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Making the "Free" Business Model Work In a Tough Economy 188

Posted by ScuttleMonkey
from the learning-from-the-dot-com-days dept.
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. '"
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Making the "Free" Business Model Work In a Tough Economy

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  • Volume (Score:5, Interesting)

    by AKAImBatman (238306) * <akaimbatmanNO@SPAMgmail.com> on Monday February 02, 2009 @11:50AM (#26694875) Homepage Journal

    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.)

    • Re: (Score:3, Interesting)

      by A. B3ttik (1344591)
      It's articles like this that make me want to go out and start signing up for "Premium" accounts. I don't mind pulling my own weight if I use something often enough, and it would make me feel like I'm doing my part to thwart the encroaching apocalypse.

      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 Wi
      • Re:Volume (Score:5, Informative)

        by AKAImBatman (238306) * <akaimbatmanNO@SPAMgmail.com> on Monday February 02, 2009 @12:34PM (#26695477) Homepage Journal

        None of my forums require or even offer paid membership, nor does Facebook. Steam's services are free, Slashdot is free, Wikipedia is free.

        I think you're missing the point. I can't speak to Facebook, but Steam makes their money off of the games hosted. When you purchase a game through Steam, you indirectly support it. Slashdot has a subscription service if you're interested. The key advantage is being able to see stories before they go live. (Which lets you compose your thoughts and post them in a well-formed manner before the comments are open.) Wikipedia is not a for-profit organization. You can make a donation if you like as that is the only way to support their services.

        • Re: (Score:3, Interesting)

          by MooUK (905450)

          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 willin

        • Re: (Score:3, Funny)

          by pluther (647209)

          Slashdot has a subscription service if you're interested. The key advantage is being able to see stories before they go live. (Which lets you compose your thoughts and post them in a well-formed manner

          See - now I know you're just making stuff up.

          Compose thoughts?

          Post them in a well-formed manner?

          On Slashdot??!

      • Re: (Score:3, Interesting)

        by gnick (1211984)

        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

        • by AndrewNeo (979708)
          I think the 'household member' works by letting other Amazon accounts use your Prime shipping as long as the delivery address is your home address. I don't think they can ship to other addresses like the Prime account holder can.
    • Re:Volume (Score:5, Insightful)

      by jollyreaper (513215) on Monday February 02, 2009 @12:40PM (#26695567)

      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.

      I think there's a difference between McDonalds giving away free hamburgers and Wikipedia. The summary makes a good point "an 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." but misses the totality of it. What the net does is remove intermediaries, the middle-men. If I write a book the cost of production is my own time, plus my editor's time. If I want to make $50k a year off of that, I need to sell some ungodly millions of dollars worth of that book because I'm paying for printing, warehousing, distribution, space on bookshelves, not to mention all of the inflated salaries and bonuses sucked up by the bloatworms in this whole process.

      I'll move far less copies selling direct but I don't have to sell as many to earn a living. Will it be a tough gig? Hell, yeah, but it wasn't exactly easy to be a professional musician or writer back in the 60's, either.

      I think what will really help move digital product is a greater feeling of connection with the creators. I wouldn't see the need to give any more money to the rapper running around with multi-million dollar contract, assuming I liked rap, but I'd want to support the little guy who's just starting out, I want to see more work from him.

      The patronage model seems too altruistic to work in the real world but we're seeing signs that it really is possible.

      • I've always seen Wikipedia as the internet's equivalent to NPR.

      • Re:Volume (Score:5, Interesting)

        by Lumpy (12016) on Monday February 02, 2009 @01:29PM (#26696341) Homepage

        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.

        • by jank1887 (815982)
          Just to play the other side, the point of traditional marketing and distribution is the promise to surpass that 'break even point' in volume. If they reduce your take by 10x, then they need to produce more than 10x in increased sales for the same effort on your part. If they can't do that, then you're wasting money, and should renegotiate the contract. The intangible 'effort' part of the equation is tricky though.
    • Re: (Score:2, Insightful)

      by iminplaya (723125)

      Even the RIAA is getting into the act by reducing the amount of their claims.

