Why Every News Site Should Focus On Being First Class All The Time

from the business-class-my-ass dept

Capitalist Lion Tamer was the first of a few of you to point out the rather interesting analysis by Oliver Reichenstein about the idea of creating a "Business Class" freemium operation for news. The basis of the post was a discussion Oliver had with a media exec about paywalls, in which Oliver came out against them and explained his reasoning (which we agree with) and the exec countered with the "business class" analogy, leading Oliver to rethink his position a bit:

He asked me what I think about pay walls. I told him what I always say: The main currency of news sites is attention and not dollars and that I believe that it is his job, as a publisher, to turn that attention into money to keep the attention machine running. He nodded and made the following, astonishing statement:

I can’t see pay walls working out either. But we need to do something before we lose all of our current subscribers. Sure. It’s a tough business environment, but… But the flight industry is a tough environment too, and they found ways. So tell me: Why do people fly Business Class? In the end, an airplane brings me to the same place regardless of whether I fly Economy or Business Class and the massive price-increase I pay doesn’t compare the difference in value.

He asked whether I knew of a way to apply this logic to online news. What would a Business Class news site look like?

People pay for Business Class because they don’t want to be tortured in Economy. They get faster lanes at the terror check. They get an extra glass of champagne. The stewards are more attentive. They get off the plane more quickly. They get the feeling of a higher social status.

And he added that he wished that there was a way to lead each reader through the business class to Economy again and again to show him what he misses.

It's an interesting idea, and Oliver runs with it, and he plays around with the idea of what a "Business Class" version of the news would be, and comes up with a design that does away with ads and presents the information related to the article in a much nicer manner: Click on Oliver's original article to see a much larger version of the graphic, as well as the rest of his discussion on it. While I was thinking about this post Mathew Ingram beat me to the punch (as happens way too often) and wrote up an insightful post about this story as well, pointing out that some third parties, like Flipboard and Zite, could represent the kind of "Business Class" for news that Oliver and this exec covet. However, he also points out that the metaphor of airline travel to news consumption doesn't really work:

One of the big issues with the “business class” metaphor, however (like the “iTunes for news” analogies that were popular not so long ago), is that news simply isn’t like air travel at all, in some pretty important ways. To take just one example, you can only fly one airline at a time, and you can only go to one destination at a time. The rise of RSS readers, and more recently, Twitter and other social-reading tools such as Flipboard, Zite and Tweetmag allows people to read multiple sources at a time, and that is one thing that the IA design approach doesn’t really take into account.

I actually think Mathew's understating the problem with the "Business Class" for news concept. Thinking of things that way runs into all of the same problems that I think many "Freemium" models run into for online services: specifically, if you're basing your business model on creating a "class" of services that annoys your users quite a bit that they're forced to "upgrade" to the less annoying option, you have to be pretty damn sure that they can't just go and find the less annoying version next door. Or in the next thousand doors.

In the airline world, you have limited choice and limited competition. And, even then, the rise of airlines like JetBlue and Virgin America in the US have really been based around the idea of making coach class not seem quite so awful, and passengers have flocked to both airlines because of it. But that's still a limited market. Open it up to a nearly unlimited market, and you've got a problem if you're focusing on "business classing" the news. When you do that, you are really opening up a massive opportunity for someone else to offer a First Class (not just Business Class) experience to everyone without the paywall... all while you're wasting energy trying to make sure the Coach Class sucks enough to get people to pay to upgrade. Instead of paying to upgrade, they're more likely to jump to the other guy's (free) First Class option, leaving you with a lot of wasted effort on trying to make your Coach Class suck.

The incentives are all wrong.

The opportunity, in the competitive market, is not to focus on offering a class that sucks to get people to sign up for a better class. It's to make the best class all around, and continue to improve it to keep your community as happy and loyal as possible... and then build a business model on top of that.

Filed Under: business class, business models, journalism, paywall

Once Again, Freemium Often Isn't A Good Model, But That Doesn't Mean 'Free' Doesn't Work

from the thinking-through-business-models dept

Since we talk a lot about the use of "free" in business models, it's common for people to assume that we love any and all business models that use "free." In particular, one assumption is that we think all "freemium" business models are great. However, that's simply not the case. What we're talking about here is how and when to use free in a business model. The important thing to recognize there is that when we're talking about free, it's in trying to figure out where it makes sense in the business model -- not to say that "everything should be free" or that "any business model that uses free is great." Yet, often, people seem to assume that we think any business model that has "free" is wonderful. The unfortunate result of this is that any time someone uses free as a part of a business model and it's not effective, people think they've "debunked" what we have to say.

For example, last year, we wrote up a post explaining why so-called "freemium" business models probably are not a good idea for many software startups. There are some it can work for (and work really well, as Evernote continues to show), but it really doesn't make much sense for a lot of others. That focused on a link from a software startup founder who found that freemium didn't work for him. There's now a similar post from the creator of the popular Instapaper app, talking about why he's pulled the free mobile version of Instapaper, hitting on many of the same points that we raised with the initial post about why Freemium just isn't right for certain businesses (especially software). The only reason I saw this was because Dave Harper pointed us to it, suggesting that it might debunk some of our positions -- though Dave was very cool about realizing the difference once I pointed him to our earlier post.

