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Getting the "Free" Business Model Wrong Doesn't Mean the Model is Flawed
Posted by
ScuttleMonkey
on Mon May 26, 2008 01:25 PM
from the economics-should-be-a-required-course dept.
from the economics-should-be-a-required-course dept.
While "free" seems to be an increasingly popular business model, there are quite a few people who seem to be completely bungling what to do with "free" and then complaining when it doesn't work. Techdirt takes a look at some of the arguments surrounding why free as a business model may or may not work and why many of these arguments, while prevalent, just don't hold water. "you give away the infinite goods, not the scarce goods. Your time is a scarce good. No one is saying that everything needs to be free -- they're saying that infinite goods will be free, because of it's very nature in economics. In fact, Poole's argument is particularly weak when it comes to programmers, because most programmers don't earn any kind of royalties for the software they write. They are paid a salary, for their time -- but not for the software itself (which is an infinite good). And, I won't even get into the number of programmers who work on open source projects for free ... or the fact that Poole is blogging for free ..."
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I laugh (Score:3, Insightful)
Re:I laugh (Score:5, Informative)
I wish I could be so lucky. My boss won't let FOSS anywhere near the system with the exception of one lonely PC set up as a webserver. He knows commercial software has its problems--his biggest problem with FOSS is "lack of support." I've tried showing him that there is support available, but when he wants support, he wants to be able to pick up a phone and get an answer the same business day.
Of course, this is the same boss who says "I'm not using anything I need to compile myself." Go figure!
Parent
Re:I laugh (Score:5, Informative)
I wish I could be so lucky. My boss won't let FOSS anywhere near the system with the exception of one lonely PC set up as a webserver. He knows commercial software has its problems--his biggest problem with FOSS is "lack of support." I've tried showing him that there is support available, but when he wants support, he wants to be able to pick up a phone and get an answer the same business day.
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Re: (Score:3, Insightful)
Re:I laugh (Score:5, Insightful)
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Re:I laugh (Score:5, Insightful)
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Re:I laugh (Score:4, Interesting)
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Re:I laugh (Score:4, Interesting)
My question: I plan to ackquire VS 2008. Could you please inform me about the differences between the various packages you offer, so I could pick the license(s) that suit our needs best?
One would assume that it, being a question dealing with making a sale, first of all has some sort of priority and second, should be part of a standard info. I was actually surprised that I couldn't find the info online, but maybe I just didn't manage to find it.
The answer was that the service rep doesn't know and he will escalate the question. After that, a week of silence. After that week, I got an email with a link to a page giving me admittedly exactly the information I wanted.
Asking how I could have found this page, so I don't have to bother their support the next time I need information about different software bundles, I was informed that there is no link from the main or search page that would have enabled me to find it.
Parent
Re:I laugh (Score:5, Funny)
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Re: (Score:3, Interesting)
We also paid $25,000 to LinuxWorks for 5 seats/1 year support (we had 2 seats only but LW did not have 2 seats packages). The support itself was not good (they have used outsourced clueless developers from India). At the end, we resolved all our problems ourselves.
Re: (Score:3, Interesting)
If your boss isn't interested in paying someone internally to learn the products well enough to support them, he/she probably isn't really interested in spending money outside the organization either, no matter what th
Re: (Score:3, Interesting)
I am--but the catchphrase for our department is "We don't code. Ever."
It's not a situation that's at all logical, and he knows that taking an absolute stand against FOSS isn't rational. But this is the same guy who will cheerfully pay $450 per hour for a consultant to come in and do something that we can (and have) done.
On the plus side, he keeps the rest of the departments off our backs, and gives us the tools and the freedom to do
Re: (Score:3, Insightful)
Re:I laugh (Score:5, Insightful)
Parent
Re:I laugh (Score:5, Insightful)
If this happens with a FOSS product, upper management will start asking questions and eventually blame him for the choice of software. Your boss knows this.
