Mark Cuban Remains Confused About Free
from the wait,-what?!? dept
Last week, in writing my review of Chris Anderson's new book, Free, I noted that Mark Cuban's initial critique of it was quite misguided, in that he made the quick (and flat-out incorrect) assumption that the story of "free" means that "everything is free," and thus it ignores costs. That's simply not true, and thus represents a big strawman that ignores the actual point of the book (though, to be fair to Cuban, it's a very common strawman found in many of the arguments against the book). Cuban has now taken a second shot at critiquing free, and I'd argue it's at least more interesting on a first pass, pointing out: when you succeed with Free, you are going to die by Free. That sounds like a worthwhile read, though I find it hard to believe. Here's the meat of Cuban's argument:Lets look at the rule that eventually KILLS all freemium based content plays:I don't think anyone denies any of that. Except... here's the main problem that kills Cuban's point: this applies to any company, whether it uses free or not. What he describes is not unique to free. It's the story any company faces, and we're seeing how the companies that have "embraced" free have acted as that sort of "black swan" competitor to the companies that haven't. Look at what is happening in the recording industry or the newspaper industry, where they're struggling to understand new models.
There will always be a company that replaces you. At some point your BlackSwan competitor will appear and they will kick your ass. Their product will be better or more interesting or just better marketed than yours, and it also will be free. They will be Facebook to your Myspace, or Myspace to your Friendster or Google to your Yahoo. You get the point. Someone out there with a better idea will raise a bunch of money, give it away for free, build scale and charge less to reach the audience. Or will be differentiated enough, and important enough to the audience to maybe even charge more. Who knows. But they will kick your ass and you will be in trouble.
Cuban tries to suggest that this is something special about the "free" space, but I can't fathom why it's any different than any company:
Its not that they can’t make money offering free. They can , have and will. The problem is that they know that its literally impossible to be the king of the mountain forever. But that won’t stop them from trying. And that is exactly what will kill them."Free" is just a price. If the cost of your product is $3 and someone figures out how to build a competitor for $1 (or free!) then you face the same problem. In fact, I'd argue you're better positioned to adjust if you understand the basic concepts behind free (which Cuban either doesn't, or he's bluffing for some odd reason), because it suggests you know what parts of the business to leverage as a resource, and which to charge for. So, I'm confused. What about what Cuban says is specific to "free" business models and why can't those who embrace "free" adapt if he seems to believe that others can?
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Filed Under: competition, free, mark cuban
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How about this
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Where is Adam Smith when we need him
The problem we have in the economy is that this is NOT happening enough. Instead of healthy competition, we get big companies who feel entitled to get big and then stop innovating or improving in ways that are important to the customer. We have too many industries where the idea of "free market" means the company has the freedom to raise its prices and cut services whenever it wants.
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Mark Cuban doesn't understand business
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Cuban
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Re: Where is Adam Smith when we need him
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The problem with free.
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Re: The problem with free.
- Companies have to build a good reputation
- Companies have to provide good service
- Companies have to be innovative
- Companies have to stay up to date
...huh?
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Cuban is arguing monopolies
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#1: Make the same thing, but cheaper.
#2: Make a better thing, at the same price.
#1 is tough to do in a free world, but #2 is certainly attainable.
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Cuban is spot on
There's a reason why Youtube loses over a million a day, or why twitter is millions in the hole (with quarterly net losses), and why digg loses $5m a year, etc... All these web startups you know and love make no returns because they have to compete with everyone else who is touched by the allure of loss leading to gain market share.
But remember whose opinions you're reading here. There's Mark Cuban's, one of the guys who was at the forefront of the web 1.0 boom/bust and made out with obscene amounts of money (he bought a basketball team so he could always have courtside seats). In the other corner, you have Mike Masnick, who writes 10+ blog entries a day bitching about everything everyone else is doing to actually make money, while explaining to artists how to make money without the RIAA on the side (to my knowledge, Masnick does not own any professional sports teams). Not only does Cuban have more experience on this exact issue (web startups), but he was damn successful too.
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Re: The problem with free.
If I'm using a free service like GMail and something better comes along (HMail or whatever) and it is also free then I may switch if the benefit is there. The inertia against is, of course, having to move all my contacts learn a new service etc.
If, in this example, HMail costs me $5 a month then the fee is added to the inertia against switching.
Even if you flip that scenario back to your example your point still doesn't hold. If FMail costs $5 a month and I'm using it, and GMail comes along which is free and has more features, the $5 a month savings becomes a force FOR switching (not against). Don't believe me? How many people still have AOL addresses these days? Alright now forget everyone over 50. How many now?
You're confusing automated payment systems as a way to retain customers with the desire to move to bigger and better things. I agree that having an automatic withdrawal of funds for a service makes you less likely to cancel, but I disagree that it also adds against the will do move to a new (free) service that's also better.
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Re: Cuban is spot on
Here... let me sum it up for you in a slightly more bite sized portion (maybe you can tweet it):
1. Just because your service is offered for free does not mean you shouldn't try and make money from some other aspect.
2. The idea that someone will come along and do what you do better and put you out of business is not new, nor unique to free based business models.
Twitter and Facebook are good examples of businesses failing to monetize. However, Google is a big ol' example against your point. And if you want to stick to your news aggregation example, I'm fairly certain Fark turns a profit by offering a "premium" membership over the top of the free one.
