Slashdot Mirror
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. '"
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.
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
The short story on micropayments: The first one that tries to use it, dies. Why is wikipedia beating the crap out of britannica? Because if you want a general link you can post to that everyone can use, it must be an open site. How often does slashdot link to paid subscription articles? Never. I rememer there were a few NYT articles in the past that required free subscription, and it was always plenty bitching. I'm not sure what is or was competing with YouTube but the premise is simple, if you want to share a video you post it there and everyone can see. The result is that anyone that tries have their google rankings go to hell and toil away in obscurity. This will not work unless there's a really, really broad coalition that makes sure that the vast majority of the Internet population has a micropayment account. I put the odds of that happening at slightly below me winning the lottery three times in a row.
Live today, because you never know what tomorrow brings
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?!"
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).
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!
Yes, and no. The determining factor is really the ease of adoption. Make it dead simple for someone to turn a quarter sitting in their pocket into 250 tenth-cent micropayments, and a single click for a payment to be made, and people will use it.
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 [dennys.com] 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 [taxact.com] to go with free Federal filings.
I think there's a difference between McDonalds giving away free hamburgers and Wikipedia. The summary makes a good point "an 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." but misses the totality of it. What the net does is remove intermediaries, the middle-men. If I write a book the cost of production is my own time, plus my editor's time. If I want to make $50k a year off of that, I need to sell some ungodly millions of dollars worth of that book because I'm paying for printing, warehousing, distribution, space on bookshelves, not to mention all of the inflated salaries and bonuses sucked up by the bloatworms in this whole process.
I'll move far less copies selling direct but I don't have to sell as many to earn a living. Will it be a tough gig? Hell, yeah, but it wasn't exactly easy to be a professional musician or writer back in the 60's, either.
I think what will really help move digital product is a greater feeling of connection with the creators. I wouldn't see the need to give any more money to the rapper running around with multi-million dollar contract, assuming I liked rap, but I'd want to support the little guy who's just starting out, I want to see more work from him.
The patronage model seems too altruistic to work in the real world but we're seeing signs that it really is possible.
Kwisatz Haderach
Sell the spice to CHOAM
This Mahdi took Shaddam's Throne
Even the RIAA is getting into the act by reducing the amount of their claims.
What?
VCs want a revenue model before you start. That has never changed. That quote is merely suggesting that if you've got a damn good idea, you'll need to figure out a good way to monetize it before you bankrupt yourself. It said "young", not "in the womb".
How are sites slashdotted when nobody reads TFAs?
With micropayments, won't people feel nickeled and dimed (or fractions thereof)?
I wouldn't want to pay fractions of a penny to read a blog post. But if the writer is any good and authors a book, I might buy the book. In the case of Joel Spolsky, I did exactly that.
Similarly, I wouldn't want to pay fractions of a penny each time I used a web app. But I have purchased shareware / donationware.
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."
How well do you think MySpace would have fared if they charged you a penny for adding a friend for example?
Interesting example. I think they would have fared rather well. Currently, random strangers add you as a friend you all the time, and it's typical to have friends numbering in the hundreds or thousands. This is both annoying and pointless, and it's part of the reason for the mass migration from MySpace to 'proper' social networking sites like Facebook. Charging for the privilege might have slowed this phenomenon somewhat!
I take your wider point, however. It's a difficult thing to get right. On the one hand, I'd hate for the whole internet to become a pay zone, like many companies seemed to be aiming for in the bad old days. On the other hand, I think it'd be wonderful if small, independent artists, musicians and authors had a way of accepting small payments for their work.
I'm biased here of course, being both a musician and an indie game designer myself. I rarely make any money out of what I do, and I have no desire to be signed to a major label or publishing house in order to do so. I wouldn't want to drive people away from my music by insisting they pay a ridiculous fee to listen. But I'd love it if there was a way to ask for just a few pennies in exchange for what I do, such that if enough people liked it I could think about devoting more time to doing what I love.
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.
The problem with parent post is that it ignores the expected tiny value of individual micropayments, and sets up unsustainable business models as strawmen.
As far as costs: using GP's figures, if you pay 1 cent 10,000 times, true that will add up to $100. But look at it this way: 10,000 seconds translate into over two hours of non-stop friend-adding at the sort of rate you'd need if you made a living clicking on banner ads. Speaking of banner ads- that's how you're currently using the micropayments idea, except there's a third party involved and you get pissed off by monkeys asking to be shot in the face. I can't wait to switch to a monkey-less model. (Yes, I'm perfectly aware of the many mechanisms used for blocking those monkey ads. To save someone the time of trying the rediculous counter-argument: yes, I do it too, but it's a bad thing when you look at the big picture; it destroys the business model of the service you are using.)
Next, business models aren't developed as haphazardly as suggested (excluding the lousy ones that quickly fail). Of course MySpace and Facebook don't charge for adding friends- that idea would get someone fired; encouraging a larger number of friends is *the mechanism* for attracting new customers and keeping people on the site producing ad revenue. eBay similarly would never require a micropayment for performing each search query because it goes against their business model of taking a share of sales by getting visitors to bid as often as possible. On the other hand, the New York Times, unless generating revenue by showing visitors a bunch of ads, has little incentive to pay its staff to write stuff to be given out for free, so yeah, we should pay for that value should they switch to an ad-free micropayment-based model: note that the business model remains the same- visitors per page-visit (the difference is how the money is generated).
Advertising will never die unless congress passes an unlikely (and probably unconstitutional) law against misleading consumers, requiring advertising to plainly state the pros and cons of products in equal font size. I'm sure that when a good micropayment system is established there will be a smart entrepreneur who will say- "I'll give you a micropayment allowance (perhaps even in the form of an "unlimited" subscription- surely Comcast will try to offer a rate hike including such) if you just watch some ads!". Thereby allowing cheapskates who would rather be monitored and flooded with constant advertising than spend $10-$20 a month on their "hobby" of web-surfing.
Those of us old enough to need to make a budget have realized the monthly cost of entertainment and understand that web-surfing can definitely maintain its status as an extremely frugal pastime compared to the other options out there. It's not a bad business model- we're just waiting for a someone to implement it in a way that can reache critical mass. It's likely just a matter of time.
If that's still to expensive, people can always turn to the web-based version of the public library and browse Wikipedia to kill time.
Unfortunately, your docs - most likely a downloadable pdf or similar - will end up getting torrented within the first five copies sold. If you don't believe me, go to The Pirate Bay and search around for technical docs and even entire books.
The same thing goes for proprietary software as well. The entire point here is searching for a free software business model you can make money with.
Piracy is a factor in every digital business sector and there is no way one could possibly avoid that so you might as well don't take that into account.
Here be signatures
I have about $4000 investment in instruments and gear.
I produce for free. The music I make requires no investment. I pay nothing to record it. I pay nothing to master it. I pay only a small web hosting fee to distribute it.
My music is free to anyone who wants to download it and listen. If someone wants to use my music for commercial purposes, they must negotiate a usage fee.
They're using their grammar skills there.