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
    Anonymous Software Developer, 10 Sep 2008 @ 8:10am

    Re: Re: Re:

    you are very close to the actual Idea. let us look at each party involved:

    the ad agency uses other ads it has made (infinite goods) as a way get more people to pay them to MAKE a new ad (the creation of an ad is a scarce good)

    BMW uses the ad that the agency made (which is an infinite good now that it has been made) to get people to buy their cars (the scarce good)

    the TV network uses the shows and ratings it gets (infinite good) to get companies like BMW to pay for an ad to be shown (tv-time is a scarce good, especially during prime-time)

    that is the whole cycle for the car industry. here is the one for musicians

    a musician uses the music he has already made (infinite good) to gain attention and fans who are willing to pay to see them live, for memorabilia, or to write/record more music (all three are scarce goods)

    smaller venues (local pubs/bars) will pay a band to play to the audience (giving away a small amount of a scarce good) to get more people into the building to buy food and drinks.

    larger venues will get paid by the band (whether up front or by a percentage of the ticket) for the use of their hall ( good places for having a large crowd listen to you rock is a scarce good). Many venues handle the the advertising of the event themselves (once again, giving away a scarce good) and use the attendance from previous events to draw more groups to use their venue.

    see how it works? It is "easy" not every will succeed, but it is easier to break into the market than before and highlights the basics of the business model being discussed here.

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