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Making the "Free" Business Model Work In a Tough Economy
Randy Savage writes "With venture capital on hold and advertising revenue down, the WSJ discusses where online business models might go. 'Over the past decade, we have built a country-sized economy online where the default price is zero — nothing, nada, zip. Digital goods — from music and video to Wikipedia — can be produced and distributed at virtually no marginal cost, and so, by the laws of economics, price has gone the same way, to $0.00. For the Google Generation, the Internet is the land of the free. '"
The business model is very simple: Give the product away and make it up in volume!
Joking aside, there has never been a better time for free products. As the strength of McDonalds and Walmart demonstrates, consumers are looking for the cheapest prices to help reduce their costs. Even consumers who are financially okay at the moment are reducing costs to prepare for any eventuality.
If you look at the market, you see a lot of giveaways that used to be unthinkable. McDonalds is doing "free latte mondays" to draw business away from Starbucks while Denny's is giving away a free Grand Slam breakfast to each visitor tomorrow in an attempt to push coupon books out to customers. (Thus encouraging them to think about the large and inexpensive breakfast they can get there.)
The key is that these businesses have solid revenue models that their giveaways promote. Web-based businesses are in a slightly tighter pickel. With advertising budgets getting slashed across the board, ad-supported websites are feeling the same pinch as print and broadcast media. Now is the time to find alternative revenue streams such as premium content to back their free services. Things like selling larger downloadable versions of free web games or state tax filings to go with free Federal filings.
These are potentially sustainable models in the Internet age. They preserve the free service concept and allow consumers to evaluate the product(s). Customers then have a difficult time not paying for Premium features or content with real value. The "real value" is the key, of course. Which is something the internet has been missing with its premium features. (Video Game DLC is particularly bad in this area.)
Javascript + Nintendo DSi = DSiCade
Let's face it, at some point, Cmdr Taco is going to find that magic combination of additional powers and price that gets us all to subscribe, and all that free will evaporate. I mean, if Slashdot had Karma coupons that we could all trade, we'd all be suckered in.
This is my sig.
from TFA:
> It's a consumer's paradise: The Web has become the biggest store in history...
Telecom companies implementing tiered service models, destroying Net Neutrality will fix that temporary glitch. While they are at it, lets hand-out to them some public bail out tax^H^H^H printed money for the privilege.
There is no "free" business model.
There are forms of benefit that don't come from giving objects in exchange for money.
This is exactly why the net needs a viable model for micropayments. And yes, I know, the abundance fan's response is that "money is obsolete, we don't need it any more"... People still want SOMETHING for their work, and while there have been all sorts of proposals, ranging from whuffie to all sorts of other trust metrics, micropayments would work just as well and would allow a tie-in to the remains of the real world economy.
Yes, free can beat not free. Can't argue with that.
You have to realise, however, that sometimes it's not the fact that it's free, it's the fact that's it's available at all.
Pirates don't care about international borders, different launch dates for different countries, how old the content is, etc, etc.
If you want to sell your content, don't build artificial borders that prevents us from buying it.
As an example: how long has the iTunes store been running? Why can't the labels tear sell their content to everyone on the planet? It's your own mess of contracts and licenses, figure it out for yourselves and leave us out of it.
Didn't I hear this once before, when the dotcom era ended and all the "free" businesses had to start making money? Realisticly all the "techy" parts like servers and bandwidth should keep getting cheaper, so that helps. And in a hostile market, marketing goes first as it's an "expense", then you lose your customers, then the marketing budget comes back. When else are you going to fight for your customers than when they're scarce? The alledged death of ad revenue is heavily overhyped.
Live today, because you never know what tomorrow brings
The real appeal of free software is in reducing infrastructure costs. Just like roads, they don't normally generate money themselves, but they make it easier for businesses to interact and generate wealth!
(-1, Raw and Uncut is the only way to read)
So, all those datacentres buying hardware and using electricity, are they free too?
Sooner or later there is a cost, and free services have one big problem for long term survivability, where's the profit?
A great free service may be fun, might even be useful, but sooner or later down the chain someone needs to be paid.
Or are all web developers working for no pay these days?
A learning experience is one of those things that say, 'You know that thing you just did? Don't do that.' - D. Adams
A good place to start would be for Slashdot to charge for a plaintext(or ODF?) version of a user's comment history, on a per-download basis.