    • Re:Volume (Score:4, Interesting)

      by iamthelaw (784705) on Monday February 02, 2009 @02:20PM (#26697111)

      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.

      • 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.

        Yes, exactly! It is the same thing with TV. The commercials aren't there to entice the viewer. The shows are. TV makes its money by selling viewership to advertisers.
  • Let's face it, at some point, Cmdr Taco is going to find that magic combination of additional powers and price that gets us all to subscribe, and all that free will evaporate. I mean, if Slashdot had Karma coupons that we could all trade, we'd all be suckered in.

  • Fix that (Score:5, Insightful)

    by FriendlyLurker (50431) on Monday February 02, 2009 @11:53AM (#26694913)

    from TFA:
    > It's a consumer's paradise: The Web has become the biggest store in history...

    Telecom companies implementing tiered service models, destroying Net Neutrality will fix that temporary glitch. While they are at it, lets hand-out to them some public bail out tax^H^H^H printed money for the privilege.

  • The point? (Score:5, Insightful)

    by Thanshin (1188877) on Monday February 02, 2009 @11:53AM (#26694917)

    There is no "free" business model.

    There are forms of benefit that don't come from giving objects in exchange for money.

  • micropayments (Score:5, Interesting)

    by TheSHAD0W (258774) on Monday February 02, 2009 @11:53AM (#26694927) Homepage

    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.

    • Re:micropayments (Score:5, Insightful)

      by Kjella (173770) on Monday February 02, 2009 @12:11PM (#26695179) Homepage

      The short story on micropayments: The first one that tries to use it, dies. Why is wikipedia beating the crap out of britannica? Because if you want a general link you can post to that everyone can use, it must be an open site. How often does slashdot link to paid subscription articles? Never. I rememer there were a few NYT articles in the past that required free subscription, and it was always plenty bitching. I'm not sure what is or was competing with YouTube but the premise is simple, if you want to share a video you post it there and everyone can see. The result is that anyone that tries have their google rankings go to hell and toil away in obscurity. This will not work unless there's a really, really broad coalition that makes sure that the vast majority of the Internet population has a micropayment account. I put the odds of that happening at slightly below me winning the lottery three times in a row.

      • Re: (Score:3, Insightful)

        by TheSHAD0W (258774)

        Yes, and no. The determining factor is really the ease of adoption. Make it dead simple for someone to turn a quarter sitting in their pocket into 250 tenth-cent micropayments, and a single click for a payment to be made, and people will use it.

        • Re: (Score:2, Insightful)

          by DustCollector (903185)

          With micropayments, won't people feel nickeled and dimed (or fractions thereof)?

          I wouldn't want to pay fractions of a penny to read a blog post. But if the writer is any good and authors a book, I might buy the book. In the case of Joel Spolsky, I did exactly that.

          Similarly, I wouldn't want to pay fractions of a penny each time I used a web app. But I have purchased shareware / donationware.

          • by Ihmhi (1206036)

            There's a comic called Joyce & Walky. 1/3 of the comics during the week can be seen by everyone, and 2/3 of the comics can only be seen by subscribers.

            It's not really story-oriented so you don't miss a whole bunch. You can get a month's worth of subscriber comics at $2, and backorder at the same price. It's *reasonable* if you like the dude's work.

            So yeah, everybody wins? The best scenario is one where there's free crap for everyone and some premium crap for the people who'd care to pay for it.

            • by Raenex (947668)

              There's a comic called Joyce & Walky. 1/3 of the comics during the week can be seen by everyone, and 2/3 of the comics can only be seen by subscribers.

              Great. So say he gets moderately popular, where he actually has enough subscribers to make a living (dubious in itself). One subscriber puts the work on a p2p network. This being the Free Internet, where nobody has to support your failed business model, anybody who wants to will get the "premium" work for free. How many will still subscribe?

