell all human actions. A charitable person did it because it fulfill his spiritual needs. Or a hobbyist work on video games because he love the joy of creating things.
A charitable person or a person who did their hobby out of love is no less “non-profit” than a greedy bastard. They just value different things. That greedy basatard values wealth while the hobbyists or charitiable person values something else entirely.
All human enterprise are pursued for the profits it will bring.
Re: No Such Thing As Non-Profit
“Non-Profit” in economics certainly does exist. When you redefine “profit” as something “pyschological” or “spiritual” you’re no longer talking about economics.
If you’re trying to sell something that isn’t scarce (worst case; infinitely reproducible at zero cost) then you don’t have a very good business model.
Depends on what you mean by “sell” and to whom.
It so happens on this site (I assume anyway) that the same people write the content as handle the advertising and the insight community and whatever other scarcities are employed. But this doesn’t have to be the case. In a larger operation, it’s likely that different people – specialists – would produce the content and handle advertising. In that case, the content producers would essentially be selling their content to the advertising department, and the advertising department gives it away in an effort to gather eyeballs (their product) to sell to advertisers.
Why does it matter if both of these people work for the same company or different ones? Why does it matter if the content creators get paid in salary, or as work-for-hire, or if they get a percentage of ad-sales? Why do the content creators, who are making something infinitely reproducible at zero cost, have a bad business model in this case?
Re: Re:
Why do the content creators, who are making something infinitely reproducible at zero cost, have a bad business model in this case?
Their business model isn’t selling an infinite good, it is selling the *creation* of an infinite good. The act of creation is scarce. The problem comes from the second party (the one who paid in some manner or other for the act of creation) turns around and tries to sell an infinite good to recoup their costs for paying for creation.
Newspapers pay reporters to create something, and now they want to turn around and sell the infinite as if it were scarce because the ad business got less wasteful?
Record labels fund creation of music and then turn around and want me to pay them to copy and distribute it when there are plenty of people who will do that for free. What sense does that make? None.
I’m sick and tired of these wasteful, outdated business models trying to get the rules artificially frozen in time so that they don’t have to compete. Adapt or go out of business. Doesn’t matter to me which they choose, I haven’t read a newspaper in over a decade.
/rant
free
I have seen the future and it is free. 20$ for 150 million hits free. Free apprenticeships; (articling lawyers, 95. Vancouver, BC);
candy stripers ‘in hospitals; free labor for newspaper reporters student posts, ottawa ’09)
legal aid exploded from 30m to 250m since in BC. It’s a real law abiding place right now, too. (NOT)
The patent-bubble turf wars (notary publics, etc) will make the birth of the party quebec-quois (12 thieving conservative bagmen dead by car-bomb, apparently) look tame.
the broadcast treaty (anything I can find can be patented as mine), takedown by request (the web);
realistically, and putting a dandelion in a labeled bottle can cost you your house right now. (in canada)
These turf wars are gonna be LOTS of fun.
And free. (for all.)
pat donovan may:09
—
http://packrat.comicgenesis.com
stalking millionaires – the comic!
"FREE" Shysters
Much of the time, “free” means that some shyster is giving away someones property to generate income for themselves. We all know that nothing is free. One way or another, everything must be paid for.
This even applies to all the drivel about free business models.
Ronald J. Riley,
Speaking only on my own behalf.
Affiliations:
President – http://www.PIAUSA.org – RJR at PIAUSA.org
Executive Director – http://www.InventorEd.org – RJR at InvEd.org
Senior Fellow – http://www.PatentPolicy.org
President – Alliance for American Innovation
Caretaker of Intellectual Property Creators on behalf of deceased founder Paul Heckel
Washington, DC
Direct (810) 597-0194 / (202) 318-1595 – 9 am to 8 pm EST.
Re: "FREE" Shysters
What? You still don’t understand that it’s sleazy to cite your affiliations in the same signature block that you say you speak on your own behalf?
The Boards of these associations should inform you that not only to you implicate them by association when you excercise your rights to independend speech without citing them, but you most certainly cross the line when you explicitly cite your affiliations.
Now, on to just proving one of your points wrong: “We all know that nothing is free.” Wrong. I don’t know that, in fact I disagree. I smell yummy cinnamon-scented air when I transfer at airports. It’s from Cinnabon’s buns. I get that nice smell for free. “Everything must be paid for.” Honestly! Such drivel. How much does my kid pay me for the love I give them? For the goods I give them?
