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

Reader Comments

Subscribe: RSS

View by: Time | Thread

  1. icon
    Mike (profile), 10 Sep 2008 @ 4:50am

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

    Once again, you are missing the point. Each one of these companies has other venues which makes up the cost of giving away free software, Mike.

    And, um, why do you assume that other businesses also don't have other venues?

    IBM sells hardware. Red Hat sells expensive customer support and Sun also sells hardware. In this example of "free", the cost is made up elsewhere.

    Yes. That's the WHOLE DAMN POINT. You make up the cost elsewhere.

    You still haven't even touched base with the small business owner trying to offset the pirating out there who doesn't have much to spend on tangible goods.

    Um. Sure I have. I've explained it over and over again. And it's NOT "tangible goods" it's SCARCE goods. There's a difference.

    And EVERY business has some scarce goods that are made more valuable by infinite goods. Above I gave a very specific example that I guess you chose not to read:

    And this is where you fail to understand the digital side of a business, Mike. Developers time, resources, and attention are not things developers want to focus making money on. Why should we have to sit and ponder if our app isn't sufficient when it's much better to encompass an application for global use?

    Who said the developers have to focus on it? That's what business people are for.

    Mike, Google's tangible good is the advertising structure it's built to generate the revenues in order to give away the free software. Certainly you're not overlooking this, right?

    It's *scarce* not tangible. And, no, I'm not overlooking it. Again, it's the WHOLE POINT. I'm confused as to what point you think you're making, because this point AGREES with what I'm saying.

    By the way, re-read your blog regarding EA's decision to encompass DRM for "Spore" and tell me how this company will feel if everyone just stole the game especially after having to change its earnings forecast because their latest Harry Potter game had to be delayed.

    Can't be making the shareholders too happy.

    What shouldn't make the shareholders happy is EA making a braindead decision to be anti-consumer such that it would drive away a group of potential buyers. Look at the example of Stardock, which I linked to in that thread as well. It's ridiculous to think that EA can't make money if they got rid of the DRM. Stardock proves how ridiculous it is.

    So I'm not sure why you think that without DRM their shareholders would be upset. As long as they had a reasonable business model in place, their shareholders would be a lot happier -- because they'd be making more money and not having thousands of fans trashing the game online.

Add Your Comment

Have a Techdirt Account? Sign in now. Want one? Register here

Subscribe to the Techdirt Daily newsletter

Comment Options:

  • Use markdown. Use plain text.
  • Remember name/email/url (set a cookie)

Follow Techdirt
Special Affiliate Offer

Report this ad  |  Hide Techdirt ads
Essential Reading
Techdirt Deals
Report this ad  |  Hide Techdirt ads
Techdirt Insider Chat
Report this ad  |  Hide Techdirt ads
Recent Stories
Report this ad  |  Hide Techdirt ads


Email This

This feature is only available to registered users. Register or sign in to use it.