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Re: (Score:3, Interesting)
When people that I deal with sit down, open a few documents, surf a bit, check out pictures on their camera... well, they almost invariably say "oh, it's just like MS. What is it called again?" Then after a bit more conversation, I have to explain that they don't need windows to run GNU/Linux, that it's a free alternative to MS Windows and it has alternatives for all the MS software that you have been using. In fact, some of it is better than MS software, and all of it is free! Mind yo
Re:I laugh (Score:5, Interesting)
Parent
It's been said before... (Score:3, Interesting)
This means you're placing the value on your time. If people want installation help, custom configuration, or even hosting services for your application/software suite, you charge them. Ongoing maintenance? Charge them. Everything doesn't have to be free, something people seem to frequently forget.
A good example? (Score:4, Insightful)
Re:A good example? (Score:4, Informative)
Parent
Some people have to blame others. (Score:5, Insightful)
I believe that this is because more people are trying to make $$MILLIONS$$ personally (remember the old Microsoft millionaires) on software that other people have written.
Essentially, they're trying to put an artificial bottleneck between the consumers and the product so they can extract money from the bottleneck. Lots of money. When they don't get lots of money, they whine. When someone else renders the bottleneck ineffective, they whine.
Ecosystems come in many flavors (Score:5, Insightful)
There's the cool-app model, like MySQL, Apache, and others that depend on application support and transparency across a lot of software disciplines.
There's the vertical app model, like Asterisk, that uses hardware/software/extensions to motivate the community, each making a few cents in within sub-markets.
There's the 'fringe' app (not said in a deragotory way) that uses a shareware-like valuing through paypal, donationware, and other 'love of the art'/hacker's bent.
And these are only a sampling of general categories. F/OSS in the Stallman model doesn't have to be a vow of poverty. On the contrary, we're only scratching the surface of how F/OSS makes money.
How ignorant. (Score:5, Interesting)
The fact that they've made such a basic blunder in understanding the actual mechanics of the industry makes me wonder, even in the presence of their semi-sophisticated talk of scarcity, what they actually know about business.
Re:How ignorant. (Score:5, Interesting)
Parent
Re: (Score:3, Interesting)
1) It's something that they could buy, but you're selling it to them cheaper. Or
2) It gives them no business advantage over their competitors.
In case 1, you're going to continually fight a battle trying to price your sale lower than the competition. In case 2, you'll find an upper limit on what the customer is willing to pay.
Re:How ignorant. (Score:5, Interesting)
We even released some of our less proprietary related bits upstream to the community -- such as scriptage for using Inkscape as a just-in-time SVG renderer for much fancier cover pages than HylaFAX was able to handle on its own. Why? Because I wrote them in-house, and I wasn't going to be there (or working on faxing) forever; having those bits (which weren't exactly "secret sauce", just a little bit of extra flare) in the public consciousness meant that whoever ends up taking over the fax subsystem (of our much, much larger product) now that I'm gone will be able to pick up any third-party enhancements to that code which have been made upstream -- and maybe, just maybe, having that example available of what the enhancements we paid to add to HylaFAX+ can do will result in the HylaFAX.org branch deciding to pick them up, meaning that customers owning fax hardware only the iFax commercial variant of HylaFAX.org can interoperate with would be able to use that hardware with our product.
Parent
Re: (Score:3, Informative)
For example, programmers generally charge for scarce commodities (time or solutions), and don't attempt to trade for the free stuff (additional (marginal) copies of their completed software).
They then point out how the blogger blew it (trying to get paid for near-zero marginal co
Re:How ignorant. (Score:4, Insightful)
There is nothing in the article related to open source licenses, etc. They're completely irrelevant to the economic argument - and frankly, to the common mechanics of the industries that the article describes.
That's the problem with arbitrarily redefining perfectly good words in common use.
Don't expect the rest of the world to suddenly adopt your new meanings for their own words - most of them don't know (or give a rat's derriere) about such terminology.