Dude, you talk in absolutes that are absolutely wrong. It really speaks volumes about the many orgs you cite.
Re: Re: "FREE" Shysters
The Boards of these associations should inform you that not only to you implicate them by association
I was under the impression that those were his own made-up organizations to satisfy his delusions of grandeur.
What journalism?
I’ve worked in a major daily, and I agree with you about investigative journalism in the old media model. It doesn’t happen.
People in the Editorial department write advertorial or they write nice, inoffensive articles sucking up to the powers that be. When someone takes a shot at something in an opinion column, they make sure it’s a safe target that can’t fight back. Journalists that do investigative journalism end up costing their paper in terms of lawsuits and bad feelings, so they either don’t get hired or get let go as soon as they’ve written a piece that causes problems.
Newspapers don’t fulfil the role they were intended to anymore – now they just keep their advertisers happy so they can pay the bills. Those who claim they are responsible to the community and that they provide real journalism are full of it.
He's right
“It costs money to do the finest kind of journalism. And how anyone can believe that the industry can fund that kind of expense by giving its product away online to aggregators and bloggers is a source of endless fascination to me. A freshman marketing major at any community college can tell you that if you don’t have a product for which you can charge people, you don’t actually have a product.”
This is quite true, it just doesn’t say anything about copyright-based business models versus alternative ones that don’t require it. (If by “people” he doesn’t mean just the readers, but also advertisers etc.)
Re: He's right
In viewing the various business models involved here. At this point Google only sees itself as a “content provider” or deliverer. It has not moved very far into other areas that do not support this core business. In fact MS made some comments about a “one trick pony” but what a successful trick?
The newspapers see themselves as both (1) “content creators” and (2) “content providers”. In (2) it is obvious that they cannot compete with Google, probably could not compete in (1) either if Google was in that business. Why because the content that they create is crap, watered down, catered to special interests, edited to hell crap that has very little truth that may be contentious.
And they wonder why their business is in the toilet? They forget that all revenue (apart from government forced revenue) comes from the customer. So what I have not seen discussed here are the two essential questions to any business (1) Who is the customer?, and (2) What do they want? So maybe the newspapers need to take a long hard look at the “who is the customer?” question. And the “what do they want?” question instead of assuming that they want placebos. The Google advertising model not only provides feedback to the participating businesses about the quality and value of their adds, (who they are reaching) but also indirectly what the customer wants, or doesn’t want. Because you cannot sell what the customer does not want, you cannot even give it away for free.
Cinnabon
I like the smell of Cinnabon. I smell it whenever I am in airports. Damn that smells good. I enjoy the odor every time, and occasionally am induced to buy and enjoy a bun.
Interestingly, Cinnabon charges absolutely nothing for scenting the air in such a pleasant fashion. Given their arguments in the post by Mike, Justin Hughes and David Simon must
think Cinnabon is a company run by socialist idiots, giving away the product (scented air) for free.
I suppose if your vision were SO LIMITED, as to only conceive of the scenario from the perspective of the “scented air” industry, Cinnabon might appear to be a threat. You might even bitch and moan about how their model is corrupt, and how they are responsible for the death of your sector because they give away the product for free.
Yet any freshman marketing major at any community college could tell you what is really going on. Cinnabon gives away the free scented air because of two big reasons:
1) they just can’t charge for it in any practical way.
2) the free product is a great promotional tool for the fee product, the scarce sweet and yummy buns.
It’s amazing coherent people can unwittingly put on such blinders as not to see that free has been, and will always be, an integral part of many, many business. And usually it is for the same two reasons numbered above. Smart businesses understand this and use it to their advantage, and lame businesses cry out for government support (while ironically claiming to be capitalists, and free-marketeers).
If Cinnabon were run by the RIAA, they would lobby the government to put in place rules that prevented anyone not buying a sticky bun from smelling the scented air.
Examples
It is absolutely correct that business models are much more than just “here’s a product, now sell it.” It is the entire, intricate pattern of the value web (as..as you say..any first year marketing major will tell you). And I think you are suggesting (rightly) that business models can be multi-turn games. In fact, the old ad-driven model is just this. Give away the content for free and piggy-back ads.
Today, we see far more complexity in how business models can play.
But what I found lacking in this and other stories TechCrunch and other folks on this side of the debate was specific examples.
Some examples:
1) A blogger that becomes known for expertise on a specific topic gets a call from a think-tank director to become a paid contributor.
