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
    Michial, 9 Sep 2008 @ 11:45am

    Re: Re: Re: Re: Always talking free let's put it to the test

    I never said I would not pay Mike if I incorporated his Business model into my business. I said that if we found common ground which I assume would have a monetary incentive as part of that.

    There is little on here that I would pay for. There are no banner ads that are of intrest to me, and not a single product advertisment that is needed for me. If I saw a banner ad for a product I needed I would click on it and Mike would get his pennies for that action.

    I keep coming back in hopes that someone will convince me I am wrong. But all I find is ranting about the music industry.

    I agree with the posts that the RIAA and MPAA are doing way more damage than good, I agree that the music industry has not kept up with technology, but I do not agree that there is even the vaguest argument that music should be made available for free. I will never agree that software should be free and "services sold"

    There are a limited number of software products that would benefit at all from a free distribution system. 90% or more of the software industry are products designed for a specific purpose and have limited customer bases.

    Software such as Operating systems, database servers, Accounting packages etc would have an aftermarket where customizations and services exist. Software such as Word Processors and Spread sheets have markets for books and documentations so they would work. These are a limited and very small section of the software industry.

    As software becomes more specialized it has a smaller customer base and depending on the market that it's intended for may not have any need or use for aftermarket services making the only source of revenue the initial sale for the author.

    No author should work for free unless it's their choice, there is no such thing as being better for the masses when the performer is starving to death.

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