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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."'"
Someone out there with a better idea ...
You mean I have to compete against innovation?!
... will raise a bunch of money, give it away for free, build scale and charge less to reach the audience ...
And my competitors can undercut me?!
This is madness! I demand protection against people trying to steal my customers with a better service/product and lower prices! Oh well, thank god I'm too big of a player for the government to let me go under.
Be warned fellow citizens, in my lifetime I have seen market after market reach the endstate of an American capitalism: protected stagnation.
My work here is dung.
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
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?
So he built broadcast.com, sold it to Yahoo! and made a ton of money: what else has Cuban done? I mean really?
I tend to take everything he says with a grain of salt.
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.
I disagree.
I think that when any technology - be that DVD, FaceBook, Internet Explorer - reaches a mass audience and is perceived to be good enough to meet the users needs it is more or less impossible to dislodge even when there are technically superior products out there.
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.
I kind of get what they are saying, but I see more evidence of entrenched mass market products that are seen to have reached an acceptable level of functionality and ease of use.
I wonder if he'll remember to include a revenue source in his plan this time.
"The ferrets, they're every where I tell you!"
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.
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
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
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.
I'm not sure I would take to much advise from Mark Cuban. First, he is a hard worker, but with Broadcast.com he was in the right place at the right time. Beyond that he hasn't exactly made a lot of great desciions. The major investment into HDnet hasn't been that fruitful and the major investment into Register.com was a debacle. He traded a rising star point guard for a bad apple 35 year old point guard. Today, he just spent $25M on resigning that bad apple point guard (now 36 years old) that isn't half the player he onces was.
I'll pass on advise from Mark Cuban.
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?"
Yup. And scientists gave us nuclear bombs
Which proves that they know what they're talking about, unlike economists. If economics, sociology, etc were anything at all like physics, there would be no poverty or hunger.
Wall Street is just a big corrupt casino. You don't invest in stocks, you gamble on them.
Free Martian Whores!
This is untrue. Of course there's luck, it's by definition what occurs that you cannot control or influence. For example, if you had lined up a deal to sell your company for a huge amount of money but then the economy crashes around you and the deal falls through...that's bad luck. Or if you're a brilliant engineer whose ideas would be worth millions...but you were born in the Soviet Union. Or your company develops a revolutionary new product...and the lead engineer gets hit by a bus. Luck controls the availability of those opportunities in the first place, and (sometimes) their success.
1) Be generous
2) Create trust
3) Scale out
4) Betray trust
5) Profit
It's called "Selling out". Also known under such words as "Betrayal" and "Traitor".
Yes, this is a good way to make money.
It's such a good way to make money, it really ought to make us re-evaluate this whole "money" concept as an organizational structure. Betrayal should not systematically lead to power. It should lead to death at the hands of your peers, or if you're a sympathetic sort, it should lead to disenfranchisement and a permanent spot at the bottom of societies totem pole.
How about "If you live off the backs of slaves, you will die by the hands of slaves"?
Yeah, that one holds a lot of appeal.
-1 Uncomfortable Truth
> In a free market none of these companies would have been bailed out. Instead they would have been forced to declare bankruptcy
;)
;) ).
But which country has this mythical free market? The one that has a thriving market in flying unicorns? Or is it the one where legislators and regulators can be bought and sold?
Reminds me a bit of those "True Believer arguments". e.g. "A True Believer would never do X" where X is something bad. Looking through that "lens" you'll find that the real world has rather few "True Believers", and you don't really learn much about what the True Believers actually believe in.
Anyway, to me what is important is not whether a market is free or non-free, but whether the market is well-regulated or not. And we should focus on how to have a well-regulated market, not on how free it is. Quality not quantity[1].
There have been arguments that the regulators should be people from the industry, since they know the industry well etc, and that's why it's ok and inevitable to have the "ex-CEO of Company X" end up regulating "Company X" and stuff like that. Somehow I'm still not convinced by those arguments (especially given the observed results
[1] Similarly there's always this popular debate about big vs small government, I find that rather stupid since what seems far more important is the quality of the government, not the quantity of it. But in a democracy I guess that's ultimately determined by the general quality of the voters.
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