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 @ 6:58pm

    Re: Re: Re: General response.

    I would say that based on the opinions expressed in this forum, copyright laws are already the subject of debate - which means there are people on both sides of the argument, and various positions on both sides. That's the nature of debate. Debate is the basis of democratic systems that employ laws to enforce a decision made by elected representatives of the public at large.

    Huh? You very specifically claimed that I was encouraging people to download stuff for free. I don't see how now claiming it was just some rhetorical discussion helps your case.

    If the law states that something is illegal - then it is. period.

    And, not a single thing in this post had anything to do with an illegal action. It was all focused on using free to your advantage.

    If you disagree with the law, then your legal recourse is to re-kindle the debate in hopes of having the law amended. Until such time as the law is amended - it's the law.

    Indeed. And we have some of those discussions here as well, though not in this post. But you seem to be assuming, incorrectly, that because we may challenge a law elsewhere, that we are saying it's okay to break it.

    That's simply untrue.

    Because of that law, musicians have the freedom to choose their business model.

    That's like saying, because of gov't granted sugar monopolies, sugar plantation owners have the freedom to choose their business model. It leaves out all those hurt by this gov't granted monopoly.

    Adam Smith explains quite clearly why monopolies hurt -- and folks like yourself 225 years ago argued back that gov't granted monopolies were great because they enabled business models.

    But what they missed was what opportunities were foregone by the gov't, rather than the market, making that choice.

    When a gov't interferes in a market, the end result is less efficient. That means a smaller market for everyone.

    Without some sort of law that protects their content from free and unmitigated distribution - there is no real choice as it relates to this specific business model.

    No, there are tons of choices. We don't require a specific business model. We just explain the economics, which allows business models.

    You seem to think that as long as the gov't creates a business model then that doesn't have other unintended consequences. You should look at the history of every time the gov't gets into a market and regulates a business model. It distorts the market and harms consumers.

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