Maybe they could adjust the price of them according to per K of M of data. I would gladly pay 3 bucks a hit to use that feature.
Not me, I don't care about Karma.
Posting anonymously to protect my Karma.
FTA:
There is more to interaction between individuals in society other than exchanging sheets of paper with numbers on them. If the people who pull the strings print out more numbers for themselves than the rest of the nation, then the system eventually collapses, much like any other corrupt enterprise. That's what's happening now.
Be prepared to learn how to trade your talents and goods with people without exchanging bits of paper. The dollar could soon be as hard to get as it is worthless. Seriously.
Debian Linux would have cost at least $1.9B to produce in a private environment. $1.9B may be smaller than what Microsoft spends on Windows, but it is a hell of a lot more money than "marginal cost."
Let's also not forget the fact that there are few, if any, desktop OSS apps that are as robust as, say, the Adobe suite of products or Microsoft Office.
It does OSS no service by giving people the impression that it is cheap and easy to produce. In fact, that is downright self-destructive because such an impression will make people behave even more like cheapskates. "What do you mean I should buy a supported license? I don't need to help pay for no stinkin R&D!! This stuff is supposed to be free? Why am I paying you anyway?!"
I chuckle every time the FOSS community says, emphatically, "Tanstaafl!". (Or in this case, tags the post with it)... ...while, at the same time, presenting FOSS as though it has zero cost. Only a moran would use M$ software! Linux is free!
I love FOSS. It's great to have "free" resources available and it's great that people spend the time to work on it. It may be free to download, but using it is not zero cost. Tanstaafl.
People in software development are the only ones I can think of who promote the idea that they should be paid less (e.g. this story) and that most of their colleagues suck (e.g. thedailywtf).
Websites that provide something of real value for free either have a really smart beachhead strategy, or havn't yet figured out how to monetize what they do have.
Also, anyone in business will tell you that money/price is hardly ever a deciding factor on whether someone will pay for a product. When you go applying this to existing websites it's clear that giving things away only represents a small portion of the overall market. An example is plentyoffish vs match.com - it's all in the value!
We live in the information age. Information is easy to duplicate, to transport, to store, to look up. Information is cheaper than dirt. The old business models based on scarcity or rarity or production difficulty that work well for physical goods just do not work for selling information.
An information source will attract consumers. The better the source, the more people are attracted to it. Just look at Slashdot. Slashdot attracts so many readers that when it links to an article, it can bring that article's server to it's knees. Also, the more/better the information on your site, the more you will attract even more information. It's a positive feedback loop. Placing any sort of restrictions on the information (copyright limits, DRM, country boundaries, release dates, etc) breaks the positive feedback system, and drives people to other sources.
So, the question is, how do you get these consumers to "let off dollars" as the saying goes. As much as I hate to say it, the answer is advertising. People have been watching movies and shows for free for decades on ad based television channels. People have been listening to free music for even longer, on ad based radio. They will do the same thing for ad based internet sites.
The trick is that your ads must not get in the way of the consumer getting to the information that they want. If you break that popularity feedback loop, you'll drive consumers away. It has to be subtle enough to not interfere.
Google is a good example of how to do it. Quality information, and on the right hand side subtle, non interfering (and I might add, relevant) ads.
When our name is on the back of your car, we're behind you all the way!
Now, go RTFA...
If at first you don't succeed, skydiving is not for you
You can't sell that! Karma can only be portioned out by the cosmos. -Homer
"I use a Mac because I'm just better than you are."
Music production is free? That's news to me. As a musician, I've been going the cheaper route of recording and producing my own music. My total investment so far exceeds $40,000 in equipment and software. Then there's the countless years of practicing and honing my ability and knowledge, money spent on lessons, etc.
Total I've made so far in the "new economy", where everyone thinks it should be free because they want to stick it to "the man" (read: record executives)? $4.48.
Nothing is truly "free". An office using Teh Lunix still requires support staff, same thing with something like Open Office. Likewise, both require user retraining, which is such a huge expense as to be prohibitive.
Also, how can Wikipedia be claimed as "free" when they JUST had a huge fundraiser?
I guess the "free" has moved on to become "Free as in Leeching".
Software is meant to be free!
