Would you give your services away for free?

Chris Anderson’s long-awaited follow-up to the Long Tail has just hit bookshelves. Entitled Free: The Future of a Radical Price the book argues that abundance is causing prices to fall effectively to zero. Here the psychological advantage of giving something away for free actually benefits the producer – through wide-spread take-up that can lead to other revenue opportunities.

It is a fascinating, and highly contentious, thesis. Malcom Gladwell, writing in the New Yorker, dismisses the arguments. For instance, he points out that Lewis Strauss’ prediction that electricity would be free (derived from nuclear power) failed to come true due to the massive infrastructure costs of the electricity grid that required continual fees to finance. Similarly, Youtube might be successful by providing videos for free without interruptive advertising, but it is losing a lot of money.

These are sound criticisms, but there is an additional one of the Pandora’s box. If I give something away for free in order to gain revenues from new streams (e.g. giving CDs away for free and making money from tours and t-shirts), how long before these alternative sources also see their price depress to zero. Does this trend continue until we reach something that is inherently scarce?

Possibly, but nothing is scarcer than our time, yet as Chris Anderson points out, we will choose to spend our time doing something that is free.

Anderson’s reply to Gladwell was largely unhelpful. While he correctly observes that the review itself is given away free on the New Yorker website, his implication that Gladwell’s position of defending the status quo is driven by his vested interested in being a journalist is unfair.

The example of GeekDad is also misjudged. He makes money on this through advertising around an amateur community – it has been very successful and the community leader now has a book deal. People may indeed engage for “fun” or in the hope of jump-starting a writing career, but then there is no traction or quality control – I don’t believe the argument that a passionate amateur is better than a paid professional. Sometimes, maybe, but not always.

Furthermore, what happens when the talented amateurs get their book deals? They become too busy to participate, so the untalented amateurs take over. It’s a bit like a the toilet circuit in the music industry – an occasional rough gem among a lot of dross. The only difference is that ad impression revenue is more stable than door receipts.

In a comment to the post, Anderson points out that the book centres on the freemium model – it would have been better if his initial response had focused on this as it is a nice business model (though again I am sceptical of its long-term viability).

It has thus far worked for companies like Flickr as passionate photographers need more storage space than the basic account offers [updated for attempted grammar correction], and the built-in community aspects of the site have created traction. But, as bandwidth charges decrease, other services (e.g. Facebook) offer unlimited storage. Flickr only retains revenues due to the time cost of transferring photos and restarting a community. Is this sustainable indefinitely? I don’t think so.

Elsewhere, the local coffee shop occasionally gives away free tasters – but only as marketing; not as a continual persuasion tool to get me to upgrade to a full cup.

Would I give my work (research) away on the freemium model? Occasionally, I would. But only because the losses accrued from giving something away up front can be written off to PR/marketing.

This isn’t sustainable because there isn’t a continual influx of new clients – the benefits of giving reports or data away diminish each time. One could argue that information is free and opinion is scarce – and that I could give data away for free but charge for a report. In this sense, it is why newspapers are increasingly reliant on columnists.

But again, this is only valuable on occasion – at least in research. News may be free in the sense that affected parties can spread the information widely without cost. But research – the collection and collation of facts, opinions or attitudes – costs money. An entire population isn’t going to magnanimously upload all the required information without monetary or social recompense.

How about your industry? Could you survive by giving away your core product/service for free, and offer a premium version (or a diversification) to make up the difference?

I’m sceptical, but am by no means unconvinced.

sk

PS Chris Anderson is speaking at the RSA tonight. I can’t go as I’m at Bon Iver but I look forward to hearing the response

Image credit: http://www.flickr.com/photos/iirraa/

The cost of giving it away

I am one of a declining number that likes to read a Sunday newspaper.

Recession notwithstanding, I am also one of those people that tends to struggle more in terms of time than money.

Therefore, I generally only have time to read one newspaper a week. The choice of newspaper is effectively zero-sum. I choose one newspaper; the others miss out.

