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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. '"
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
not free, just zero obligatory cost to user. Google isn't truly free because you get AdSense on the right of every search, which are paid for by advertisers. Wikipedia is free but gets millions in donations from many sources.
Nothing of use is truly free to produce, (see parent) but since the cost of disseminating digital services divides to almost nothing per client, only a few of those customers need to support the provider to keep everyone in "free" service.
When I can try a fully-functional product/service before investing a dime, I am much more likely to pay/donate than if I am required to pay even nominal cost upfront. That is why I've spent much more on FOSS in the last 10 years than I have commercial software.
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
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."