      • Re:micropayments (Score:4, Interesting)

        by YourExperiment (1081089) on Monday February 02, 2009 @12:56PM (#26695787)

        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?

        • Re:micropayments (Score:4, Interesting)

          by MBGMorden (803437) on Monday February 02, 2009 @01:05PM (#26695925)

          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: (Score:3, Insightful)

            How well do you think MySpace would have fared if they charged you a penny for adding a friend for example?

            Interesting example. I think they would have fared rather well. Currently, random strangers add you as a friend you all the time, and it's typical to have friends numbering in the hundreds or thousands. This is both annoying and pointless, and it's part of the reason for the mass migration from MySpace to 'proper' social networking sites like Facebook. Charging for the privilege might have slowed this phenomenon somewhat!

            I take your wider point, however. It's a difficult thing to get right. On the one hand,

          • Re: (Score:3, Insightful)

            by Monchanger (637670)

            The problem with parent post is that it ignores the expected tiny value of individual micropayments, and sets up unsustainable business models as strawmen.

            As far as costs: using GP's figures, if you pay 1 cent 10,000 times, true that will add up to $100. But look at it this way: 10,000 seconds translate into over two hours of non-stop friend-adding at the sort of rate you'd need if you made a living clicking on banner ads. Speaking of banner ads- that's how you're currently using the micropayments idea, e

          • Micropayments don't mean 1 cent per page, or per day. They could mean 1 cent per month to visit a site. Or 25 cents per year.

            I agree that people don't want to worry about racking up charges -- but that does not mean that they don't want to pay for things. I worked for a dollar store chain, and when things are $1, people don't take the time to think "is it worth it". But when we introduced $2-5 items, they balked -- even though the deals were very good -- because $1 was below their radar, but $2-5 was not.

            If

        • Re:micropayments (Score:4, Informative)

          by digitalgiblet (530309) on Monday February 02, 2009 @01:19PM (#26696143) Homepage Journal

          The model that has evolved for webcomics typically balances on the following legs:

          1) Ads (Adsense, Project Wonderful, etc.)
          2) Books, T-Shirts, buttons, stickers, etc.
          3) Comics Conventions (to boost sales of said merch)
          4) Original art
          *
          *
          Profit!

          There are over 10,000 webcomics that simply don't make any money and a few that make a respectable living for the artist.

          The key here is that the artist is also an entrepreneur and not above selling trinkets. He (or she) only needs to cover his (or her) cost of living.

          I have a webcomic that is a few months old and have been researching and studying these models. I am in the 10,000+ group and would like to move into the other, smaller group some day.

          I won't post a link here because a) people will call me bad names for self-promotion, b) it is designed for children, not the Slashdot demographic and c) my servers don't need that kind of a workout.

          Just for the record I would very much like to get $100/day, but have far less than 10,000 readers.

          The usual metric is 1,000 True Fans (based on a blog you can google... not mine, but again, I don't want to melt anybody's servers). If you can get a 1,000 true fans to buy $100 worth of stuff a year, you can pretty much quit your day job and still cover luxuries like health care insurance...

          • Re: (Score:3, Funny)

            by luker0 (1033322)

            b) it is designed for children, not the Slashdot demographic

            You don't read slashdot much do you then :)

        • by corbettw (214229)

          The short answer: regulations on banking can be extremely onerous, especially in this post-PATRIOT act world. The cost of keeping track of all those tiny transactions means it's simple not worth the effort to do so.

    • by pileated (53605)

      I happen to think you're right. This is particularly true if you focus on the producers of a product rather than the consumers. My particular perspective on this is newspapers which are slowly going out of business, for a number of reasons but one of which is that they're giving away their expensive content for free online. But newspapers are not alone. There are many good businesses that are going out of business due to free online replacements. I think most people knew that this party could not last (see

      • by 0123456 (636235)

        "My particular perspective on this is newspapers which are slowly going out of business, for a number of reasons but one of which is that they're giving away their expensive content for free online."