If you're going to come in here and refute a point by saying Mark Cuban is the man, at least TRY and address the points made in the blog post.
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Re: Re: Cuban is spot on
Most of Masnick's posts are "you should try and monetize in some other way" but there's never any suggestion of what that "other way" is. He'll promote selling the "scarce" but never suggests what that is or should be. Meanwhile, Cuban has had ridiculous success in flipping startups. You have still failed to show how Masnick's opinion is more valid (it's not backed up by facts), or that he is individually more qualified to render a valid opinion (it's not backed up by experience).
And I don't know why you guys have such an aversion to posting as AC here.... as if posting as "Brian" is any less anonymous.
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Re:
People will flock to the better quality service. Finding that quality that other people define as better is the hard part.
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Re: Cuban is spot on
Twitter and Youtube are only failing because they're huge businesses, those kind of monetary issues would never apply to small companies!
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Re: Cuban is spot on
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Re: Re: Re: Cuban is spot on
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Re: Re: Re: Cuban is spot on
Seems to me that'd be an example of selling the "scarce," while he provides his commentary here for free.
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Re: Re: Re: Re: Cuban is spot on
Mike's "not consulting" advice seems only to plug what the record labels already monetize with 360 deals -- sell t-shirts, appearances, memorabilia, etc. But even the artists that he plugs on this very site are barely making a living wage after costs... and that's the same boat most label artists are in. At that point, I don't see how Mike's "not consulting" advice is worth any price.
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Re:
#3: Use gov't force to reduce the competition.
Of course, #3 is only available to those who can afford it.
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Pay up, Cuban
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Re: Pay up, Cuban
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Re: Cuban is spot on
So I should listen to rich "successful" people - just because they are rich and successful. Logically that means I should listen to people like Madoff and Stanford.
Some rich people are clever, some are lucky and some are criminals. All of them demonstrate a preference for looking after number one.
I prefer to listen to people who have made an impact on the world without personal gain. (Stallman, Berners-Lee, Torvalds).
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Re: Re: Re: Re: Re: Cuban is spot on
Taking into consideration Mike's commentary as you go about constructing or applying your business model seems like a better application of the information provided in this blog.
...
And as for label artists, they are far worse off as most of their potential revenue streams are either filtered by the label or are already spoken for in order to pay obligations to the label. If, indeed as you say, they are in the same position financially as independent artists, then when all is said in done, being an independent artist seems to be better, in my opinion, because, at the very least, you've got more control over your financial decisions/health/etc.
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Re: The problem with free.
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Re: How about this
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Re: Re: The problem with free.
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Re: Re: Re: The problem with free.
take MP3s or movies, or anything that can be reproduced digitally and free no longer becomes associated with poor quality.
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Re: How about this
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Re: Re: Re: The problem with free.
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Re: Re: Cuban is spot on
Oh, they failed because of bad business decisions having little or nothing to do with price? Hmmm....
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It's all been done before
During the dotcom boom, the idea was eyeballs. Whichever company amassed the most users was assumed to have an advantage. Jared Polis, who started bluemountain.com, anticipated the crash and sold his company at the height of the valuation period, when companies were willing to pay a premium for eyeballs.
Most of those companies didn't survive the crash.
I don't see most of today's "free" companies doing anything much different, so that is why I'm skeptical about the longevity of going after lots of users with "free."
There's that old saying, "We're losing money on every sale, but we plan to make it up in volume."
Giving something away for free isn't a new concept: Free trial. Buy-one-get-one free. Buy the product and get a freebie. And so on. Companies have been operating in this field since the earliest days of commerce, so I'm not sure why we are bothering to talk about free as a lure. What's left to discuss about it?
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It's all been done before
During the dotcom boom, the idea was eyeballs. Whichever company amassed the most users was assumed to have an advantage. Jared Polis, who started bluemountain.com, anticipated the crash and sold his company at the height of the valuation period, when companies were willing to pay a premium for eyeballs.
Most of those companies didn't survive the crash.
I don't see most of today's "free" companies doing anything much different, so that is why I'm skeptical about the longevity of going after lots of users with "free."
There's that old saying, "We're losing money on every sale, but we plan to make it up in volume."
Giving something away for free isn't a new concept: Free trial. Buy-one-get-one free. Buy the product and get a freebie. And so on. Companies have been operating in this field since the earliest days of commerce, so I'm not sure why we are bothering to talk about free as a lure. What's left to discuss about it?
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Why people become skeptical
Company: We've started a company.
Observer: How are you going to make money?
Company: We don't know yet, but look at how fast we are growing.
Observer: But the more you grow, the more money you are losing.
Company: But look at how much money we have raised.
Observer: You're burning through it pretty fast.
Company: We can always go to an advertising-supported model.
Observer: You and everyone else.
Company: We're worth a lot of money. We're getting buyout offers. And we've raised more funds.
A lucky few become profitable. Most don't and either sell out to a company with a history of profitability or they go under.
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Re: Mark Cuban doesn't understand business
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better lucky than good
he's not really the type of person i'd take advice from.
however, take marc andreessen as the counter example. compare his wikipedia page with mark cuban's. who do you think is good and who do you think is just lucky?
m3mnoch.
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Re: Re: Re: Re: The problem with free.
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Yes, it's called "capitalism" and if Cuban doesn't like it, well, he could always start living up to his name by moving to a certain place...
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