I’ve deviated from that choice in recent weeks. Whereas I used to pick the Observer without fail, a lazy Sunday prompted me to give the Sunday Times a go.

And I enjoyed it. So much that I bought both newspapers again the following week. With time constraints restored, substantial amounts were left unread.

I therefore need to make a choice between the two titles.

And my choice is likely to be dictated by the quality of their websites. Both the Observer and Times offer the majority of their content online in an ad-supported free access model.

But rather than an excellent website causing me to buy the print edition, an excellent website may cause me to forego the print edition.

While print and online may complement, they also duplicate and cannibalise content.

If I am paying for a premium model, I want the greatest improvement in utility to justify that.

This example points to a problem with the Freenium model that I have.

It doesn’t work in perfect competition.

It works for companies like Flickr because Flickr stores my photos and logs my activity. Utility and the cost of switching increase the more I participate.

Newspapers don’t reward relationships (aside from getting the answer to the previous days crossword). So in each transaction, the additional utility in the premium model needs to be justified both against the free version and the competition.

Where (premium, competitive) newspapers are of equal quality, hikes in utility are dictated by the quality of the (free) website.

An inferior website equals a greater hike.

And so the loser in the pitch for my pocket may be that which has invested the most in their website.

Does this mean newspapers need to sabotage their websites in order to increase the value of their premium products? Such as bringing back walled gardens or keeping the best content offline? Henry Blodget thinks so.

Me? Newspapers aren’t my forte so I will resist the urge to speculate. But it raises an interesting question about their ongoing viability in a converged world.

sk

Image credit: http://www.flickr.com/photos/flavio_ferrari/

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Links – 8th February 2009

I know it’s overkill, but the snow excitement is yet to abate. I didn’t create this snowman, but he is so exceptional that he deserves all the publicity going.

Picture by me

Anyway, things I would recommend reading include:

  • Live | Work have an absolutely brilliant post on Service Thinking – a must-read
  • Umair Haque’s Smart Growth Manifesto proposes a focus on outcomes rather than incomes, connections rather than transactions, people not product, and creativity not productivity. Very thought-provoking – another must-read
  • Asi Sharabi channels Sturgeon’s Law to sober up from digital. Some digital campaigns may be great, just as some TV campaigns are great and some press campaigns are great. But a lot of advertising isn’t great. There is a great observation in there about social media helping brands become more humane.
  • Dave Trott’s blog is fast becoming one of my favourites – a regular must-read. I particularly love this tip on great management.
  • Silicon Alley Insider set up a Twitter contest, inviting people to propose a business model for the service. They chose a market research tool as the winner. Commenters were unimpressed – largely, I think, because the proposed revenues were quite modest. (Via Tom)
  • The Compare the Market/Meerkat campaign has been getting a lot of attention online (and rightly so). Amelia Torode, a Planner at the agency responsible, summarises the success
  • And finally, Neil Perkin’s presentation on community created by the community has justifiably gone down a storm. He requested readers submit a slide, and received 30 replies (including one from myself). It highlights about both group thinking and individual ideas can be harnessed for maximum effect by some sort of moderator/curator/director/benevolent dictator. Great stuff. Click through the link above to get the transcript of the deck.

Additional links and pictures can be found at my tumblr

Hangover permitting, I’ll be at the coffee morning on Friday

sk

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Links – 21st November 2008

My top 10 reads of the past week:

1. The Times published an absolutely fantastic article looking at neuroscience and how we can improve our brain performance. The writer pays short shrift to the DS Brain Training activities, for the sensible reason that this rewards recognition and repetition over learning. While we do not yet know a lot about our brain, the author exhorts us to work on improving oneself through a simple mantra: Pay Attention

2. On a neuroscience theme, Martin Lindstrom – author of Buyology – has an article on Advertising Age explaining why sponsorship of American Idol works for Coke but not Ford. Essentially, Ford has had trouble justifying its existence.

