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
    bowerbird, 9 Sep 2008 @ 3:33pm

    let's not confuse micropayments with tipjars.

    if you charge a small fee, it's a micropayment,
    especially if it's _required_ before delivery.
    and yes, that's a huge step away from free,
    even when the charge is a very small amount.
    it also reinforces the current "must-pay" model.

    but that's different from being _willing_
    to accept very small "tips" from your fans,
    _after_ you provide something to them freely.

    that is a "gift-exchange" model, because the
    act is completely voluntary in both directions.

    if one million people are _willing_ to "gift" you
    a penny every month, it's foolish not to take it.

    (it's also foolish to say "wait until it accumulates
    into an amount making it 'worth' the transaction."
    even after 3 years, that'd only be 36 cents/person.
    but yet it adds up to a monthly chunk of $10,000.)

    that's the reason we need a micropayment system,
    so you can collect one penny from a million fans.

    (it's easier to get a million people to give a penny
    than to get 1,000 "true fans" to give you much more.)

    cory might be able to turn up his nose at those
    very small donations because he has enough people
    who are willing to give him much bigger donations.

    (and make no mistake about it, he is _very_ eager
    to accept, and encourage, those bigger donations.)

    but i'd much prefer to "spread the wealth" _wider_,
    rather than concentrating it in "bigger" donations.
    so i'd rather give a penny apiece to _2,000_ artists
    than spend $20.00 buying cory's book for a library.

    we can turn our society into a gift-exchange model,
    one that fertilizes a broad diversity of artists, but
    we need to give people a way to gift small amounts.


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