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 @ 8:46am

    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. 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.

    as mentioned by mike, most musicians start out this way. but why would people want to buy it or local venues want to pay for them to come if they don't give away their music so people can hear them in the first place?

    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

    charging for customer support is NOT only one way people like me can make money. I get people to pay me to write the programs in the first place, or add features onto programs I wrote before. I then use my portfolio of programs that I'm willing to give away to attract more people who need my services as a developer. There are a LOT of scarce goods related to software development, many of them revolve around either the hardware involved or the time of the developer/support team.

    . 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.

    yes that is correct. Many MMO games give their game (infinite good) away or sell at a reduced price in order to get people to pay for a subscription to their servers and regular content creation (both scarce goods)

    others focus on stuff that you get in addition to the game. collector's edition games are a good example. in the old days when you bought a game it came with a manual that was more likely than not set up to be in theme with the rest of the game. they would come with things that might be part of the game world, the newspaper or magazine bit was very common. they might also have key-rings, necklaces, cloth maps, or other things that set the tone of the game and draw a player more into the experience. these are also scarce goods, people can't just download a custom made manual that feels like a ravaged survival guide, all they can get is the text. they can't download the extra little trinkets either.

    look at Fallout 3, if you preorder that game from certain places you get a poster and a music CD that is designed to look exactly like an old record, it does a pretty convincing job. then if you buy the special edition you get a lunchbox, a bobblehead, and a hard-cover book of concept art. all of that is a scarce good either because of the material nature (lunchbox, bobblehead, book, poster) or because of the presentation or experience (music CD).

    many people out there are willing to buy a game instead of copy it just because it has these kind of things, some are willing to pay just because it has a high-quality manual that goes beyond just telling you how to play the game and attempts draws you into the world while telling you how to use the game

    if a software developer gives that kind of cool stuff away when a person buys their game less people will want to pirate it in the first place. where developers when wrong was getting rid of all that cool stuff (many even reducing it down to just the CD with only an electronic version of the manual) to get more shelf space.

    eventually it turns into people thinking of the game (infinite good) as free, but they are willing to pay for the cool merchandise and the experience that the creative documentation provides (scarce good). that is not to say that you can't still have a cheaper version without that stuff that people can buy, just that you are really selling the cool swag they get and that less people will care about just copying that game and then the small people who will pay, but don't care about the swag can get a cheaper version with just the disc or digital download. if you follow this style of model you can still "lose" some sales due to copying but because of word-of-mouth you can gain more sales from buying who see their friend play it and then want to pay for the game or all the cool swag.

    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?

    you're doing it wrong.

    if you don't want to deal with physical goods at all then you need to start marketing your services. it takes time to write a program. get people to pay you to write it. ask fans of their previous work what they would like to see in your new version or what kind of programs they would like to see. once you find out what the big ones are say something along the lines of "I can do that, but it will cost you X amount* for me to make/implement that". everyone has their nitpicks about software they use, many are willing to pay to have it fixed or be made optional. many people have dreams of a piece of software that will make their life easier. the job of an independent developer is to seek out those people and show proof by way of previous programs (infinite good) that they are competent and able to write the new program that is wanted (creation is a scarce good).

    *(either individually or collectively among all your clients is up to the developer)

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