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
    You know who...., 10 Sep 2008 @ 9:20am

    General response.

    Mike - I'm sorry for the drinking comment...not appropriate. That being said, I was surprised by a rather emotional reaction.

    Please understand that I'm sometimes playing devils advocate and looking for a debate rather than an argument.

    Here's the thing - I'm interested in the dialogue here, so I pose points and ideas and try to push the discussion deeper. What seems to happen in terms of responses on this forum however are emotional diatribes that insist that I'm just missing the point. I'm not - in fact I'm trying to take some of the ideas that you've posed and apply them to my own indie music ventures.

    What concerns me in these posts is clarity and logic - something I'm trying to push for in my questioning.

    For example I understand that it might be a good business model to distribute music files for free in order to gain more fans. But the question is - shouldn't the artist be able to choose if that's something they want to do? If I choose to pursue a different business model...isn't that my right (whether it's successful or not) - I think that's a debatable point.

    In general, file sharing, is like the mix tapes of old - I get that. People sharing music with friends and family and should listen to this...all very good for musicians. The challenge is that the mix tapes are now as good as the original - virtually indistinguishable if done right (right down to the packaging)

    But where is the dividing line between a "virtual mixed tape" and torrent sites that allow someone to download entire discographies? I think that's a debatable point.

    Sometimes I think that readers of this post confuse what Mike is suggesting in terms of a musician marketing themselves by encouraging free downloads of some of their music and passing it around to their friends, with out and out cheating the artists by simply snatching up files and never giving back (or maybe they are the ones that spend the most on concert tickets...who knows)

    At the end of the day - I'm interested in hearing and contributing to constructive dialogue, and I'd love to see more carefully considered approach to this forum.

    oh...and the bmw example...lousy ;o)

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