I read an interesting post about “Free” as a component of a business model. I encourage you to go read the whole post on Techdirt, but the bit I’m interested in is here, where Mike Masnick presents, and then disagrees with, an argument against the use of “free” –
Unfortunately, both Pogue and Poole then use this to bash the entire concept of free-based business models, with Poole getting unnecessarily offensive in his response:
“I’ll call it, for short, “the Slashdot argument”. It says that books, music, films, software and so on ought to be freely distributed to anyone who wants them, simply because they can be freely distributed. What is the writer or musician to do, though, if she can’t earn money from her art? Simple, says the Slashdotter: earn your money playing live (if you’re one of those musicians who plays live), or selling T-shirts or merchandise, or providing some other kind of “value-added” service. Many such arguments seem to me to be simple greed disguised in high-falutin’ idealism about how “information wants to be free”. Perhaps it’s not empty pedantry to point out that “information” doesn’t want anything in and for itself. The information in which humans traffic is created by humans. And most information-creating humans need to earn dollars or yuan to survive.
While I’m sure there may be some Slashdot-types who may make this argument, it doesn’t mean that it’s an accurate representation of the more important discussion of these business models. The main problem is his use of “ought,” as in people saying things “ought” to be free. It’s not that things ought to be free because they can be free — but that things will be free because that’s just basic economics. Price gets driven to marginal cost in a competitive market, and the reason it happens is because others do learn to put in place business models that work, and then if you’re the lone holdout, people start to ignore you.
When you unpack this, I think there are really two claims that Mike is making:
- When the marginal cost of something becomes close to zero, economic forces will make it impossible to charge money for it.
- Digital goods qualify as “something close enough to zero” that economic forces will make them free.
I’d agree with those statements if humans were “homo economicus” (rational beings that always behave in their best interest), but we’re not. The value of something is what people will pay for it, which is based largely on what people feel it is worth.
People will pay for digital goods. What’s the marginal cost for Flickr to add a new Pro account? Zero. What do people pay? $25/year.
Almost free and free are totally different things, and if you take the cost of almost nothing and multiply it by millions, you end up with a big cost. You need to be able to sell a lot of other stuff to make up for the cost of giving things away free.
You’re especially in trouble if your product goes rotten (old news), and it requires scarce goods (work) to create the abundant goods (digital news).
If that’s your production method, the real cost of your “free” product isn’t all that close to zero after all, which throws a huge wrench into the idea that market forces will force the market price to $0. It won’t do that if at a $0 price point, all news companies go out of business.*
Again, it’s not a matter of “should be free,” it’s a matter of economics; if the real cost of producing it turns out to be noticeably higher than zero (and I’d argue that it is), then it won’t be free.
The really scary thought is that even if the news business can make good money selling people’s attention to advertisers, partners, and data companies, then the business isn’t about selling news anymore.
And, well, there are much cheaper ways to build an audience that will support the real business (selling ads, events, who knows what else), and then the need for news as a method for building an audience goes away.
Worse than that, those organizations that try to use news as an audience-building method will find themselves at a terminal competitive disadvantage to those organizations that use cheaper audience-building techniques.
In a sense, the news industry has been using “free,” for decades, since subscription fees barely factor into print revenue – the real killer is that the cost of a newspaper’s true product (reader attention) has plummeted as the supply of attention-grabbing-material has blossomed.
What’s the answer? You change tactics and build a business model selling digital goods. If you really care about the news and not just the ads, then forget large audiences. Build a product that appeals to a smaller number of people in such that they will pay for it.
“Give it away and pray” is not a working business model. But for the news business, neither is “give it away for free and make money on the ads.”
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* I’m well aware that many content producers on the internet are making money by selling ads against free-to-the-consumer content. That seems quite possible for small operations, but I don’t think it will ever scale well, and I do think that a significant portion of the news necessary for democracy requires a certain amount of scale to produce. ( return )