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If You Live By Free, You Will Die By Free
Hugh Pickens writes "Internet entrepreneur Mark Cuban writes that the problem with companies who have built their business around Free is that the more success you have in delivering free, the more expensive it is to stay at the top. '"They will be Facebook to your Myspace, or Myspace to your Friendster or Google to your Yahoo," writes Cuban. "Someone out there with a better idea will raise a bunch of money, give it away for free, build scale and charge less to reach the audience."' Cuban says that even Google, who lives and dies by free, knows that 'at some point your Black Swan competitor will appear and they will kick your ass' and that is exactly why Google invests in everything and anything they possibly can that they believe can create another business they can depend on in the future searching for the 'next big Google thing.' Cuban says that for any company that lives by Free, their best choice is to run the company as profitably as possible, focusing only on those things that generate revenue and put cash in the bank. '"When you succeed with Free, you are going to die by Free. Your best bet is to recognize where you are in your company's lifecycle and maximize your profits rather than try to extend your stay at the top," writes Cuban. "Like every company in the free space, your lifecycle has come to its conclusion. Don't fight it. Admit it. Profit from it."'"
Fixed that for you. No business survives beyond their normal lifetime in the market. This is particularly true of technology companies which are forced to constantly reinvent themselves or become obsolete. While companies who sell a product can sometimes extend that product out a bit longer thanks to support contracts and BS marketing techniques, this is not sustainable.
What you end up with is the slow death spiral that was the hallmark of companies like SGI, SCO, and Novell. These companies followed the same business model for too long, slowly bled marketshare, and eventually reinvented themselves at the last minute, made a deal with the devil, or went out in a blaze of glory.
The lesson is simple: No matter how much of a cash cow your current product line is, you need to be investing in the R&D to compete in the next generation of products. Otherwise your competitors will get there first and make you ancient history.
Javascript + Nintendo DSi = DSiCade
Google doesn't live by free. It lives by selling advertising.
"Wise men talk because they have something to say; fools, because they have to say something" - Plato
Rather than attend high school for his senior year, Cuban enrolled as a full time student at the University of Pittsburgh. After one year at the University of Pittsburgh, he transferred to Indiana University's Bloomington, Indiana campus and graduated in 1981 with a Bachelor's Degree in Business Administration.[9]
Aren't these the guys who ruined the economy?
Free Martian Whores!
Whether you are selling automobiles or donuts, there is going to be competition, and you are only as good as your last quarterly earnings report. In any case, competition and barriers to entry has more to do with the nature of the technology and lock-in and lock-out factors like propriety interfaces and patents than it is concerned with the business model. Maybe the point is just that with a free model, you have less room for error in your strategy?
You got lucky because Yahoo was dumb and made you a billionaire at the height of the dotcom bubble. There are no remnants of the service you founded anywhere on the Internet. You are the equivalent of a lottery winner and have zero credibility.
You are a stupid fratboy who got rich thanks to an ill-timed power grab by an unwise corporation, not a respected voice whom anyone cares about. Please enjoy your "broadcast.com" (lol) windfall in private and stop talking in the presence of others who might report your idiocy. Thank you.
The summary sounds like a seduction attempt.....
Like bad legislation, they must constantly introduce evil ideas into major corporations and the general subconscious knowing that eventually, bit by bit, we will accept, and thereby do evil.
It is a game of relativities and waiting.
How amazed would you be to suddenly find that you just forgot what I wrote and you needed to reread my post.... again.
WE live in an art economy. That is, at the consumer level, the systems that we use are often judged by their novelty and their entertainment value. I would think most social networking sights ultimately wind up as a sort of a performance art piece, where we are the performers. We get bored with it, and move on. To say that you need to fund R&D is almost besides the point. Social sites need to have R&D, for sure, but what they really need is insight and hitmakers. You have to run them almost like record companies and make stars of the designers, changing things every time based upon the new view of the artist.
This is my sig.
I think you're being overly optimistic. We don't protect stagnation we protect and encourage failure. The US government tinkers in the economy more than most other free nations do, and it's almost always in the form of bailouts, protecting failing enterprises, insuring markets without demanding regulator authority. It's been going on for several decades and it's led us from one bubble to the next, and it won't stop for at least one more boom bust cycle.
What he's really complaining about is that there's a competitor that's out there forcing the price he can get to roughly approximate the marginal cost of production. Which is shocking for somebody that presumably believes in capitalism. Shocking because a competitive market pushes prices to just above the marginal cost of output.
OSS is a good example in software, credit unions in banking and hopefully a set of large scale co-op health insurers in the insurance industry. Corporations hate them because they have to compete on both price and quality. If there really were nothing to it they wouldn't be trying so hard to kill it.
ixed that for you. No business survives beyond their normal lifetime in the market.