        Newspapers just don't get this new-fangled 'Internet' thing; the majority give away the things people buy them for -- access to the latest news stories -- for free, but then charge for access to old stories, which means that they rapidly cut themselves off from the rest of the Internet, as no-one can link to tho

  • Earth to businesses (Score:5, Interesting)

    by Yvan256 (722131) on Monday February 02, 2009 @11:55AM (#26694949) Homepage Journal

    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.

    • Amen. The jerk who owns the grocery store down the street won't let me into his store because he says I'm a thief. If he's not willing to sell his stuff to me, I'll just steal it.

  • Wait (Score:5, Insightful)

    by Kjella (173770) on Monday February 02, 2009 @11:56AM (#26694969) Homepage

    Didn't I hear this once before, when the dotcom era ended and all the "free" businesses had to start making money? Realisticly all the "techy" parts like servers and bandwidth should keep getting cheaper, so that helps. And in a hostile market, marketing goes first as it's an "expense", then you lose your customers, then the marketing budget comes back. When else are you going to fight for your customers than when they're scarce? The alledged death of ad revenue is heavily overhyped.

    • Look up the history of Moxie. (Wikipedia doesn't go into enough detail). They tried killing marketing and killed sales.

  • by Gizzmonic (412910) on Monday February 02, 2009 @11:58AM (#26695003) Homepage Journal

    The real appeal of free software is in reducing infrastructure costs. Just like roads, they don't normally generate money themselves, but they make it easier for businesses to interact and generate wealth!

    • Um, what? Hate to stomp on your analogy, especially since you got modded up for it, but... do you have any idea how much the government pays private contractors to build and maintain roads? Millions and millions of dollars.

      You're talking about two totally different things: cost centers and free software.

  • free? (Score:5, Insightful)

    by thermian (1267986) on Monday February 02, 2009 @12:00PM (#26695033)

    So, all those datacentres buying hardware and using electricity, are they free too?

    Sooner or later there is a cost, and free services have one big problem for long term survivability, where's the profit?

    A great free service may be fun, might even be useful, but sooner or later down the chain someone needs to be paid.

    Or are all web developers working for no pay these days?

    • Re:free? (Score:5, Insightful)

      by ternarybit (1363339) on Monday February 02, 2009 @12:18PM (#26695283)
      not free, just zero obligatory cost to user. Google isn't truly free because you get AdSense on the right of every search, which are paid for by advertisers. Wikipedia is free but gets millions in donations from many sources.

      Nothing of use is truly free to produce, (see parent) but since the cost of disseminating digital services divides to almost nothing per client, only a few of those customers need to support the provider to keep everyone in "free" service.

      When I can try a fully-functional product/service before investing a dime, I am much more likely to pay/donate than if I am required to pay even nominal cost upfront. That is why I've spent much more on FOSS in the last 10 years than I have commercial software.
      • "We declare we shall download whatever we like, and upon our whims, buy a CD or some iTunes tracks now and then - if we feel like it".

      • > just zero obligatory cost to user

        What does that even mean? When the consumers decide to utilize a product, they pay. It's not obligatory, because they choose to purchase the service. If you're saying the consumers can "purchase" the service in this case and still not have to pay anything, you're wrong. See below.

        > Google isn't truly free because you get AdSense on the right of every
        > search, which are paid for by advertisers.

        No, it's paid by users. If users do not buy more shit as a result of AdS

    • So, all those datacentres buying hardware and using electricity, are they free too?

      Sooner or later there is a cost, and free services have one big problem for long term survivability, where's the profit?

      A great free service may be fun, might even be useful, but sooner or later down the chain someone needs to be paid.

      Or are all web developers working for no pay these days?

      You hit the nail on the head. Unless the fixed costs are covered, and there are also marginal costs (Bandwidth, power,etc.) that must be paid as well so if it really prices at zero ultimately no one will produce those products because the will lose money.

