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
    Twinrova, 9 Sep 2008 @ 12:09pm

    Free doesn't always work, Mike

    "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."

    Wrong. We're freeloading off the consumers who purchase BMWs, Mike, because they're the ones paying for the "free" content.

    BMW doesn't make software. It makes automobiles. The "free" model only appears to be free but you can bet if the advertising costs increase, we'll see one of two things:
    1) Less ads by BMW
    2) Increased prices of tangible goods

    NO BUSINESS will ever survive if the money spent exceeds the money earned. That's just common sense. To think "free" exists is absent minded because nothing is free. It's made up somewhere.

    Your examples of musicians giving away free music is proof of this. Give away the music for free, but make up the costs in concerts, tshirts, CDs, and any other tangible "scarce" product. This restores the revenue lost on the "free" content.

    What you fail to target is the digital media industry. Programmers, developers, graphic artists, and others struggle to find a market without overcharging consumers to remain competitive. It's truly disheartening seeing your hard work being "freely" distributed on the web. Each application shared is one less meal on the table. One less gallon of gas. One less necessity to keep the business going.

    Digital designers often create freeware to help get customers to purchase other items, usually at or below production costs to remain competitive. It's how they advertise (and keeps the costs down).

    If you think for one second digital designers are going to sell tshirts to make up for the loss of these damn thieves, you're not thinking clearly. Why should digital designers have to invest in tangible goods because an idiot is distributing the software/item for free?

    That's just wrong. If you rip a CD for yourself, knock yourself out. But the moment you put it up for others to get for free, you're an asshole who deserves to be shot in the head.

    Digital designers can't afford to put everything they do on the web for free because there are no tangible products to make up for the freeloaders who think it doesn't hurt anyone.

    I'm sorry I don't agree with your free business model, Mike. I've been there. I've tried it. It failed in the long term because people always prefer 0 cost to paying, even if asking politely to contribute any amount for future upgrades and other applications.

    Maybe if I had sold tshirts on the side, eh?

    Free doesn't exist and when you get this through your head, you'll understand completely why so many businesses are out to protect their IP.

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