MediaFuturist: My comments on "The Economics of Giving It Away" (Chris Anderson in the WSJ)

February 16, 2009

My comments on "The Economics of Giving It Away" (Chris Anderson in the WSJ)

Chris 'LongTail & Free' Anderson has dished up another great op-ed in the WSJ. Note: this link keeps having problems... maybe try this one, instead, or this. Below are some of the best snippets - and my comments.

Chris writes: "Gratis can be a good business. How? Pretty simple: The minority of customers who pay subsidize the majority who do not. Sometimes that's two different sets of customers, as in the traditional media model: A few advertisers pay for content so lots of consumers can get it cheap or free..."

Back in late 2008, I wrote something very closely related to what Chris is saying, here: "To me, the bottom line is that most of what used to work just fine in a disconnected world of 'totally segregated consumers and producers' will simply not work in the future". In other words, the traditional media model will not work in Online Media, going forward - the mechanics are entirely different. And this is where Free or Freemium plays a crucial role - and it's a huge mission to figure out how this ecosystem will generate rivers of cash, not just data. And it will involve Collaboration between content companies and creators, telecoms, social networks, search engines and device makers.

Chris goes on: "With physical stuff, samples must be doled out sparingly -- there are real costs to be paid. With bits, the free versions are too cheap to meter and can be spread far and wide. That's why so many people businesses (expensive!) are turning into software businesses (cheap!), which is why your cranky tax accountant has morphed into free TurboTax online, your stockbroker is now a trading Web site and your travel agent is more likely a glorified search engine..."

Yes, indeed: this is why I think that the content business - starting with music - is turning into a software business, too - witness the explosion of app stores for mobile devices, and how much $$ people are paying for iPhone apps. Now imagine that content (starting with music) will be bundled into such apps, and people will perceive it as BUYING SOFTWARE or buying a cool app for their phone but in fact the content is included (yet paid for i.e. packaged). I think that if permitted by the rights-holders Pandora could easily sell a mobile device application that could include video, audio, feeds and images - I am dead certain people will pay for that. I will have a separate post on this sometime later this week.

Chris then hits the nail on the head: "Expect the shift toward open source software (which is free) and Web-based productivity tools such as Google Docs (also free) to accelerate".

Totally. Then, Chris warns (and I agree - that's why I am also hard at work on next-generation advertising models): "The standard business model for Web companies that don't actually have a business model is advertising...Two problems have emerged with that model: the price of online ads and click-through rates. Facebook is an amazingly popular service, but it also an amazingly ineffective advertising platform..."

And I also like his conclusion (and this is the first time that I see it spelled out like this, from Chris): "Does this mean that Free will retreat in a down economy? Probably not... "Free" has as much power over the consumer psyche as ever. But it does mean that Free is not enough. It also has to be matched with Paid. Just as King Gillette's free razors only made business sense paired with expensive blades, so will today's Web entrepreneurs have to not just invent products that people love, but also those that they will pay for. Not all of the people or even most of them -- free is still great marketing and bits are still too cheap to meter -- but enough to pay the bills. Free may be the best price, but it can't be the only one"

I call this challenge the '21st century content economics' challenge (yes... borrowed from Umair Hague's brilliant post on this topic), and it's the main topic for my work this year. If we can figure out how to generate many new revenue streams based on Feels Like Free access to content, then we can start modeling the business plans for the next 5 years. More soon! But what do you think? Comment below.

Feb 16, 2009 11:35:34 AM | 21st Century Content Ecology, Advertising Trends, Content 2.0, Free!, Future of Media, Music Like Water, Other writers, Realizations

6 Comments

The question is: How fast can traditional media adapt to the new environment. Take the NYT: After tearing down the "walled gardens" app. 2 years ago, 2 weeks ago they returned to the "not so free" model on the internet.

I recommend reading Kevin Kellys thoughts about the topic. What would people pay for? It is not "the News". Rather they might want to buy access to a very personal, to the minute information service hosted, owned or enhanced by news corporations.

However, there is more. I think, the time for distant, broadly appealing content-"machines" might be limited. Tailored useful and personal information will be the basis for a relationship that will give birth to other sorts of income.

Well, I have to admit that my own company has not yet found a way to live without subscriptions. We have lots of walled gardens. On the other hand, today we give away a lot for free. We take part in open discussions, participate in networks, share our insights (yes, for free), all the while selling our magazines and newsletters like tangible, reliable and continuous expressions of a "diskurs".

Posted by: Martin Gross-Albenhausen | February 16, 2009 at 12:22 PM

Gerd,

I think the iPhone paid apps are a great example of monetizing what has traditionally been a free marketplace - goofy shareware type programs. The problem folks like Twitter have faced is the medium in which they have launched their technology. The Internet is "FREE" and its not cool to charge for low cost bits no matter the value the service provides to its users. The iPhone app model is in a monetized medium and free apps don't exist and I doubt they ever will.

The other "future trend" observation for me here is the rock star status some of these app developers have achieved. High popularity with high velocity has led to gold record quality apps. In a world where everyone seems to be fighting for copyrights, it appears the way around it is controlling the medium and then producing interactive entertainment (versus open medium, one-way entertainment).

Twitter has a fantastic medium in and of itself. It simply must establish a baseline for monetization such as the iPhone apps. Some precedent has already been set with the API access they have granted to many developers. However, if they were to follow iPhone and develop a revenue share model with these developers that utilizes their enormous list of users for distribution, I believe they could monetize significantly.

Give it away, but only to a point. Failing to get compensated for the value you provide is a failure of business management, not technology.

Posted by: Darryl Parker | February 16, 2009 at 12:56 PM

And what do I find but a nice example of how book authors are having to go interactive...

Gavin Bell here:

http://www.toccon.com/toc2009/public/schedule/detail/5217

Comments here:

http://www.capellman.com/chad/2009/02/random-notes-from-gavin-bells.php

Posted by: Darryl Parker | February 16, 2009 at 01:16 PM

Darryl, totally agreed, and thanks for sharing. The key is to not fail to get compensated - I call this toll-booth challenge; where to charge when and for what.

Posted by: Gerd Leonhard | February 16, 2009 at 01:17 PM