3. How intelligence can overcomplicate: Students trying to predict the stockmarket perform worse than a rat finding a piece of cheese. It is the conflict between striving for perfection (through modelling) or accepting a reasonable chance of success (Science Blogs)

4. Chris Anderson has conceded that the Long Tail argument is flawed, in that the number of aggregators providing the long tail of product options conform to powerlaws (think Google, Amazon or Netflix)

5. ETH Zurich have studied Youtube videos to try and work out what constitutes a successful upload. Their typology consists of viral, quality and junk videos – a more nuanced approach to my 4-video typology where viral constituted a single element (against reference, scheduled and topical) (Newteevee)

6. Engage Research and Global Market Insite have published a report saying that online surveys bore respondents. Quite. Unlike telephone or face to face interviews, online is restricted to the narrower range of those that opt-in. Therefore things need to be mixed up regularly in order to avoid a) burn-out and b) recognition of formats and patterns. (Brand Republic)

7. Fast Company has a profile of Sam Ewan – whom some people may refer to as a guerrilla marketing. I don’t particularly like the label, but I think the concept is fantastic – the levels of creativity in constructing a unique experience are limitless

8. A NY Times article looks at how industries change to survive e.g. one might predict the extinction of the bicycle with the advent of the automobile but that evidently wasn’t the case

9. Lifehacker tells us how to burn any type of video file to a playable video DVD

10. And finally, a triumvirate of brilliant little websites (OK I’m cheating in order to get a nice round figure of 10). Tag galaxy transposes Flickr searches to a galaxy of interrelated search items, the Charlian is a Charlie Brooker themed Guardian that came out of their hack day, and Let me Google that for you gives a visual display of searching to colleagues lazily shouting out a question when the answer is in front of them

sk

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Links – 3rd August 2008

Since getting back from holiday, I’ve bookmarked a lot of stuff to read. Over the weekend, I finally caught up. At least until the next interruption to my finely honed grazing schedule.

Further link posts to appear over the coming days but today

Marketing and Media

Old media deathrace 5000 (Mashable) – very interesting analysis on the future of old media. My opinion is that TV will remain the central point of the media experience, but that it may be “web powered”

Should TV be margins or ratings? (Huffington Post)

Overview of the long tail debate between Chris Anderson and Anita Elberse (Slate)

Nielsen data shows people still prefer the TV set to the computer (Marketing Charts)

New IMMI survey data says that half of online TV viewers are using it as a replacement for traditional viewing (I’m yet to read the full report, but I assume it is an “ever” rather than “always” answer)

Tess Alps of Thinkbox responds to accusations of declining advertising audiences (Guardian) – a tough crowd but you can’t really find fault in her argument. Audiences are fragmenting, which is an issue, but total viewing does appear to be increasing

Bob Garfield predicts chaos for the TV industry (Advertising Age)

How the dip sits between the head and the long tail (Seth Godin)

Ever increasing levels of product placement (New York Times) – with Fox News taking it to the next level

Sega’s Game Gear adverts in Viz from the early 1990s (UK Resistance) – I like these; it shows the brand addressing the media it is advertising in

ANA Marketing Insights May 08 (Slideshare presentation) – a very useful resource

The power of FREE! (Neuroscience Marketing)

Notes on the 40 years of planning event (Brand Republic)

Dealing with analysts – funny Slideshare from RedMonk

A very engaging slideshare presentation on Content Marketing from Helge Tenno

Lucy Barrett on dying brands (Guardian) – I suppose this is the stage before they come back zombified

24 unforgettable advertisements (Toxel) – funny mix of outdoor and experiential

The six laws of customer experience e-book (Experience Matters)

Songs about brands (Guardian)

Some very high quality posts in there, but the three I would recommend most highly are Old media deathrace 5000Bob Garfield predicts chaos for the TV industry and A very engaging slideshare presentation on Content Marketing

The forthcoming link posts will be:

Monday – Internet and Business

Tuesday – Useful and Interesting (to me, at least)

