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
    Overcast, 9 Sep 2008 @ 11:53am

    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.

    Yeah, I'd agree 100% too - people do need compensated for their work. Problem with the RIAA and MPAA specifically is that - well, over the last 50+ years music has been 'free' over the radio. True enough, there was advertising; like on this site - you may not be interested in the products advertised here, but the continued existance of this site proves that somewhere, that business model is working, to a degree. I don't have a need for Techdirt's services directly, but they do have some tactful ads, that on occasion I will check out. Intent to buy or just out of curiosity; I might click on them.

    Like the BMW commercial - I may watch it out of curiosity, but buying one isn't something I'll do anytime soon.

    I do think the current model with music online needs some innovation alright - it won't work either way it exists now. First off, if it's all free; who's going to devote time to starting a band, much less making music. Unless it's out of sheer personal desire - even then, we'll end up with a LOT less content.

    But on the flip side - people know how much of a rip-off a CD is, there's an alternative now.

    But in the end - the RIAA is simply *not* doing it's job - it's job; I suspect is to work for the best interest of the artists - that's one thing they are not doing; they are working to keep an obsolete business model viable. Maybe - what the RIAA *REALLY* needs - is some new management and new blood, the artists should demand it. Obviously, in it's current form - it's fighting a loosing war and doing nothing to change it's strategy.

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