      Of course, what really happens is the costs are shifted to their cash sources - Google gets ads, FOSS gets donated time and money, etc. That's not a new idea - TV and Radio did that for years - and still does it to a lesser extent with the growth of pay p

  • by kjart (941720) on Monday February 02, 2009 @12:05PM (#26695093)

    FTA:

    So Web startups are having to do the unthinkable: come up with a business model that brings in real money while they're still young.

    • I thought that sort of thing went away with the venture capital?

      • Re: (Score:3, Insightful)

        by Firehed (942385)

        VCs want a revenue model before you start. That has never changed. That quote is merely suggesting that if you've got a damn good idea, you'll need to figure out a good way to monetize it before you bankrupt yourself. It said "young", not "in the womb".

    • Insightful (and funny) talk by David Heinemeier Hansson [37signals.com] entitled "The secret to making money online".
  • Bullshit (Score:3, Insightful)

    by MikeRT (947531) on Monday February 02, 2009 @12:14PM (#26695229) Homepage

    can be produced and distributed at virtually no marginal cost

    Debian Linux would have cost at least $1.9B [clemsonlinux.org] to produce in a private environment. $1.9B may be smaller than what Microsoft spends on Windows, but it is a hell of a lot more money than "marginal cost."

    Let's also not forget the fact that there are few, if any, desktop OSS apps that are as robust as, say, the Adobe suite of products or Microsoft Office.

    It does OSS no service by giving people the impression that it is cheap and easy to produce. In fact, that is downright self-destructive because such an impression will make people behave even more like cheapskates. "What do you mean I should buy a supported license? I don't need to help pay for no stinkin R&D!! This stuff is supposed to be free? Why am I paying you anyway?!"

    • Re:Bullshit (Score:5, Insightful)

      by SSpade (549608) on Monday February 02, 2009 @12:38PM (#26695535) Homepage

      You don't know what "marginal cost" means, do you?

      It means the cost to create one extra item of something, once you're already making a bunch of them. In the case of software it's the distribution cost.

      That tends to be extremely low for any software product (which is why we seldom get manuals in the box now, as they add a lot to the marginal cost) and is close to zero for online distribution. Even if you're paying through the nose for bandwidth your incremental cost for a CD size .iso is a few pennies. If you use something like bittorrent, to leach off your users bandwidth (I'm looking at you, Blizzard), your incremental cost is likely an order of magnitude or two less than that.

      • Re: (Score:2, Insightful)

        by Kjella (173770)

        You don't know what "marginal cost" means, do you?

        He does, it's a parser ambiguity.

        can be (produced and distributed) at virtually no marginal cost = stamp the CD, ship it
        can be produced and (distributed at virtually no marginal cost) = developer produces code

    • by Draek (916851)

      Debian Linux would have cost at least $1.9B to produce in a private environment.

      Debian GNU/Linux is an OS whose size and scope dwarfs *anything* ever put out by the propietary world, not even Microsoft's entire software portfolio can match it let alone a single product, so the comparison isn't really valid. You don't need to match Debian to have a working, sellable product.

      Let's also not forget the fact that there are few, if any, desktop OSS apps that are as robust as, say, the Adobe suite of products or Microsoft Office.

      Define "robust". Because my particular definition of it isn't met by either MS Office, or anything put out by Adobe more than three years after the acquisition of the original company that developed it.

      It does OSS no service by giving people the impression that it is cheap and easy to produce. In fact, that is downright self-destructive because such an impression will make people behave even more like cheapskates. "What do you mean I should buy a supported license? I don't need to help pay for no stinkin R&D!! This stuff is supposed to be free? Why am I paying you anyway?!"

      But it *is* ch

  • by ClosedSource (238333) on Monday February 02, 2009 @12:24PM (#26695359)

    People in software development are the only ones I can think of who promote the idea that they should be paid less (e.g. this story) and that most of their colleagues suck (e.g. thedailywtf).