Assuming a competitive, market-based economy, any software of sufficiently broad usage is bound to become free, as its marginal production cost is null. The free software movement is not much more than the social expression of this basic economical fact. Software distinguishes itself from other works of the mind, such as music, in that its originality is by no means a part of its value or utility. As a consequence, the software industry is bound to live on the margins generated by software innovation and specialization
Free Software isn't *intended* to be a "business model" for corporations to get filthy rich selling copies of information that they produce for a nickel each.
http://www.gnu.org/philosophy/free-sw.html
Don't bother to RTFA, everybody here already knows everything in that article.
I've had all pages ad-free for awhile.
Create something with a large codebase that other people want to use in their own free software application or game, like a very nice raytracing engine for example.
Now here's the catch; nobody likes to learn a large codebase because it takes a lot of time. Especialy free software developpers because they usualy don't have a lot of time on their hands as they are doing projects in their spare time. So here's what you do to get money; sell detailed documentation and maps of the code of your project. ThÃt would be your product, not the source code.
If you make sure your code is not ugly and unreadable then you'll probably sell a lot of documentation. People that create free software would probably not hasitate at all as they buy OpenGL, C, C++ and ruby books as well.
Your product is completely ethical in terms of free software. It is not nessecary for a developper to buy your documentation, but they will probably do it out of respect and because they just want to save time. In essence, you are selling someone time. Isn't that just the greatest thing?
Here be signatures
I knew I shouldn't have posted in this thread! I knew it! I knew I'd want to use a mod point!
Rule of Slashdot #0: You and people like you are not representative of the larger population. - A.C.
You must be thinking of the Catholic Church.
Look up the history of Moxie. (Wikipedia doesn't go into enough detail). They tried killing marketing and killed sales.
My first Journal Entry ever, in 8 years! http://slashdot.org/journal/365947/aphelion-scifi-fantasy-horror-poetry-webzine
"We declare we shall download whatever we like, and upon our whims, buy a CD or some iTunes tracks now and then - if we feel like it".
My first Journal Entry ever, in 8 years! http://slashdot.org/journal/365947/aphelion-scifi-fantasy-horror-poetry-webzine
Check out diydrones.com. He sells a super cheap circuit board that interoperates with stuff most of his customers already have. What's another $30 when you've already invested $300? He gives away the source code & plans, but puts a ton of effort in publicity doing odd projects like the blimp autopilot, posting frequent firmware updates, & growing a social network around the product.
The P2P rip doesn't generate the $150 million dollars needed to produce "Monsters vs. Aliens" or the $40 million needed for the low budget "Serenity."
If the geek wants to see more films that appeal to him he has to find a realistic solution to the problem of how to pay for them.
Otherwise production simply ends or shifts to more profitable markets. "High School Musical" and a "Hotel for Dogs."
Is that MC is 0. It isn't, though it may be small. It also doesn't cover fixed costs at all. If I spend $1,000,000 writing the next killer app and give it away for the cost of distribution, it's pretty easy to see I'm out the original $1,000,000. If I give it away for literally free, I'm out the original $1,000,000 and I've picked up the cost of distribution, too.
Prices drop to MC in the face of (perfect) competition, yes, but before that happens consumers are paying more than cost, and willingly so because the product is worth more to them than they pay for it. If you don't have credible evidence customers will do that, you don't invest in developing the product.
The only reason free software works is massive charity on the part of developers and project managers who get non-monetary benefits out of being involved in the project, or in some cases, corporate sponsorship.
Note, too, that business segments which involve perfect competition are not generally places you want to be. You are a commodity. Everybody, top to bottom, gets squeezed.
HAS JUST SHRUGGED
This plays into my point-
"Be prepared to learn how to trade your talents and goods with people without exchanging bits of paper. The dollar could soon be as hard to get as it is worthless. Seriously."
Now, explain to me how the last bastion of american industry, digital commerce, has benefitted from this new and free economic model and how this has nothing to do with our current economic downturn at all not even in the slightest
Now chew on this, we send dollars to china for hard goods they produce and what do they do, pirate american digital property and in some cases they even pirate hard goods.
Of course the Slashtard has no problem with Chinas digital piracy since his mantra is code want to be free and they are not even considering chinas general piracy problem beyond digital goods.
With all of this in mind and just using China as an example of a global trend where american dollars flow out but dont return because what we primarily produce is pirated
Conclusion, be prepared to work for free you fucking dopes and not only will Atlas Shrug in that instance but he's gonna kick you in the teeth
Of course! We invented everything...
