Making the "Free" Business Model Work In a Tough Economy 188
Randy Savage writes "With venture capital on hold and advertising revenue down, the WSJ discusses where online business models might go. 'Over the past decade, we have built a country-sized economy online where the default price is zero — nothing, nada, zip. Digital goods — from music and video to Wikipedia — can be produced and distributed at virtually no marginal cost, and so, by the laws of economics, price has gone the same way, to $0.00. For the Google Generation, the Internet is the land of the free. '"
Volume (Score:5, Interesting)
The business model is very simple: Give the product away and make it up in volume!
Joking aside, there has never been a better time for free products. As the strength of McDonalds and Walmart demonstrates, consumers are looking for the cheapest prices to help reduce their costs. Even consumers who are financially okay at the moment are reducing costs to prepare for any eventuality.
If you look at the market, you see a lot of giveaways that used to be unthinkable. McDonalds is doing "free latte mondays" to draw business away from Starbucks while Denny's is giving away a free Grand Slam breakfast [dennys.com] to each visitor tomorrow in an attempt to push coupon books out to customers. (Thus encouraging them to think about the large and inexpensive breakfast they can get there.)
The key is that these businesses have solid revenue models that their giveaways promote. Web-based businesses are in a slightly tighter pickel. With advertising budgets getting slashed across the board, ad-supported websites are feeling the same pinch as print and broadcast media. Now is the time to find alternative revenue streams such as premium content to back their free services. Things like selling larger downloadable versions of free web games or state tax filings [taxact.com] to go with free Federal filings.
These are potentially sustainable models in the Internet age. They preserve the free service concept and allow consumers to evaluate the product(s). Customers then have a difficult time not paying for Premium features or content with real value. The "real value" is the key, of course. Which is something the internet has been missing with its premium features. (Video Game DLC is particularly bad in this area.)
micropayments (Score:5, Interesting)
This is exactly why the net needs a viable model for micropayments. And yes, I know, the abundance fan's response is that "money is obsolete, we don't need it any more"... People still want SOMETHING for their work, and while there have been all sorts of proposals, ranging from whuffie to all sorts of other trust metrics, micropayments would work just as well and would allow a tie-in to the remains of the real world economy.
Earth to businesses (Score:5, Interesting)
Yes, free can beat not free. Can't argue with that.
You have to realise, however, that sometimes it's not the fact that it's free, it's the fact that's it's available at all.
Pirates don't care about international borders, different launch dates for different countries, how old the content is, etc, etc.
If you want to sell your content, don't build artificial borders that prevents us from buying it.
As an example: how long has the iTunes store been running? Why can't the labels tear sell their content to everyone on the planet? It's your own mess of contracts and licenses, figure it out for yourselves and leave us out of it.
Re:Probably have to subscribe to slashdot after al (Score:3, Interesting)
Maybe they could adjust the price of them according to per K of M of data. I would gladly pay 3 bucks a hit to use that feature.
Re:Volume (Score:3, Interesting)
But now here's a question: where the hell is an average net user like me going to even use a "Premium" account? I can't even think of one that I'd use for free, much less want to pay for. Like most college students, I use forums and Facebook and Google and Wikipedia and Amazon. Like most gamers, I use Steam almost exclusively. None of my forums require or even offer paid membership, nor does Facebook. Steam's services are free, Slashdot is free, Wikipedia is free.
Just about the only thing I can think of is signing up for a Premium Fileplanet account... but I download so little content these days (and I'm not a pirate _at all_) that I -know- it wouldn't be worth it. I'd barely use it.
I guess I'm just going to shrug my shoulders and make a donation to Wikipedia.
Re:Volume (Score:3, Interesting)
I can't even think of one that I'd use for free, much less want to pay for. Like most college students, I use forums and Facebook and Google and Wikipedia and Amazon.
Amazon's premium service [amazon.com], although expensive ($70/year IIRC), is wonderfully addictive. It eliminates the $25 minimum for free shipping and upgrades you to "free" 2-day shipping. If nothing else, it's worth signing up for their free (1-month) trial if you ever run into something you need quickly and are too cheap to upgrade your shipping option.
Also, they allow you to invite (I think) up to 4 "household members" to share your membership. I do not know how they define "household member", but they haven't objected so far to me sharing a membership with my dad.
Just my $.02 - Donating to Wikipedia still seems more useful.
Re:micropayments (Score:4, Interesting)
You're rather stating the obvious there. Of course the only way micropayments can work is if someone invents a micropayment account system good enough that people adopt it.
