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 @ 10:57am

    Re: General response.

    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.

    Please point to a single example where I did not back up the "you're missing the point" statement with either a more detailed logical explanation or a link to one.

    I'm all for a dialogue, but I find it tiresome to respond to a dialogue where someone shows up, argues that I said a bunch of stuff I didn't say, and clearly has not bothered to read what I have actually said.

    You ask for a dialogue? Fine. I'm more than willing to dialogue. But I'm not going to stand for you setting up a strawman mike and whacking him down. If you want a dialogue, first read what I actually wrote and respond to that.

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

    If that were the case, then you would have questioned the actual logic I used. Not some made up logic of a strawman.

    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?

    I have never said otherwise. Again, you are implying I have.

    The musician is free to choose, but MY POINT is that the basic economics are clear, and if they choose the old way, it's not going to work. So I'm explaining why embracing these economics works to their advantage.

    Your retort is that I'm saying they don't have a choice. And, economically speaking, they don't. The economics and the market will determine that. But that's different than saying that it's okay to infringe on copyrights. I have not said that, and since it appears your entire retort is based on that, I have a hard time responding to this seriously.

    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)

    Actually, file sharing is quite different than mixtapes of old -- and that's part of the point. Mixtapes weren't infinite. You're still missing the point if you're complaining that file sharing is as good as the original. Since it can be used as a FREE promotional good, that's exactly what the band should WANT.

    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.

    Other than the fact that no one here is debating it. Again, you're shifting the entire discussion to one about unauthorized file sharing. Which is not what we're discussing. We're discussing business models for the content creators to embrace.

    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)

    First of all, did you read this original post? The point is that it doesn't matter if some of the folks never give back.

    Second, why are you now blaming me for the fact that you and others seem to have misinterpreted what I said?

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

    Yet, as noted by the commenter above, you still don't seem to understand the analogy. It's not lousy at all. Again, focus on the scarcities and the infinite goods and it lines up perfectly.

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