Well. that's clearly not the case.
Goldman Sachs, Bank of America, JP Morgan etc etc etc. If you have a friend in the government, you can get them to tax the people to guarantee your profits.
Deleted
How about creating and selling a product that people want to have and are willing to pay money for? That seems to be more intelligent than giving away for free. The majority of the "for free" company will cease to exist when the next internet bubble (the "Web 2.0" bubble) will burst, ya know...
Cuban's advice is so 1998. Build up mind share, then cash out and let the company crash. It worked for him.
Any company will shrivel and die if it doesn't adjust, even a company that was once at the top of the Fortune 500. Free has nothing to do with it.
As others have pointed out, free online services are no more susceptible to a Black Swan Competitor, or even an ordinary competitor, than any other business. If there is a distinction, it is likely to be that free Web services are especially governed by first mover advantage and category domination such that they are less in danger from Black Swans than, say, a trucking company or a chain of coffee shops.
I wrote parts of this stuff
He's indirectly asking us to learn from his example. Build a free empire, then sell it at its peak, before anyone realizes that it's unsustainable.
stuff |
This is different than any other business.....how?
The longer something remains in the market, the more the profit for that item approaches zero. Even paid service. The only time this isn't the case is either in a monopolized market or when government steps in. That's why companies in the free market have to constantly innovate and come up with new things that the competitor doesn't have. This notion that any business model can guarantee that you'll make money forever once you've come up with one idea is a myth.
But he is making a valid observation. If you sit on your business model you will end up like the RIAA and be clinging to it as everyone else passes you by. Cash in while you can knowing it could die abruptly, and make sure you have enough R&D to have the next product in the chamber. It is the only way to do business (and actually that has very little to do with a free business model).
Yeah, it's too bad the blacksmiths and carriage makers of the early 20th century didn't have a government like we have today to protect them from the that evil Ford guy.
"A person is smart. People are dumb, panicky dangerous animals and you know it." - K
The US government tinkers in the economy more than most other free nations do
It does? You mean the more socalistic a country gets, the less it tinkers with the economy?
I'm a conservative and I don't like the U.S. "tinkering" with the economy. But from what I understood, most other free countries tend to be more liberal (significantly) than the U.S. (and a lot of liberals in the U.S. complain about that. Hence the huge push for a national healthcare system at the moment?). And more liberal countries tend to want to regulate the market more. And regulate other things, too.
I'd be interested in seeing some backup for the claim that the U.S. tinkers more with the economy.
This is absolutely same for non free business.
If you specialize in a niche and it disapears or someone else gets better at it
then no god will help you.
Evolution works against you and you end up in stomach of some competitor.
Look at Microsoft.
Desktop is now only a small part of business.
They went after servers only ~10 years after desktop was launched.
Now they are in office, cloud computing, search, even gaming and a lot more.
Look at Oracle. They develop not only database but also application.
Look at IBM. They went for service years ago.
Look a Dell. They are going for service for a few years now.
Look at Apple. They are selling mp3 and service around it.
This is simply wise corporate development.
That is called diversification.
The world belongs to those who get up early. - I'm far from being the king of Earth then
Companies should focus on making money?! Outrageous!
I know what you quoted seems like an asinine statement, but if you knew the full context you'd understand the point.
Cuban's been ranting extra hard this year on YouTube, labeling it as an eventual giant bust because the model will eventually fail without profit. He's saying that people, being so used to FREE content, will feel outraged by the concept of being charged to distributed their mundane crap videos online. Thus someone will come along with a better model and replace it (he's right, it is the nature of the Internet, and only the green people who have only been surfing it for a few years now fail to realize this...they don't have the years of knowledge that accompanies seeing sites/concepts being formed and replaced by the next greatest thing).
He's lashing out against these "free" practices because they are extremely difficult to break out of. Once you offer the free content to the people, they demand it stay free. You say "Companies should focus on making money?! Outrageous!" and he's responding, "How will they make it if they don't base their model on that in the first place?"
I know that you enfatically said "I disagree." (twice), but I'm not sure that you really do.
He said:
"Someone out there with a better idea will raise a bunch of money, give it away for free, build scale and charge less to reach the audience."
You said:
"The only way a new product will ever dislodge a entrenched rival is when they offer something unique and compelling or are readily interchangeble with the old one."
Sounds like the market forces that he describes are part of this "new economy" where huge amounts of venture capital can be raised and thrown away trying to create the "next big thing". The next big thing in almost all cases improves on what has came before, just as you said "something unique and compelling".
Overall, I think the article is a good one, and his point is pretty accurate. I don't think it's revolutionary, but there are some ideas in there that I have never thought about in quite the way that he is going into.
