You Don't Need To Make Money From Every Person Who Enjoys Your Product

from the it's-called-advertising dept

One of the points of contention we sometimes have with those who disagree with us about the role of free in a business model, is how you deal with the issue of "freeloaders." People often respond to our posts on business models that use free to point out that many people who get the content will never pay, and thus the business model is somehow a failure. Amusingly (and, perhaps, tellingly), most often these sorts of comments come from individuals who insist that they, themselves would never pay -- and basically suggest that copyright and artificial scarcity is necessary to protect artists from folks like themselves. But that's missing the point, entirely. The point isn't to get everyone to pay. In fact, it need not be to get the majority of folks to pay -- it's to build up your audience so that it's big enough that when you offer a scarce good of value, enough people do pay for that good. In such a world, the "freeloaders" aren't a problem -- they're simply providing free advertising.

Another way to think about it is that BMW creates some entertaining advertisements -- and plenty of people enjoy those ads without ever buying a BMW. Yet, those same people don't complain that folks who watch BMW ads without buying a BMW are "freeloading" off of BMW -- despite the fact that they are. Instead, they understand the nature of advertising is that not everyone buys the product that's actually for sale. In fact, a very small number of people may actually buy the product, but that's okay. It's not freeloading, it's just the nature of a promotion.

Cory Doctorow has taken this concept a step further in explaining yet another reason why micropayments aren't the solution for content online:
I don't care about making sure that everyone who gets a copy of my books pays me for them -- what I care about is ensuring that the everyone who would pay me decent money for a book has the opportunity to do so. I don't want to hold 13-year-olds by the ankles and shake them until their allowance falls out of their pockets, but I do want to be sure that when their parents are thinking about a gift for them, the first thing that springs to mind is my latest $20-$25 hardcover.
We've long pointed out plenty of reasons why micropayments aren't a real solution for the "online business model" question surrounding content, with most of the focus being on the mental transaction costs, and the fact that competitors will always beat micropayment solutions by eventually embracing business models using free, but Doctorow makes another good point about the failure of micropayments. Beyond the reasons we've discussed in the past, micropayments also focus too much on shaking the pennies from every passing individual, rather than recognizing the real win is in getting someone else to spend more on a bigger scarce product down the road.

Filed Under: business models, cory doctorow, freeloaders, micropayments, promotion

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  1. identicon
    Twinrova, 10 Sep 2008 @ 4:31am

    Re: Re: Re: Re: Free doesn't always work, Mike

    "Uhmn, there are multiple articles on this site about small time bands who owe their entire existence and revenue to pirating as a form of advertising.
    so it works for the small bands as well. this is a refrain we've talked about. It seems to work for everyone that's appropriately implemented it, but it isn't enough for you...
    again, thhe t-shirt is only ONE example of a scarce good. please. stop idiot-trolling mike just because you can't be bothered to read and understand."

    First, I'm not idiot trolling Mike. My replies were pretty much on point.

    Second, the "free" model works well in the music industry if, and only if, the artist is well known enough to make revenue in other venues. The Little Mary Chainsaw Group*, starting out, isn't known enough to create tangible goods, so they're not a revenue generating business just yet. Sure, they'll have to give away their music in order to get started. Want to bet the band members have additional jobs to keep eating?
    *Made up name - used as example only.

    Third, I wasn't talking about the music industry and if you're going to accuse me of not reading, take your own advice. I'm talking about digital designers, not musicians.

    Most designers start out with themselves. Common sense. Most don't have a support team to pay in order to charge for customer support (which is the largest load of crap to do to your users to begin with). Most strive on getting a fair amount for the work put into the application knowing it'll return the cost in revenues for the business using the software.

    The problem is the freeloaders who want to circumvent spending a damn penny in lieu of free. Why do you think major corporations are turning on to Linux? Oh, because it's free, that's why (well, there are other benefits but the primary one is it's free).

    Bottom line here is that as a digital designer, it's much more difficult to generate revenue unless the focus is on specific platforms, which isn't good down the road as platforms change.

    You don't think I don't understand what Mike says and it's an incorrect assumption. From day one, I get his point and it does merit usefulness in businesses which can offset the free giveaway. But for other business ventures who rely on the sole product, giving it away for free isn't the solution. I'm sure he understands this, but if that product is digital, by the "free" model, another product must be created to remain in business.

    To summarize for you: If I wrote app "A" and gave away apps "B, C, and D" to get consumers to pay for "A", how do you think I'll stay in business when those very same people I gave "B, C, and D" to start pirating "A" from me?

    Think about that long and hard before you answer.

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