Free Does Not Mean No Business Model

from the repeat-after-me... dept

As we get ready for The Free Summit, I was thinking about some of the recent posts here on Techdirt, and realizing a really common fallacy that seems to destroy all debates around "free." It's the implicit assumption that "free" means no business model. We saw it with law professor Justin Hughes' defense of copyright in The Economist debate over copyright, where he states:
What we have now is a mixed economy for expression in which some expression is produced under a patronage model (foundation grants, universities), some expression is produced under the open source model (Linux, blogs), and some expression is produced under a profit/incentive model of copyright.
And we see it when David Simon goes to Congress and says:
It costs money to do the finest kind of journalism. And how anyone can believe that the industry can fund that kind of expense by giving its product away online to aggregators and bloggers is a source of endless fascination to me. A freshman marketing major at any community college can tell you that if you don't have a product for which you can charge people, you don't actually have a product.
Both of those statements are based on the implicit assumption that "free" means "non-profit" or "not a business." Yet, nothing is further from the truth. Free has always been a part of many business models, and when most supporters of "free" are talking about isn't that content creation and journalism go to an "all amateur/all non-profit" model. No one is saying that at all. We're saying that they need to learn to embrace other business models rather than rely on copyright as a kind of crutch.

When you've been relying on that crutch for so long, you forget that you have two legs of your own and can make do without the crutch. We're seeing it all the time, with content based business models that don't rely on copyright which have been shown to be more successful than the old copyright crutch business models. There are lots of ways to make money that involve "free" as a part of the business model.

So, from now on, whenever you see someone arguing against free, and implicitly assuming that "free" means there is no business model, correct them. Let them know that they're arguing against a total strawman. No one says the professional class of content creators or journalists is about to go away. We're saying that they'll earn their money in a different way, and it won't rely on charging directly for their content, but on other goods that their content makes much more valuable.

Filed Under: business models, free


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  1. icon
    Derek Kerton (profile), 11 May 2009 @ 3:55pm

    Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Unaddressed Assumption

    "I'm placing a little more faith in the professors I studied under than yourself."

    No. You're placing faith in *your understanding and recollection* of what they said, as we all do when we cite our education.

    So, here's a refresher course from free online material. I'll cite a work by Dr. Shane Cabonneau, University of Texas at Austin - Department of Economics. All I can get for free is this abstract of his work:
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=594442

    in which the abstract says:
    "If there is price discrimination, at least one of the prices is not equal to marginal cost. Therefore, if there is price discrimination, there must be market power. While this logic is sound"

    Now, sadly, I couldn't find any quotes for free that directly proved you wrong. But this U of Texas prof quoted above implies that in cases where P MC, we are not dealing with a competitive market. Since I referred to a competitive market, the U of Texas prof supports me, and disagrees with you. That's your school.

    Keeping with the U of Texas theme, I would direct you to this Sophomore economics exam from the U of T.
    http://www.utdallas.edu/~ixm024000/ECO_2302/Resources/s06_prac_exam2_eco2302.pdf
    Please note in particular questions 9, 12, 16. But most importantly, have a go at Q18. You ARE right, the U of T does appear to have a quality economics education on offer. Only it is Mike and I who seem to understand the course material, not you.

    You see, in competitive markets (which is the case I stated at the top of the thread), MR = Price, and the market supply curve is the MC curve. The market clears at MC = MR = P. Average cost is irrelevant to price. This is the point I stated, and you disagreed. Here's a refresher course (with graphs and visual help) from the University of Maryland.
    http://umbcnotes.f-sw.com/econ%20101H%20notes/Chapter%2014%20Lecture%20Outline.pdf

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