Maybe google could use the money from bad videos to give small rebates to people with good videos.
Wait... You are suggesting monetary moderation based on taste and tastefulness? On D interwebz?
You are one of those "green people" parent poster speaks of, aren't you?
This site should prove insightful for your further understanding of the nature of the internet.
Mit der Dummheit kämpfen Götter selbst vergebens
He became one of the world's richest men by sheer blind luck, according to that Wikipedia article. Broadcast.com was just another over-valued dotcom company until Yahoo came along and paid $5.9 billion for it. Cuban was just smart enough to take the money and run. Look at his other business ventures after broadcast.com. They're all massive dogs.
www.lucernesys.comHorizon: Calendar-based personal finance
This has got nothing to do with basing a company off free software, nor is it even limited to technology companies.
No company will stay in business forever - eventually they all seem to get made obsolete by some newer company that did a better job of predicting where the market was heading than they did.
It's possible that technology companies (in the broadest sense of technology) may be more liable to be made obsolete by "black swans" that seemingly come out of nowhere, due to the fast moving and semi-unpredictable nature of technology advances and fads, but again this is nothing to do with basing your business of free software.
Any company that fails to continually innovate and look over their shoulder, and instead just kicks back and milks the cash cow, is going to be made obsolete by a competitor with a better product, paradigm, or change in the market.
The best chance of surviving is business is if you can continually manage to make your existing products obsolete, before your competitors do.
The major danger to Google is that they are basically (at least in terms of generating revenue) a one-product company: web search based advertizing. It's not entirely obvious what their strategy is with GMail, Google Maps, etc, but I suspect that a major part of it is to help prop up their core business - to build the Google brand and customer (or rather fodder - the customers are the advertizers) retention.
Google should be worried though (and I'll bet they are) since there is so much room left to improve web search, and someone like Microsoft with the (certainly not free!) infrastructure in place to roll it out could render Google search obsolete overnight with the right software update. It's also possible that a lot of the adveritising market might switch to handhelds (presumably why Google is developing Android), or maybe to social networking sites like Facebook and Twitter where the kids nowadays all hang out.
ah cuban. i wish he'd stick to anything but opining. he's been on this rant for years and it's old. taking google for example for those addled about what exactly it is they're up to, consider them the next step in a progression that started in the early 20th century with radio broadcasters. much of the baffling junk google spends its shareholder's money on, like streetview ad-infinitum is programming. if you look at television networks and their obsession with reality tv, google has brilliantly evolved it to the nth degree: no wrangling drama queens for them. all they do is hire camera guys to drive around neighborhoods snapping pics and lo and behold millions tune in and see the commercials.
that's the model. it's venerable and it works.
google is no more or no less vulnerable than any other program distributor working such models, like cbs for instance, still in business after 80 years.
naturally they can founder - like cuban's hd network - or last for generations like nbc but that's execution. the model is sound.
- js.
But from what I understood, most other free countries tend to be more liberal (significantly) than the U.S. (and a lot of liberals in the U.S. complain about that.)
When you say "more liberal", do you mean "more left-wing"? The word "liberal" tends to have connotations within the U.S. political system which don't really apply elsewhere, and it makes it confusing if you use it within both contexts like that.
"Slashdot - News and Chat Sites Deviant". (Click "homepage" link above for details).
You actually hit the nail on the head - we don't believe that certain political systems will somehow change people. Instead, we assume that the people in government are just as prone to collusion and bribery as your average capitalist. The difference between most capitalists and the government, however, is that people can choose whether to do business with a capitalist or not.
Betrayal should not systematically lead to power.
Betrayal is actually just moral judgment of the action - which if unfavorable to the object of the action, said object considers unfair.
What it is really is simply possession of more information than you are willing to share, possibly favorable to you or someone else, with possibility of action or lack thereof attached.
No malice is needed. You simply know more at the time and you fail to share the info.
You fail to mention to your friend that the milk in your fridge is 5 weeks old before he drinks from the container. Instant betrayal.
You didn't want to do it, you were not even in the room. Your unconscious inaction alone led to your betrayal of your friend.
Not a very serious case, but quite true.
Information is power. Betrayal is just a matter of moral judgment on the use of it.
Americans have betrayed their legal ruler and then fought a war when they were faced with their actions.
So did Russians. And French. And many others...
Heck, one of the great stepping stones of democracy and human rights was when Brits betrayed their king and at the tip of the blade forced him to sign a legal document giving them previously absent freedoms.
See? Good betrayal. Favorable to the masses. Leading to power.
Still betrayal though.
Mit der Dummheit kämpfen Götter selbst vergebens