Parent
Re:How ignorant. (Score:5, Funny)
Parent
TANSTAAFL (Score:5, Insightful)
No human effort is free. All human efforts require time and energy, overhead and maintenance. This is more so true when the efforts are subsidized by a company. When a contributor gives effort to the improvement of software that is to be made freely available to all he (or she) is engaged in a contract wherein he can expect a benefit called "progress."
Such a contributor may offer this up for the benefit of all, but that point is not important to the contract. As long as there are two contributors in the world so involved that their efforts benefit each other the terms of the contract are kept and the benefit is achieved. That there are many, many contributors so engaged amplifies the benefit for all.
Progress benefits us everyone. Perhaps "free" isn't the right word after all.
Paying for your time (Score:5, Interesting)
If the software was perfect, ie the original programmers had put enough time into it to completely debug the code, the user interface was simple and intuitive, no conflicts with other programs arose, etc...
there would be no need for tech-support
there would be no income from the software
So by giving away the software free, does that encourage buggy programming?
ABIL
Re:Paying for your time (Score:4, Interesting)
Of course MS programmers are users of Windows mostly, but I suppose when they're given deadlines and told exactly what to do by marketers who care more about looks and advertising than features they start to slip
Parent
Re:Paying for your time (Score:5, Insightful)
Support does not only mean a help desk and bug fixes, but also include customization and integration with the customers' existing systems. Even if you would write perfect bug-free software, those two demands wouldn't magically vanish.
Parent
yes it does (communism) (Score:5, Insightful)
Once you start tacking on conditionals and making the model more complex, it is no longer a good business model. Blaming companies that can't figure it out helps no one.
Just because you have an idea that works well in a theoretical context, and there have been a few success stories, does not mean that it's a good model.
Entreprenuer Barbie: "Business is hard!" (Score:5, Insightful)
All business models are easy to screw up. Most new companies fail within a very few years.
This isn't a matter of blaming companies, it's a matter of recognizing reality.
Just because you have an idea that works well in a theoretical context, and there have been a few success stories, does not mean that it's a good model.
The article wasn't about a business model, it was about why some business models work and others don't. There are many business models that involve giving away one good to promote the sales of other goods that you can sell at a higher margin. "Give away the razor and sell the blades" is a business model, and obviously a successful one, but do you expect to get into that business today, without a lot of effort and luck?
The first lesson this article is trying to impart is that when you have a good that has a high marginal cost of production, and one that has a low marginal cost of production, you are probably not going to succeed if you give away a lot of the ones that cost you a lot to produce, but you may be able to succeed if you can give away the ones that don't cost much to produce to drive the sales of the higher cost one.
The second is that there are many business models that can be based on the fact that some goods have a zero marginal cost of production. If you are going to make a living that way, you need to come up with one of them. But just noticing that a good has a zero marginal cost of production isn't a business model.
Parent
Another big point... (Score:5, Insightful)
This is just the limiting case of the market. This is what destroyed DEC and other big hardware companies that tried to avoid producing cheap computers that would outcompete their high margin ones. People didn't buy the VAX instead of their desktop PDP-11s running stripped down RSX (P/OS, what a perfect name for an OS that was), people bought desktop micros that had processors that might have sucked compared to the LSI-11... but they cost so much less that there was no demand for something in the middle.
So now one of the things that's hurting traditionally marketed music sales is nontraditionally marketed music. The marginal cost of production of music is now nearly zero, therefore if you can make enough money to make it worthwhile to keep selling a small number of CDs at CDBABY based on the free samples you give away at LAST.FM, why wouldn't you? If you can get your music onto iTunes and Amazon for nothing, and get modest sales and the possibility of better sales (look at how Jonathan Coulton's doing, eh?), you're going to do that as well as playing gigs and trying to get the attention of the big labels and all the other stuff that musicians have been doing for years.