    • by Abcd1234 (188840)

      Well, to be fair, at least with respect to the second point, the problem is that there's little barrier of entry to becoming a "software developer". All you need to do is hang out a shingle, and voila, you're good to go. Unfortunately, that means the industry is truly awash with clueless hacks...

      • Re: (Score:3, Insightful)

        by wytcld (179112)

        To be truly fair, compare industries with high barriers of entry, like medicine and law. YMMV, but I've worked with plenty of clueless hacks from both those professions. Or take public school teachers, in most states requiring special degrees and certification, yet by-and-large clueless hacks. Private schools, without special degree and certification requirements, and often with lower pay, get far better teachers. Why is that? Could it be because the social environment is far more important to satisfaction

        • by tthomas48 (180798)

          This is a tangent, but private schools don't get better teachers. They get better students which makes shitty teachers less obvious. If we took a city and made all of its schools private, and somehow made sure all the kids in the school district should attend, I'm quite sure they'd end up looking exactly the same as our current public schools.

      • Well, I see that about 90% of want ads for software developers require a CS or Engineering degree and significant experience in a laundry list of buzzwords. I see that as a significant barrier to entry for "clueless hacks".

        • by Abcd1234 (188840)

          You'd think. But without a reasonable evaluation process, it's surprising who can squeak through.

          'course, I suppose the exact same thing is true of any other discipline. But a failure to, say, engineer a bridge properly results in some pretty spectacular failures, which means the standards for performance are that much higher. Alas, software (and it's developers) isn't held to such lofty standards.

          • by systemeng (998953)
            But, when you design a bridge as a Professional Engineer, you are taking personal responsibility for it and your arse is on the line. When you write a faulty inventory management system, the result is "OOPS my bad, here's the bill."
            • by Abcd1234 (188840)

              I couldn't agree more. Which is, again, why I believe the industry really is awash with hacks, and why you see sites like thedailywtf springing up. There are people out there calling themselves "software developers" while doing the shoddiest of work, and a) no one holds them accountable, and b) no one even thinks to (people are resigned to the idea that software is buggy and unstable).

  • by camperdave (969942) on Monday February 02, 2009 @12:35PM (#26695499) Journal
    We live in the information age. Information is easy to duplicate, to transport, to store, to look up. Information is cheaper than dirt. The old business models based on scarcity or rarity or production difficulty that work well for physical goods just do not work for selling information.

    An information source will attract consumers. The better the source, the more people are attracted to it. Just look at Slashdot. Slashdot attracts so many readers that when it links to an article, it can bring that article's server to it's knees. Also, the more/better the information on your site, the more you will attract even more information. It's a positive feedback loop. Placing any sort of restrictions on the information (copyright limits, DRM, country boundaries, release dates, etc) breaks the positive feedback system, and drives people to other sources.

    So, the question is, how do you get these consumers to "let off dollars" as the saying goes. As much as I hate to say it, the answer is advertising. People have been watching movies and shows for free for decades on ad based television channels. People have been listening to free music for even longer, on ad based radio. They will do the same thing for ad based internet sites.

    The trick is that your ads must not get in the way of the consumer getting to the information that they want. If you break that popularity feedback loop, you'll drive consumers away. It has to be subtle enough to not interfere.

    Google is a good example of how to do it. Quality information, and on the right hand side subtle, non interfering (and I might add, relevant) ads.
    • by cdrguru (88047)

      Advertising, and especially Google, is why 50% or more of all search results are bogus pages that just contain ads today. And you are suggesting we need more advertising?

      • Re: (Score:3, Insightful)

        by Phoenixhawk (1188721)

        Just about anyone 30+ can remember using Lycos, Alta vista, Yahoo, or Excite long before Google, and can remember typing in a single word, and having what you want in the first 10 results.

        So yea basically before there were ad pages that contain nothing but keywords that were registered with the search engines.

        but as camperdave said "The trick is that your ads must not get in the way of the consumer getting to the information that they want. If you break that popularity feedback loop, you'll drive consumers

    • Re: (Score:3, Interesting)

      by Average (648)

      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

    • by pileated (53605)

      Spare me the "we live in the blah blah blah age." That's what is spouted forth in every 'age' as a substitute for real thought.