2) George Lucas – need I say more? – practically gives away his rights to the content in Star Wars ep IV, but makes his money on global marketing rights to action figures, etc. Sure, there are still rights involved here, but it is a good example of second-order profit-taking rather than trying to make all your money on the core “product.”
3) A fiction writer “gives away” his book to be read online using Scribd.com but about 10% of online free readers (with a little social encouragement around the margins of the page saying, “it took me a long time to write this, so please consider buying my printed book ‘souvenir'”) go to his amazon page and buy the print book to put on their coffee table…or at least buy the Kindle version.
And these don’t even crack the surface of the novel business models we will be seeing. Sure, it was nice to be able to just produce some content and sell it in the past. But like it or not, we now must be creative both with the content and in how that content interacts over successive rounds of the game of gives-and-gets.
Wrong. I don’t know that, in fact I disagree. I smell yummy cinnamon-scented air when I transfer at airports. It’s from Cinnabon’s buns.
Somebody paid for that, just not you. Or maybe you did, by buying a Cinnabon last time, which gave them the money to continue operating and make more cinnamon-scented air for you next time you’re blowing through town. You didn’t pay cost for that Cinnabon.
“Everything must be paid for.” Honestly! Such drivel. How much does my kid pay me for the love I give them? For the goods I give them?
You get paid for both those things. Your kid pays you in respect or obedience or love, or maybe in social standing by providing something you can point at and say “wow, look at the little copy of me! Isn’t she great? I made that! By extension, I must be pretty great, too!” Maybe the effort of parenting satisfies a basic, inherent need you have for fulfillment that you’re not getting met at work, or by something else you do. Maybe you’re operating your kid as an investment, so you have somebody who might feel obligated to take care of you in your old age. Maybe you didn’t really want a kid, but you provide goods to it because it’s state-mandated that you do so, and there are artificial penalties for NOT doing it.
If you have any doubt that you don’t get something out of the arrangement, then ask yourself why you aren’t giving any love or any goods to my friends’ kids, except maybe a little bit through taxes.
Re: Re:
Somebody paid for that, just not you.
Nobody said it was free to the producer. Just that the individual consumer of the odor was under no obligation to pay for it.
You didn’t pay cost for that Cinnabon.
No, because that’s not the way market economics work. Price is determined by supply and demand.
Your kid pays you in respect or obedience or love, or maybe in social standing…
Those aren’t economic items. You’re confusing economics and sociology.
If you have any doubt that you don’t get something out of the arrangement,…
But that something may not be economic. You should really study economics before embarrassing yourself further.
Re: Re: Re:
I’d reply to the points two avoce myself, but that guy directly above seems to have handled it fairly well.
If Dr. Strange is so willing to say that my kids pay me back with respect, love and admiration, and so willing to mix economic and personal/social goods, then I would be completely on board. I shall copy movies, music, and books forthwith, and pay each author handsomely with oodles of my love, admiration, and joy.
I would comment…but where’s the profit in that 🙂
Thing is – it doesnt’ really matter. Unlike the RIAA and the MPAA with the artists they have be the leash – there’s no ‘corner’ on the market of news. It happens and gets reported – no entity can ‘own’ that.
So they can find a business model that works or fade away. I not only like the new media; I prefer it to the old media. If John Doe doesn’t write an article/host a blog – then Jack Doe will.
Ol’ Murdoch might be beside himself trying to figure out how to make a buck off of it, but that’s his problem.
It used to be; years ago that both musicians and actors had poor salaries – pretty much no matter what. Until new technology – TV, Radio – made them more popular, more heard, and had potential for large profits. Now technology changes again. The potential is out there; it’s just that most of these big corporations have been shaking the same old money tree forever – and now it’s not ‘bearing fruit’ so to speak.
Time to find a new money tree – or do without.
When the marginal cost is zero or near zero, the cost to the customer will trend to zero. Fighting this is a lost cause.
If you are so smart then sell this magical business model to these companies such as newspapers that are struggling… then you would find it’s not so easy to make money from giving away content for free.
Re: Re:
I don’t remember anyone saying it would be easy. I do not run my own business, but something tells me it is also not easy.
The thing is, if you can’t figure out how to make money in your business, then maybe it is time to find a new business.
I realize they just don’t get it so you have to keep posting this stuff, but to me this is extremly old and boring news. Can’t we just punch them in the face and make them understand?
I realize they just don’t get it so you have to keep posting this stuff, but to me this is extremly old and boring news. Can’t we just punch them in the face and make them understand?