Quite why nobody has done so is a mystery to me. It's hardly rocket science. It just takes a system exactly like PayPal (preferably not run by a bunch of assholes), except that every payment is charged at a set percentage, with no ridiculously large minimum fee or per-transaction fee. That way, it enables providers to charge the tiny sums of money which are necessary for consumers to embrace such a scheme (hence micropayment, see?)
I can't see anyone objecting to paying a cent to see their favourite web comic, and I can't see many web comic authors objecting to getting (say) an income of $100 a day from their 10,000 regular readers.
Since this whole idea was proposed years ago by someone a lot smarter than me, can anyone explain to me why it hasn't happened?
Music production is free? (Score:1, Interesting)
Music production is free? That's news to me. As a musician, I've been going the cheaper route of recording and producing my own music. My total investment so far exceeds $40,000 in equipment and software. Then there's the countless years of practicing and honing my ability and knowledge, money spent on lessons, etc.
Total I've made so far in the "new economy", where everyone thinks it should be free because they want to stick it to "the man" (read: record executives)? $4.48.
Re:The point? (Score:2, Interesting)
Re:micropayments (Score:4, Interesting)
I can't see anyone objecting to paying a cent to see their favourite web comic, and I can't see many web comic authors objecting to getting (say) an income of $100 a day from their 10,000 regular readers.
Since this whole idea was proposed years ago by someone a lot smarter than me, can anyone explain to me why it hasn't happened?
A cent for Penny Arcade? No, I wouldn't care. However, that is one site among countless ones that I visit every day. I have tons of sites that I visit like clockwork each day, and tons more that I visit on a whim (it's called web surfing for a reason). Start to add all that up and those pennies turn into real money.
And besides that fact: the simple fact of the matter is that if you make it so that there's a meter to run up, people will do less of something. The Internet has been driven to the point where it is because people, much like TV, can log in and goof off for as long as they feel like with no financial consequences to answer to. The internet in this country NEVER took off until AOL and the like pulled the plug on charging per hour of access and went to an "unlimited" model (which effectively was unlimited when everyone was on dial up.
Put the meter back in and people will start to care about what sites they visit, as it will be running up a bill again. Am I going to jump onto google and just look for something interesting for the hell of it? Nah. Times are tough and I don't need to be wasting anymore money right now. Fewer people looking for stuff, means fewer people finding stuff, which means the slow segregation and stagnation of the Internet.
How well do you think MySpace would have fared if they charged you a penny for adding a friend for example? Note, not how would they fare RIGHT NOW, but when the site first launched, how would it have done? My bets is it would have about as much relevance at this point as Flooz if it had.
Re:Volume (Score:5, Interesting)
The key is VOLUME and DIVERSITY.
I self publish several DVD's and Coffee Table books. My books and DVD's sell very slowly, each book or DVD sells maybe 1 copy a month. But I have 4 DVD's and 8 books out there. so I am shipping 12 items a month all the time. as I add in the next 2 DVD's that I have finished and the next book I will sell 15 items a month all the time month after month.
Unlike Traditional marketing and distribution I get about $20.00 per DVD sold and $10.00 per book sold. When I used to sell through a publisher I got $1.00 to $2.00 per book or DVD sold.
I can sell 10X less and make the same money. Plus I dont have to spend Thousands to woo publishers to carry my product, I can tell the publishers to suck it and do it myself. My profits are 10X from when I had a formal publisher and agent. I control costs, I control every aspect about my product and I reap the profits.
Do I sit in my villa drinking martinis all day? no. I order supplies, support the website and webstore, and place book and DVD replication orders. I "WORK" 1 hour a day doing that. The rest of the time I do my day job and then do my photography and Videography. I made enough money off it to upgrade my cameras and other gear yearly plus each year the profits increase as I add 2 DVD's and 2 Books to the pile of items that sell every month without fail.
New DVD's get a surge of 200 sales initially, and they taper off to the 1 a month unless I get a mention in a trade magazine, then they spike again.
I had an article about one of my products in Creative COW a year ago and my sales spiked hard, same as when I get a mention off a popular blog or podcast.
If I marketed myself and my product better , sales would be far more brisk.
Re:Volume (Score:3, Interesting)
I believe what he was saying is that he'd be perfectly happy to pay extra for a premium account, but none of those relevant to him actually offer anything that matters to him. Personally, I mostly *read* slashdot, not comment on it, so a paid account is worthless to me. A lot of places offer ad-removal as a paid benefit - but ABP and appropriate filter lists make that irrelevant for free.
