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 @ 3:56pm

    Re: Re: Re: Re: Flawed analogy

    Great, so as a musician you would have me record and release free music until there are enough people that are willing to pay a certain amount of money to subsidize the recording of the next song (which I then distribute for free I would presume).

    How do you think most musicians work *today*? They come up with some songs and try to get some live gigs. They often will try to self record some songs, put them on MySpace, etc. SO they're ALREADY doing most of that.

    But then what we're saying is to put in place a BETTER business model on top of that.

    Human nature being what it is... at some point the people that contribute money to my recordings are going to say "hey...this sucks...I keep giving my money to this guy, and he then gives it to everyone else for free!"

    Well, if you understand real fandom, that wouldn't be an issue. What sort of fan are you if you're upset by something as ridiculous as others getting to enjoy the music you love? Bizarre.

    But, more to the point, the model isn't to give those fans nothing. It's to give them EXTRA VALUE that the non-paying fans can't get. Private concert. Early access to new music. Access to the musician. Signed CD. Whatever. Give them a REASON to pay, not just beg for payment.

    This isn't hard.

    But they come to my concerts. great. What if there are 500,000 fans but no more than 5 fans in one city?

    Then you do what Jonathan Coulton does. He keeps giving away free music until enough people in a single city agree to come out to a show -- and then he books a show there.

    Again. This isn't hard.

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