>> What is a properly-designed business model? You have to define this in a way that doesn’t devolve into tautology, for example by defining a properly-designed business model is one that extracts more value from selling scarcities than the fixed cost.
> That would depend on your business objective. If operating at a profit is an objective then a business model that does not produce that is certainly not properly-designed.
Indeed, but this isn’t the point. The point is that Mike said:
I’ve yet to see a market where the scarcities cannot cover the fixed costs when the business model is properly designed.
In this case, if you want to make an argument that the value of the scarcities will always exceed the fixed cost (i.e., that there is always a profitable business model for an infinite good that’s given away), then you have to be very careful not to define “properly-designed business model” in a way that is tautological. To simplify, let’s say your assertion is:
“I believe all well-run businesses make money.”
and I say: well, what do you mean by a well-run business? And you say:
“A well-run business is one that makes money. Therefore, all well-run businesses make money. QED.” Then you’ve created a tautology: an internally consistent argument that nonetheless doesn’t prove anything.
What Mike wants to prove, I think, is that for every infinite good, no matter the fixed cost, there exists some business model that can extract more value from the associated scarcities than the fixed cost, thus allowing you to give away the infinite good and still make a profit.
I don’t know exactly how you go about proving this because of all the variables involved, but it’s an interesting idea nonetheless.
Why is this even a discussion?
I really don’t understand why anyone would argue that you can’t give away the news (or other content) to the public for free and still stay in business. Radio and TV have been doing exactly that for decades (close to a century, for that matter.)
Free! Summet
I was disappointed at the Free! Music Summit today – at the music panel when there was not ONE mention of Creative Commons or Jamendo Music – the world’s leading partners in free and legal music business models on the Internet. Wasn’t the panel title, “Music: Business Models That Work”. The only thing mentioned that worked was a post-punk 80’s band that sold 3x more t-shirts than they did three weeks earlier because they didn’t post the $15 price. Woop. woop!??? Mike – let’s get coffee and talk about Music and Free and Business!
Re: Free! Summet
I was disappointed at the Free! Music Summit today – at the music panel when there was not ONE mention of Creative Commons or Jamendo Music – the world’s leading partners in free and legal music business models on the Internet. Wasn’t the panel title, “Music: Business Models That Work”. The only thing mentioned that worked was a post-punk 80’s band that sold 3x more t-shirts than they did three weeks earlier because they didn’t post the $15 price. Woop. woop!??? Mike – let’s get coffee and talk about Music and Free and Business!
Hi Dan. I’m sorry that you felt we didn’t properly mention your company — but it’s not true that the only example was an 80’s band. Actually, we discussed many different bands, involving many different models (none of which were 80s bands…). I think you were confused first by the fact that Dave plays in Gang of Four with the fact that he’s working with many different bands, and the examples he gave were of those bands.
Also, I discussed some of the other models that have worked, and named a variety of companies, including BandMetrics, ReverbNation and others.
There really was only so much time in the discussion, and yes, it would have bee great if we had the time to delve further into other companies, but the feedback we got was that people wanted a discussion on the more general issues around music, not the names of specific companies.
“We’re saying that they’ll earn their money in a different way”
Like what? Got any ideas? Maybe they could sell T-shirts. I don’t mean to be flippant, but whenever people talk about “new business models” without explaining what those business models could be, it sounds as though the author is throwing up his hands.
The scary thing, to my mind, is that the type of models newspapers are likely to successfully adopt are those that capitalize on the benefits offered by the distribution of news. And who benefits from the distribution of information? Well, hopefully everybody, you and me, anyone who wants to know this information. But corporations stand to gain a lot more from the distribution of information (or lack therof) than everyday people, and they’re actually willing to pay to have this information distributed.
The newspaper of tomorrow, to my mind, has a good chance of looking like a newspaper with ads in place of all the articles. We’ll have news stories about the superiority of this year’s new automobiles compared to last year’s (sponsored by Ford), the rousing success of the latest government healthcare initiatives (paid for by the Federal Journalism Endowment Fund), and a human interest story about how much everyone loves Coca-Cola. Of course, it will all be free and widely available, as newspapers and sponsors alike will encourage bloggers to mention as many of these articles as possible. Welcome to the new Golden Age of Journalism.
The best part is, all of this will play to the human instinct that wants to believe that everything is alright, that society in general is in pretty good shape. True investigative journalists and bloggers questioning journalistic practices will be easy to dismiss as fringe radicals and propagandists, and the majority of people will go on reading their free newspapers, unaware of the value that’s been added.