There is a difference between being willing to pay for something that gives you something for the money, and being willing to give money without receiving anything in return. I'm not saying it's necessarily a good difference, but it's still a difference.
Re:Economics in the Information Age (Score:3, Interesting)
The problem with reliance on advertising is how badly it really works.
Businesses always suspected they were wasting a lot of money on advertising. But, it was a black box. Designed, by the admen, to be hard to judge whether it was effective or not.
But, in the early internet, the advertisers went straight to the geeks, with little 'Madison Avenue' in between. The geeks said, "sure, we can give you click-through and dwell-time and all the numbers you want". And the businesses got the numbers and said "holy Jeesh, internet advertising sucks in cost-effectiveness". All ads sucked, we just measure it better online.
The perfect business model for free software (Score:2, Interesting)
Create something with a large codebase that other people want to use in their own free software application or game, like a very nice raytracing engine for example.
Now here's the catch; nobody likes to learn a large codebase because it takes a lot of time. Especialy free software developpers because they usualy don't have a lot of time on their hands as they are doing projects in their spare time. So here's what you do to get money; sell detailed documentation and maps of the code of your project. ThÃt would be your product, not the source code.
If you make sure your code is not ugly and unreadable then you'll probably sell a lot of documentation. People that create free software would probably not hasitate at all as they buy OpenGL, C, C++ and ruby books as well.
Your product is completely ethical in terms of free software. It is not nessecary for a developper to buy your documentation, but they will probably do it out of respect and because they just want to save time. In essence, you are selling someone time. Isn't that just the greatest thing?
Re:Volume (Score:4, Interesting)
A friend pointed out to me once that one way to think of this whole thing, to make it make a little more sense, is to put the business model on its side.
A company like Google, for example -- most people would say that you and I, as searchers, are Google's customers. Instead, let's say that Google's "customers" are the advertisers, and their "product" is users (or, more concretely, the users' attention). By delivering "products" to "customers", they make money.
So a site that makes no money -- an early-stage dot-com that doesn't advertise yet, what are they doing? They're building up a warehouse of product, in the hope that once they have enough products, they can sell them to customers at a good price.
diydrones.com (Score:3, Interesting)
Check out diydrones.com. He sells a super cheap circuit board that interoperates with stuff most of his customers already have. What's another $30 when you've already invested $300? He gives away the source code & plans, but puts a ton of effort in publicity doing odd projects like the blimp autopilot, posting frequent firmware updates, & growing a social network around the product.
You could "donate" to your favorite websites/utils (Score:1, Interesting)
If you really want to support your favorite website or utils, many (but not all) have options to donate money via paypal.
Funny -- I've done that on items that are 'free'...where the owner/maintainer keeps offering upgrades/updates for 'free', but for some utils that have *converted* from a "free-updates-for-life* to a pay-per-update model, I've stopped getting upgrades. I don't use most of my utils ***that*** often that I feel like I want to buy a 30$ upgrade every year -- ***ESPECIALLY*** when I've reported "problems", or suggested or asked for features/upgrades -- and then they've gone through either 2 upgrade cycles OR a year of upgrades.
I've had more than a couple utils that either started by requiring pay, or converted to pay -- one went from ~$70 for an X server, up to maybe $200-300 now -- but they add in a bunch of stuff I don't use or need -- but the topper was when I missed an upgrade, they required I pay an extra 'upgrade' fee for each version I had skipped!!! The "missed-upgrade" fee was about 40% of what I would have paid if I had purchased the upgrades, so it was still worth the pay out -- but after 1 of those rip-off upgrades, I searched for and found a *free* replacement that offered what I wanted (none of the extras I didn't need and wasn't using) and that was the last time I purchased something from them.
I used to tell some vendors I'd bailed due to their not adding features, or fixing bugs, or costing too much for value I was using it for, but it's been a long time -- because I got the impression most didn't really care.
But when I *have* extra (maybe once a year, I try to donate some money across a few of the projects I use -- $10 here, $20 there, try to spread it around. I donate anonymously when I have the option -- don't want them to be doing favors just because I pay them. I try to look for those who are genuinely nice and/or useful. I'm more generous with those who are 'nice' in online or support forums, but even give to 'a-holes' if they have a product I genuinely think is good and find useful (they just don't get my 2-3X multiplier for 'niceness'). ;^)
Anon for obvious reasons..