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. icon
    Mike (profile), 10 Sep 2008 @ 4:56am

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

    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.

    Yeah, tell that to Maria Schneider, a virtual unknown who used the model to make plenty of money.

    And when I posted that story people said that the model might work for "unknowns" but would never work for big names.

    Now you claim the opposite? Huh!

    EVERY musician starts out unknown. How do they get attention? They promote their music?

    What's a good way to promote their music? Hey, give it away online! And then you build up a nice audience for all those ancillary markets you claim are impossible.

    You claim you're not trolling but to make a statement like that suggest you must be trolling.

    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?

    Um. And this is different from how things work now how exactly?

    Except, with the "old" model, musicians couldn't leave their day jobs until they got signed to a big label with a big advance. With this model, it's much easier.

    So how is that a bad thing?

    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.

    Yet there are more independent developers out there today than at any time in the past. Something doesn't add up in your statement.

    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.

    You clearly do not understand what I have written, because this is completely wrong. If you think that the infinite good is the only thing that can be sold you are sorely mistaken, and it explains why you've had trouble in business before. You're selling the wrong thing.

    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?

    *sigh* Which part of give away the INFINITE goods and SELL the scarce goods did you note get?

    If A, B, C, and D are all infinite goods, then you're doing the business model wrong. Find the scarcities! It's not that hard unless you're being willfully blind.

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