Wednesday – Miscellaneous

Thursday/Friday – back to the regular schedule

I’ll even try and fit a “content post” into the mix

sk

Nine Inch Nails and free music

Free music

Photo by http://www.flickr.com/photos/mightymightymatze

As the world and his blog is now aware, the latest Nine Inch Nails album has been released over the Internet, in a variety of formats and prices. Rather pointedly, Trent Reznor remarked, “I’m very pleased with the result and the ability to present it directly to you without interference”. However, the most interesting thing about this (press) release is the following quote:

“Now that we’re no longer constrained by a record label, we’ve decided to personally upload Ghosts I, the first of the four volumes, to various torrent sites because we believe BitTorrent is a revolutionary digital distribution method.”

Furthermore, the album is being released under a Creative Commons licence that permits sharing. So, while the music has been made available for purchase both digitally and physically, the band are essentially saying that it is OK to distribute for free. They are not concerned with revenues or royalties on the release.

This leads back to a couple of prescient posts from some very authoritative figures. Firstly, Chris Anderson started the PR campaign for his latest book with a preview in Wired entitled “Free! Why $0.00 Is the Future of Business”. He highlights how Prince was able to release his album for free (or the price of a newspaper, with a free Mail on Sunday bundled in) by making money from live performances. That he could have sold out the dates without the CD is seemingly incidental. I was at one of the O2 gigs and while the performance was fantastic, the CD has had one listen.

The free hypothesis ties in with Seth Godin‘s Seinfeld curve (the second link is a must read):

If you like Jerry Seinfeld you can watch him on television, for free, in any city in the world two or three times a day. Or, you could pay $200 to go see him in Vegas. But there is no $4 option for Jerry Seinfeld. This is death. You can’t make any money in here. Because if you’re not scarce I’m not going to pay for it because I can get if for free. And one of the realities that the music industry is going to have to accept is this curve now exists for you. That for everybody under eighteen years old, it’s either free or it’s something I really want and I’m willing to pay for it. There is nothing in the center-it’s going away really fast.

As Seth points out, digital makes scarcity obsolete. There are no longer finite units – when I lend or share music, I still have my copy. With infinite supply, the price gravitates towards zero.

The traditional business model of the record label is in ruins. Seth suggests that we are moving from brand/artist management to tribal management:

That the next model is to say, what you do for a living is manage a tribe…many tribes…silos of tribes. That your job is to make the people in that tribe delighted to know each other and trust you to go find music for them

I think the Seinfeld curve is genius but, through my interpretation at least, tribal management is flawed. It is saying that niches need to be identified – almost isolated – while an editor of sorts suggest music for the tribe to select. Evidently people can be in multiple tribes, but a tribe – traditionally based on kinship – is the primary social identification. There is a hierarchy. Musical influences don’t conform to this. And if music is free at the point of entry, why should people choose bundles?

Furthermore, musical movements shift faster than general societal trends (where is crunk these days?). Newspaper editors can predict and adapt to shifts, but in this sphere it would be far more difficult. A Nick Denton type mogul could emerge and preside over an ever-shifting portfolio of niche movements. But can this trust last? Gawker hasn’t had the smoothest of rides recently.

I am not nearly as clever or insightful as Seth, and I do not have an alternative answer. What is clear is that the Internet is brilliant for musicians to disseminate their creations virally. More people are listening to more music through more methods than ever before.

And for businesses? In a free economy, one needs a combination of creativity, luck and finance to be heard over the cacophony. And with less control over distribution, it becomes more difficult to judge the success of a release, to measure a return on investment, and to forecast future finances. Dull perhaps, but integral to a healthy business. Guy Hands must be in his worst nightmare. However, this can be where the Seinfeld Curve comes in. The live arena offers a unique, finite experience where supply and price can be controlled. So will CDs become the loss leaders – the razors to the blades?

From a research perspective, the future is fascinating. With no accurate measurements, how can we assess succcess and forecast for the future? As well as music, it raises fascinating questions over the future of TV. I will return to this topic later in the week with a few further thoughts.

sk