Small per-sin fees, monthly subscription tithes, and even commodity indulgences with tiered discount models.
But now... we're GIVING IT AWAY! That's right.... Come on down and be sin-free TODAY!
- Subject to contract terms and dogma. Donations appreciated. Not valid in the States of Iran & Saudi Arabia.
Yes, I love being Catholic.
I said no... but I missed and it came out yes.
You are already being paid, just you aren't seeing it. You are being paid "in kind", with the cheap music you get from other hard working musicians. Same as most FOSS coders, they get paid in kind from access to a LOT of other devs work. And if music is as important to you as you say, that is a lot of payment. Now if you want cash, you will have to tour and play live, and sell disks and swag at the venues. Digital copying is star trek styled replicator technology, humanity's first.
It is an incredible breakthrough in the goal to eliminate want.
Tangible products will be next..and eventually..we'll be able to eliminate this whole "job" thing and the entire concept of "money" and needing it. That is a worthwhile goal and you should be proud to be part of it, not complaining about it.
I know it is hard now, being the first "business" in the modern age to be rendered obsolete, but really, it has only been a relatively short blip in human history where musicians could get paid for anything but live performances. In our human history, it is a very short window, and you have no real expectations for it to be anything other than a very temporary stint, you just happen to be at that juncture.
I've had several means of income go poof on me, some factory jobs in particular, one from automation, three others from offshoring to cheaper labor places. My labor was made obsolete (in the society and area I live in), much as I was totally content with it and making reasonable money at it. Oh well, life goes on, I found other things to do, and I still have hobbies and I write and I hope that what people read of mine they enjoy, because I really don't expect much in the way of cash payment from it (although at times I have done well from it), just helping to add to the pool of what is out there that people might be able to use, and enjoying my "in kind" payments I receive from other's writings that I have access to, from forum and blog posts to books.
I *like* it, I am grateful to be part of this age where we can really make progress this way. If the "job" I have now for the cash I need goes away or is made obsolete from tech breakthroughs, I don't care, because I know then that billions will "profit" from those tech advances and we all will be much better off for it. And I'll do something else then, whatever still needs to be done that humans still need and can't be replicated, and still enjoy my writing and my other hobbies.
I mostly *read* slashdot, not comment on it, so a paid account is worthless to me.
I'm on disability and don't work so I post a lot on slashdot. Last week I checked into subscribing and there was only one way to subscribe, via PayPal, showing. I don't have a PayPal account so I emailed to see if there was another way. It took a few days and the answer was no. I'm not going to sign up with PayPal just so I can subscribe to slashdot.
Falcon
Should there be a Law?
You want an honest answer?
We have those contracts and licenses because different parts of the world want things on different terms than we want to sell them. Can't you just hear France or the EU complaining about iPhone not being sold by competitors?....wait....they already are! That's just one example of 1000's that have existed since global trade began.
The point here is that there is always some group of people (usually backed by a military force) who want things done on their terms. So we create contracts and define the terms to both our liking. It's just as much your contract (or your country's) as it is theirs. You fix it!
special effects ? CGI ? scenery ? on-site shots ?
no. majority of film budgets are given to stars, who live lavishly off those pay. just read below article, and that's just one google search :
http://www.forbes.com/2008/07/22/actors-hollywood-movies-biz-media-cx_lr_0722actors.html
see, in total, only the 'leading' people have walked away with $487 mn in pay last year. thats half a billion. half a billion is paid to actors.
its not the acting, its not the effort. noone is getting a plastic surgery or a skin recoloring or transplant or anything to act. its just a race of prestige in between actors and actresses. i want more pay. why ? because a certain someone i know and compete with got such a pay and i want more ...
no sir. noone can justify what shit we are being put through while paying $20 a dvd, while an actor gets $80 mn for a few movies.
Read radical news here
I hit the karma cap in, what, early 2001? Just about the same time as it changed to 'Excellent' to stop people obsessing over the karma cap, anyway. Since then I've made thousands of comments of which many hundreds hit +5. If they introduce a karma trading market, I'll insist upon being reimbursed for eight years' back karma.
Real Daleks don't climb stairs - they level the building.