      There is little evidence that advertising does pay, and as the original article in WSJ points out, it's even less likely to do so in the coming months.

      Finally there are some people like me who have a real distaste for advertising. It may just be that more people would prefer to pay small micropayments than to sort through junk advertising. That's the point of some responses. Micropa

  • This is an article by Chris Anderson, and the summary futzes it up and says nothing about the author. This isn't like reading some schmuck [dvorak.org]. Chris Anderson , editor of Wired, author of "The Long Tail" and the "Free" Wired article.

    Now, go RTFA [wsj.com]...

  • Software is meant to be free! [baudel.name]

    Assuming a competitive, market-based economy, any software of sufficiently broad usage is bound to become free, as its marginal production cost is null. The free software movement is not much more than the social expression of this basic economical fact. Software distinguishes itself from other works of the mind, such as music, in that its originality is by no means a part of its value or utility. As a consequence, the software industry is bound to live on the margins generated

  • So what (Score:2, Offtopic)

    by The Cisco Kid (31490)

    Free Software isn't *intended* to be a "business model" for corporations to get filthy rich selling copies of information that they produce for a nickel each.

    http://www.gnu.org/philosophy/free-sw.html [gnu.org]

    • This isn't about free software. It's about free content. Don't sit there and try to say Myspace.com or Youtube.com aren't intended to be "business models."
  • 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

    • by abigor (540274) on Monday February 02, 2009 @03:33PM (#26698085)

      Unfortunately, your docs - most likely a downloadable pdf or similar - will end up getting torrented within the first five copies sold. If you don't believe me, go to The Pirate Bay and search around for technical docs and even entire books.

      • Re: (Score:2, Insightful)

        by V!NCENT (1105021)

        The same thing goes for proprietary software as well. The entire point here is searching for a free software business model you can make money with.

        Piracy is a factor in every digital business sector and there is no way one could possibly avoid that so you might as well don't take that into account.

        • by cdrguru (88047)

          Well, one answer to piracy is to address a segment of the market that doesn't believe in piracy or faces consequences should piracy be discovered. Law enforcement, for example.

          Products specifically targeted at law enforcement aren't going to be pirated all that much.

  • diydrones.com (Score:3, Interesting)

    by heroine (1220) on Monday February 02, 2009 @02:29PM (#26697237) Homepage

    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.

  • by westlake (615356) on Monday February 02, 2009 @02:32PM (#26697277)
    The geek is never honest when he conflates production and distribution.

    The P2P rip doesn't generate the $150 million dollars needed to produce "Monsters vs. Aliens" or the $40 million needed for the low budget "Serenity."

    If the geek wants to see more films that appeal to him he has to find a realistic solution to the problem of how to pay for them.

    Otherwise production simply ends or shifts to more profitable markets. "High School Musical" and a "Hotel for Dogs."

  • The basic fallacy (Score:3, Insightful)

    by SecurityGuy (217807) on Monday February 02, 2009 @02:45PM (#26697433)

    Is that MC is 0. It isn't, though it may be small. It also doesn't cover fixed costs at all. If I spend $1,000,000 writing the next killer app and give it away for the cost of distribution, it's pretty easy to see I'm out the original $1,000,000. If I give it away for literally free, I'm out the original $1,000,000 and I've picked up the cost of distribution, too.

    Prices drop to MC in the face of (perfect) competition, yes, but before that happens consumers are paying more than cost, and willingly so because the product is worth more to them than they pay for it. If you don't have credible evidence customers will do that, you don't invest in developing the product.

    The only reason free software works is massive charity on the part of developers and project managers who get non-monetary benefits out of being involved in the project, or in some cases, corporate sponsorship.

    Note, too, that business segments which involve perfect competition are not generally places you want to be. You are a commodity. Everybody, top to bottom, gets squeezed.

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