And so people like me get our music from last.fm and 3hive.com and Amazon and iTunes and don't bother going to the record store or listening to the radio (which is all the same Clear Channel approved pulp anyway)... because it's getting easier and easier to find out about the people who are making free work for them... mostly free, just enough that's not free to keep the people making the free stuff to keep people like me going "hey, that's good, I'll get their album" now and then...
Glad people are discussing scarcity (Score:3, Insightful)
I've given up thinking or caring or trying to explain to others whether or not illegal downloading hurts authors. Now I just point out how stupid it is to trade a scarce good, like money or food, for a non-scarce one, like a digital reproduction. It just doesn't make any kind of mathematical or economical sense.
If a person wants to give their favourite author some money, fine. But call it what it is: a donation, not a trade.
Re:Glad people are discussing scarcity (Score:4, Interesting)
The output of creative folks is NOT a non-scarce good... it's actually extremely scarce. And if there isn't a better model than Copyright (and no one seems to have implemented one yet), then when you pay for the reproductions you're funding the original work.
Parent
Let's answer Poole's question... (Score:4, Informative)
Jonathan Coulton [wired.com]?
Using the FREE model with music (Score:4, Interesting)
There's Scarce and then there's Too Scarce (Score:4, Insightful)
This works well if you are a consulting house. But the danger is that you are so scarce that you cannot replicate yourself fast enough for support, so you will not support what you do either. Someone else will, and you'll risk having nothing because you've given away the only thing that you truly owned, which was the part you contributed.
This also takes a dim view of what you are contributing, as if the only part of coding was implementation. Good design is, alas, not copyrightable, and so is difficult to protect. But that doesn't mean it wasn't scarce. It just means there isn't good protection for that kind of scarcity. And since many participants in the discussion are predisposed to think that protection of any kind of intellectual property is bad just because they've seen some things in intellectual property that it was demonstrably bad to protect, the possibility of adding intellectual property protection of one kind or another doesn't occur.
I actually think a lot of the problems of IP protection are due to the duration of the protection and not the fact of it (though I do agree there are also things that are protected foolishly). My point is that if they expired quickly, it wouldn't matter much if there were mistakes made favoring creators, but it would give the creator time to negotiate before the fact that he created something was irrelevant because everyone else had it and was exploiting it to their advantage, not to his.
Thank you for bringing this. (Score:4, Informative)
I speak strictly to the Linux economy when I say this, and this is one reason why Linux isn't as popular an OS with commercial development as it is.
First:
Do not write your applications with a blatant double standard. Examnple:
Windows version: Nice GUI interface.
Linux Version of same App: CLI if lucky with text file configuration.
That is really really really disrepectful. I'm looking at you: synergy
Second. There are established methods of installing appication software. e.g. RPMs, Debs. I hate to say it. Disregaurd the other package formats. make an RPM or a DEB and you have 95% of the Linux market covered. RPM and DEB are availible on EVERY distro.
Don't leave your software full of memory leaks, integer overflows, and other things that can make a system crash.
If you are a closed source vendor, provide an x86_64 and x86_32 package.
If you are an Open Source Vendor: Do NOT package your source as a RAR. Package using BZ2.
Do NOT package your own hacked versions of SDL, OpenAL, or OpenGL. This is likely to break things. (I'm looking at you d2x-xl.)
Have a good support model. Don't be fly-by-night. Don't be a scam artist, don't be a con artist. Don't do a half ass job on your Linux port. Simply stated don't be a total imbecile.
"Free" vs "Unlimited" - how Craigslist is losing (Score:5, Interesting)
The "free" model is breaking down for Craigslist. I just wrote an article about this on Techdirt. [techdirt.com] Craigslist allows free ads, but not unlimited free ads. The intent is to allow individuals to post a few ads a week. But for some advertisers, that's not enough.
Craigslist has all the usual defenses. They have limits on how much each account can post. They have a CAPTCHA. They have E-mail account validation. They check for excessive posting from one IP address. And they have a flagging system to catch any remaining spam.
