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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
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 And yes, I know, the abundance fan's response is that "money is obsolete, we don't need it any more"...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.
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.
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.
Except slavery of course. Oh, Abraham, why did you have to spoil it? :P
What if Tetris was invented by Nazis?
The problem with reliance on advertising is how badly it really works.
Businesses always suspected they were wasting a lot of money on advertising. But, it was a black box. Designed, by the admen, to be hard to judge whether it was effective or not.
But, in the early internet, the advertisers went straight to the geeks, with little 'Madison Avenue' in between. The geeks said, "sure, we can give you click-through and dwell-time and all the numbers you want". And the businesses got the numbers and said "holy Jeesh, internet advertising sucks in cost-effectiveness". All ads sucked, we just measure it better online.
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
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 $300? He gives away the source code & plans, but puts a ton of effort in publicity doing odd projects like the blimp autopilot, posting frequent firmware updates, & growing a social network around the product.
If you really want to support your favorite website or utils, many (but not all) have options to donate money via paypal.
Funny -- I've done that on items that are 'free'...where the owner/maintainer keeps offering upgrades/updates for 'free', but for some utils that have *converted* from a "free-updates-for-life* to a pay-per-update model, I've stopped getting upgrades. I don't use most of my utils ***that*** often that I feel like I want to buy a 30$ 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..