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), 9 Sep 2008 @ 12:49pm

    Re:

    Mike certainly you aren't so naive to believe that BMW ever intended to make money off of the "content".

    I never suggested anything else. Why do you think I did?

    The commercials are promotional materials used to sell VEHICLES. You are comparing apples to oranges, musicians, programmers, and visual product producers MANUFACTURE content, not physical objects. As a programmer I don't care what means a person uses to load my program I am only concerned that they pay to use the program.

    No. It's not apples to oranges. The very point is that the infinite goods are ALWAYS promotional materials to sell some scarce goods. BMW has the model correct: using entertaining videos to sell cars. Many musicians, programmers, etc. have the model wrong: trying to sell the promotional materials instead of the scarce goods.

    The business model you so frequently cite involves musicians not not making money from their music but instead making money for their performance.

    No, that is incorrect. It's difficult to respond when you clearly have not read what I have written. The model I have described involves musicians making money from their scarce goods. Performance is *A* scarce good, but hardly the only one. Trent Reznor made millions from selling a scarce good (limited edition, signed box sets) that has nothing to do with touring, even though the music was given away free. Jill Sobule made plenty of money with a model that didn't focus on selling the music or touring, but on getting people to pay her to create the music.

    Touring is *one* of many possible scarcities that a musician has.

    But what about musicians who are unwilling or unable to perform?

    As I pointed out (and have pointed out repeatedly in the past) there are many other models.

    Also, while there are plenty of other business models available for those who choose not to tour, there is a part of your question that could be read the same as: "But what about the guy who doesn't want to work? How is he supposed to make money?"

    If I produce the content I should have the ability to determine how it is marketed and what business model I will use to generate revenue - not the consumer - it's content that I created that would not exist otherwise.

    I would suggest that you learn a little bit about how capitalism and markets work. It's the market that decides what business models work. Not the producer alone.

    If I ever read another comment alluding to the fact that "content" is not a scare good I will NEVER come back to this site.

    Stating that you wish to be willfully ignorant is kind of odd, don't you think? I can't not write about something that's true, just because you want to stick your fingers in your ears and pretend it's not true.

    Just because we have many sources of music does not mean we have an unlimited supply of GOOD music.

    And again, you have shown that you have not actually read what I wrote.

    I never said that there was an unlimited supply of good music. I said that a song, by itself, is an infinite resource, and there are business models to take advantage of that. While I can see how you might read that quickly and mistakenly assume that means what you wrote, it's clearly a misinterpretation.

    Stop undermining the contributions that the artists make by implying that they are a dime-a-dozen.

    I would NEVER suggest such a thing. Good musicians are few and far between. That's why I'm trying to HELP them by explaining the basic economics of the marketplace, so that they can do better by them.

    Everytime you say something that stupid you lose more respect from your audience.

    Well, most of the audience seems to disagree with you -- in part, because they seem to have actually read what I wrote, rather than the strawman you seem to want to knock down.

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