All those defenses have been breached. There are power tools for Craiglist spammers. Commercially [adsoncraigs.com] available [adbomber.com] power tools. Multiple accounts are created for ad spamming. OCR is used to break the CAPTCHA. Jiffy Gmail Creator [jiffycreator.com] ("Who Else Wants to Create Unlimited Gmail Accounts in Seconds Flat Without Breaking a Sweat?") is used to create vast numbers of GMail accounts to receive the account validation replies. IP proxies are used to get around per-IP limitations. Postings flagged off are automatically reposted.
Against these industrial strength automated posting tools, Craigslist is losing. Major areas of the site are over 90% spam, and angry users are deserting the site. Craigslist is trying phone verification, but even that has been broken. (Read the Techdirt article and the Black Hat SEO forums for how that's done.)
Craigslist is being hit because it's the biggest free ad site, but attack tools are available for other ad and social networking sites. You can read about it on the "Black Hat SEO" forums. [blackhatworld.com]
I still don't get it. (Score:5, Insightful)
I still don't get it.
My brother writes books and magazine articles. He gets paid for his books and articles. He also publishes some stuff 'for free' on his blog (there's a free e/audio-book on there right now for instance). However, his core, major work isn't free. This way he can afford to feed and clothe his children. If he gave his stuff away, or asked for contributions he wouldn't make any money (he knows this because he's tried unsuccessfully).
How does an author who writes 8 hours a day make a living if he gives his stuff away?
Or does he become a carpenter and write for fun an hour or two a week because writing is not a 'career path', but being a mechanic or carpenter is?
Please explain.
[/flame]
Infinite resource is irrelevant (Score:4, Insightful)
1) Software costs a lot of money to design, write, document and support, and little money to reproduce, and the latter therefore plays little role in determining price, regardless of how much potential customers want to whine "but it costs you nothing to reproduce - it's an infinite resource"
2) Software is basically ideas encoded as 1's and 0's. The 1's and 0's may be an infinite resource, but the ideas are not. Some ideas are scarcer than others, or more expensive to turn into 1's and 0's, and you may expect to pay more for them according to this scarcity and conversion cost.
Information was always free, that's not the point (Score:4, Insightful)
The problem in the modern era is not that the marginal cost has come down(it was never all that high), but that the copyright holders have breached their side of the contract. The length of copyright is such that a copyright holder can sometimes ensure that one or two pieces of work can provide an income not only for themselves but for their descendants. While wise investment of the profits from a successful creative work has always had this capability, it is only fairly recently that the creative work itself could do this.
This not only means that creative individuals(and the children of creative individuals who might have otherwise been creative themselves) are, contrary to the intention of the social contract not encouraged to create, but that their works do not reenter the public domain and provide value to society in general.
Copyright law cannot be enforced because the majority of people do not believe they are doing anything wrong when they break it. The reason(IMO) for this is that they feel consciously or not, that the other side broke the deal first. Unless copyright returns to it's original intent, or the social contract is successfully redefined(a difficult proposition for all those reeducation classes they want to give students since it's hard to convince someone that they shouldn't want a fair deal), copyright will die. If copyright dies, a great number of ideas and creations that might otherwise benefit society may never be created and industries and creative individuals will be forced to conceal their ideas in order to protect their value.
This would not be a good thing, so for the good of society hopefully we can find a compromise where artists and inventors get to make a living(though not forever) and society gets free access to creativity(though not right away).
Re:IANAB and I did not RTFA, but.. (Score:5, Insightful)
Maybe you shouldn't try and hang your economic philosophy on old ideas of supply and demand?
Parent
Straw man argument (Score:5, Interesting)
In some cases there is no pre-creation demand, because no-one knows they want it. Examples include music from unknown artists, fiction from unknown authors, etc. In other cases the demand is better (though not perfectly) known: a new Radiohead album, an Indiana Jones movie, or spaceflight for tourists.
Parent
Re:IANAB and I did not RTFA, but.. (Score:5, Insightful)
Parent
Re: (Score:3, Insightful)
What about stupidity?