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
    Keith Jolie, 9 Sep 2008 @ 2:32pm

    Re: Re: Free doesn't always work, Mike

    Not at all. I've talked about how this applies to almost any industry.

    Actually what you've done is used a lot of rhetoric, but you've never once described a business model that would work (and let's just stick with the music industry to keep it simple) for the majority of musicians.

    Tell that to Google, which made quite a business out of free software. And IBM. And Red Hat. And MySQL. Should I go on?

    Google makes it's money on advertising (like you do I assume) - If every musician sold it's music by placing ads on their website, then soon ads on websites would no longer be a scarce good - they'd be screwed and your income would drop as well. Advertising is not a business model that works for everyone. IBM, well they've sold just about everything - and they definitely don't give away their software...not sure where you were going with that. Red Hat and MySQL sell software support - when's the last time you needed support to play your music? I can't think of a meaningful parallel to a musician.

    All of them figured out ways to make software free and make plenty of money while doing so.

    Technically only two of them (Red Hat and MySQL give away software for free) The others plain don't.

    It's not at all disheartening if you have the right business model, where each of those "free" copies acts as advertising and promotes your real business model.

    Using this analogy - BMW dealerships should be happy if most people stole their cars in the hopes that they would get their oil changed at the dealership.

    Who ever suggested that? Why do you assume that t-shirts are the best scarce good? That's ridiculous.

    Actually you did use that as one example a while back...

    Stop mixing up "tangible" as the only "scarce" good. Google doesn't sell anything "tangible" but it makes a TON of money giving its software away for free.

    Google doesn't give away software - if you could download all of Google's applications to your local machine their business model would fail - they let you use their web applications for a fee (viewing the ads on their site)

    Then you put in place the wrong business model. That's not my fault.

    No - but your arguments in this vein have been heavy on rhetoric and shy of working examples.

    You have mentioned musicians (Jill and Trent) that have tried alternative ways of making money, but they are well known artists that have a dedicated fan base in place already. They have sold their music, and made a profit, in the traditional way and now they are using these business models as a way to drum up publicity. But do you see the rest of the musicians in the world saying "wow...hey...we had it wrong." fact I'm curious to see if Trent releases another album pay as you like, or free.

    The most creative way you make money on this site (and I love the model by the way...genius..I might steal it) is selling the expertise of a number of people in the readership and inside circle of this site - what if there was unfettered access to the group? what if I found a way to hack into your systems and get free advice from your contributors? I'd just be breaking the DRM on your site. What if I then took that information and published a free ebook that gave that advice to anyone that was in a similar situation for free? Then I might say to you that your business model was flawed.

    intellectual property, created concepts, books, music - they all have value to society. The issue isn't so much to do with business models and correct models vs. incorrect models. It's about the future of art and culture and creativity. Ideas if you will.

    should ideas have merit and worth or not - and how should we pay for them.

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