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 @ 3:51pm

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

    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.

    Um, what? We've gone into great detail to explain the economics of the model, how it works, AND shown examples of musician, small big and large putting it into practice.

    How can you possibly say that it wouldn't work for the majority of musicians?!? I'm stumped.

    Google makes it's money on advertising (like you do I assume)

    No, actually, we don't, but nice try.

    Google using an infinite good (information) to sell a scarce good (reader's attention). Their software is free to use.

    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

    Huh? I never said to put ads on their website. I said use the infinite good (the music) to sell the scarce good (access, concerts, the creation of new music, etc.).

    Seriously. It's difficult to respond to you when you seem to not be responding to what we actually wrote.

    Advertising is not a business model that works for everyone.

    I never said it did. I said the business model is using infinite goods to make scarce goods more valuable and selling those scarce goods. That can be advertising, but it need not be.

    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.

    IBM has been one of the biggest contributors to Linux and open source software, and uses it (infinite good) to help make its scarce goods (services and consulting) more valuable.

    Red Hat and MySQL sell software support

    Red Hat and MySQL use infinite goods (the software) to make their scarce goods (support) more valuable.

    Notice the pattern yet?

    I can't think of a meaningful parallel to a musician.

    Then you're not thinking very hard. All of those business models involving freeing up an infinite good to make a scarce good more valuable. Musicians have both infinite and scarce goods.

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

    When's the last time you paid Google to do a search? Oh right.

    IBM has contributed a ton to Linux.

    You are simply wrong here.

    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.

    Ok. Seriously. Think before you type. The focus is on INFINITE goods and SCARCE goods. A car is a scarce good. Taking that is stealing. But spreading an INFINITE good acts as ADVERTISING. Learn the difference.

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

    Read what I wrote. I said why would you think t-shirts are the BEST model. T-shirts are ONE SMALL aspect that CAN be used as a PART of a larger business model. It's idiotic to assume that the business model I'm talking about is that you should just sell t-shirts.

    Did you not see the "best" in what I wrote, or are you being willfully blind?

    Google doesn't give away software

    And you PAY to do Google searches? Really?

    No one said the model is that they have to make their CODE available. The question is about are they using FREE in their model. And they are.

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

    Must I list out all the working examples we've seen? Just a few off the top of my head that we've talked about. Trent Reznor. Radiohead. String Cheese Incident. Jill Sobule. Kristen Hersh. Maria Schneider. Bob Schneider. Marillion. And that's without even looking. Honestly, how many *working examples" backed up with a complete framework do you need before you're convinced?

    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.

    Jill wasn't all that well known actually. And what about Maria Schneider? She wasn't well known, but she used this model to produce an album and win a Grammy.

    But do you see the rest of the musicians in the world saying "wow...hey...we had it wrong." nope...

    Tell that to all the musicians using ArtistShare, Sellaband, MySpace and others...

    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?

    How would you possibly do that, considering that the Insight Community only contributes insight when it's asked for. How would you "steal" the free advice, when our model is based on what we preach -- which is that we pay the people to *create* the insight. So you couldn't steal the insights, because they're not yet written. As for the content that is written, we leave that up to the individuals to do what they want with it. We don't "own" any of it.

    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.

    Go right ahead. Again, our model is based on GENERATING new insights. If you published an ebook using our content, you'd only help advertise our system. In fact, Dow Jones, one of our customers recently DID exactly what you said. They had used the Insight Community to generate some content for a conference, and then later decided to publish a free eBook around that content. That was great. It helped advertise the Insight Community. Fantastic.

    See? You can build a business model where "theft" isn't a problem. It's an advertisement.

    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.

    Yes, and the idea is that by UNDERSTANDING the economics behind the business models, you can create BETTER business models that allow for MORE ART and MORE CULTURE and MORE CREATIVITY. What an idea.

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

    You are confusing value and price. Take an economics class and then try again.

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