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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?
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?"
AC is right. Cuban's success is at least partially due to serendipity, I would argue that is mostly due to that.
It's not envy that people hate on Mark Cuban. Because many of us respect people who built up their fortunes, even if we hate the things they do. Examples would be Larry Ellison, Steve Jobs, Bill Gates, Warren Buffet, George Soros, etc.
That said, Mark must have some skill in the negotiation room to have sold his company. The ability to market your business to another business is a pretty unique skill. But if he did that trick today he would be in the same position as many of my friends who have done that. Have enough money in the bank to support themselves for a couple years until they sell their next start-up.
Winning it big on one shot is not as impressive as consistent success to me.
“Common sense is not so common.” — Voltaire