All of the people accessing the internet are having to pay some sort of charge to connect, whether it be the monthly ISP subscription fee or some other fee (either directly or indirectly) and so it's like we've all been pooling our efforts in subsidizing the cost to produce this giant shared storehouse of information for years now. And giant it is. That's why there's so much of just about anything, and that's why any one piece of information isn't worth that much.
Thus, it should come as no surprise to anyone (except those ordered to have their heads in the sand) that the most reasonable going price for information is somewhere around $0.
You can't send a takedown notice to an already printed newspaper.
If you really want to support your favorite website or utils, many (but not all) have options to donate money via paypal.
Funny -- I've done that on items that are 'free'...where the owner/maintainer keeps offering upgrades/updates for 'free', but for some utils that have *converted* from a "free-updates-for-life* to a pay-per-update model, I've stopped getting upgrades. I don't use most of my utils ***that*** often that I feel like I want to buy a 30$ upgrade every year -- ***ESPECIALLY*** when I've reported "problems", or suggested or asked for features/upgrades -- and then they've gone through either 2 upgrade cycles OR a year of upgrades.
I've had more than a couple utils that either started by requiring pay, or converted to pay -- one went from ~$70 for an X server, up to maybe $200-300 now -- but they add in a bunch of stuff I don't use or need -- but the topper was when I missed an upgrade, they required I pay an extra 'upgrade' fee for each version I had skipped!!! The "missed-upgrade" fee was about 40% of what I would have paid if I had purchased the upgrades, so it was still worth the pay out -- but after 1 of those rip-off upgrades, I searched for and found a *free* replacement that offered what I wanted (none of the extras I didn't need and wasn't using) and that was the last time I purchased something from them.
I used to tell some vendors I'd bailed due to their not adding features, or fixing bugs, or costing too much for value I was using it for, but it's been a long time -- because I got the impression most didn't really care.
But when I *have* extra (maybe once a year, I try to donate some money across a few of the projects I use -- $10 here, $20 there, try to spread it around. I donate anonymously when I have the option -- don't want them to be doing favors just because I pay them. I try to look for those who are genuinely nice and/or useful. I'm more generous with those who are 'nice' in online or support forums, but even give to 'a-holes' if they have a product I genuinely think is good and find useful (they just don't get my 2-3X multiplier for 'niceness'). ;^)
Anon for obvious reasons..
Our law dudes would go after the person who put the paid content on a p2p network. This being the internet, doing so is currently difficult and not fool proof.
Ideally, you'd go to jail for stealing somebodies intellectual property just like you would stealing any physical property. And I'm dead serious. And if you aren't as serious as I am, you clearly don't understand F/OSS depends on the same protection of intellectual property non-F/OSS does.
A Stallman approved Free World would make tech support guys get paid more than programmers. Worse, once the support centers become the profit drivers of a company there is no incentive to make a quality product. The worse the product, the more support calls you get!
Micropayment systems have existed for years and work very well. Just ask Simon Cowell, the driver behind American Idol in the USA and X Factor in the UK. They make their money primarily on the micropayments that people phone in during the shows.
For all what I can watch?
Count me in.
A cent per comic?
Not in my whole life.
There is always somebody willing to give you something for free in the net, so if you want to monetize your efforts then what you charge should be so negligible that it feels like if the service you provide is almost free.
IANAL but write like a drunk one.
If this was the whole explanation, it would not make sense "by the laws of economics". "Virtually no" is not the same thing as "no"; there is a marginal cost and it needs to be paid. Plus, there are fixed costs, and even if the marginal costs per unit were $0, producers who can't recoup their fixed costs would be losing money. If many people are getting something at no cost, someone else is paying those costs. Usually, what is free is either charity of one form of another (where the producer--or at least the people funding the producer--derives subjective utility from other people getting the benefit of the good, and thus is willing to eat the cost), or promotion of one form or another (where the producer gives the good away for free to build exposure and future profitability for that good, or to build demand for another good, that the producer can then profit from.) Sun doesn't give the JRE and JDK away for free (and Microsoft doesn't give away the free versions of Visual Studio) because of an irrational expectation that $0/copy times a really large number of copies will somehow make back their costs associated with those products, they do it because they expect it will increase demands for the goods and services that they charge money for enough to warrant the costs.
Now, the low marginal costs of digital goods delivered online make both of these kinds of free goods a lot more practical, so there is a lot more free.