However, I really think it's important to highlight this particular issue, because it's one that comes up a lot: when talking about the importance of free as a part of a business model, that does not mean that all "free"-based business models work, or are even good ideas at all. What's important is to recognize when and where free makes sense and where it doesn't. "Freemium" business models for software can be tough, though it very much depends on the specific software and service being offered. It's very difficult to figure out what should be free and what should be premium, and quite frequently people underestimate just how few of the free users will ever switch over.

But none of that means that all free business models (or even all freemium) business models don't make sense. We've always tried to drive home the idea that there are no cookie cutter business models in the digital world, and it's important to understand the underlying economics to better understand where free might fit as a smart piece of your business model.

I think the worst thing about the focus on things like "freemium," or even the intense focus on the word "free" itself, is that it often leads to cases where people can't get past the "free" part, and when the larger business model fails, they blame the "free" part, rather than recognize that perhaps it was the way "free" was used as a part of the business model that was the problem.

Filed Under: business models, free, freemium, software

When Will People Stop Exploiting Google?

from the time-to-pay-up dept

I assume you've been hearing all about how sites like the Huffington Post are exploiting workers like a slave master by having them work for free. It's all, as Nick Carr has noted, digital sharecropping, as "free" is really all about exploiting others. And, of course, what it comes down to -- as Billy Bragg pointed out a few years ago -- is about who profits from all of that "free" stuff. According to Jonathan Tasini, that's "unjust enrichment."

Since we've established all of that, I have to ask the big question that really represents the elephant in the internet room: When will people stop exploiting Google?
You see, I recently read on Kevin Kelly's site about how Google provides about $500 worth of value to the average searcher. And we got it all for free. But, but, but... you say: we're paying for that in the advertising we see. Oh, how naive. Why, that's just like saying that Tasini got paid in exposure (how do you measure that?!?) or that Bragg got paid in getting a free platform to promote his music. Others will point out that Google made the choice to offer its service for free -- but, again, that applies to the people screaming about being "exploited" by Arianna Huffington as well. Then, of course, some will say that those situations are different because they involved companies cashing out. Yet, according to the Kevin Kelly piece, there's approximately $65 billion in consumer surplus from Google that the company is not capturing. $65 Billion. How can the company possibly go on knowing that the public has made so much money off of its hard work?

So, all of you using Google without paying your $500 directly to Google, when will you stop exploiting that poor company?

---

Okay, got that out of the system. A bit more seriously, you really should read the Kevin Kelly article which combines a few different studies to determine how much Google is worth to users. The really key point in all of this is the pure economic growth created by this. It's not in Google's bottom line (though, that's part of it), but in the massive consumer surplus created by tools like Google that allow people to do things they simply couldn't do before and do other things much more efficiently. If you understand how economic growth works, this is a perfect example. What are sometimes called "spillover effects" or "consumer surplus" is really economic growth in action. It's when the sum is greater than the parts, and that value can be more widely distributed. This is a good thing, and it would be nice if people stopped getting confused by "free" and thinking that it means an economic disaster, rather than an economic multiplier, as it often is...

In terms of the specifics, this also really does a nice job of demonstrating the difference between price and value. The technical "price" of using Google is free, but we value it a lot more than that. Google offering up search for free doesn't "devalue" search, as some suggest. It does the opposite. It creates more value. Kelly asks what would happen if Google decided to try to "capture" that excess value by charging. I'm sure a ton of people would pay. But, really, the question is would that be sustainable? The second Google did something like that, you could bet that Microsoft would suddenly jump to being the number one search engine, and it would open up all sorts of opportunities for new upstarts trying to enter the market. And, really, that's the key point we keep making. Certain things can't really succeed at a long-term price over zero, because the competition will just eat them alive. But, a la Google, it doesn't mean there isn't a ton of money to be made. You just have to figure out what to charge for. There's no exploitation going on here. Just economics.

Filed Under: business models, economic growth, exploitation, free

Not Relying On Copyright Doesn't Mean You Don't Make Money

from the sad dept

Copycense recently pointed me to a really depressing post by the author David Glass, discussing his views on copyright. I found it depressing because it opened with such hope and recognition about how important remixing and sharing are to culture and creativity, and how little any of that has to do with copyright:

For centuries, people have enjoyed a shared pool of story, riffing with the same old themes, playing with each others' work. After that and after my Walkman childhood came the Internet, and fun new worlds of mash-ups and sharing, open source and Creative Commons.

I love it all. Creativity should come from a spirit of communication, maybe cooperation, not the egotistic holding to oneself that copyright suggests. I like musicians to sample each other, and authors to reference each other, and film-makers to pastiche each other. I'm all for intertextuality and a sense of fun and play. I'm pretty much a copyleft sort of guy.

With such a great opening, why is the article depressing? Because it's followed by the inevitable "but..." And that "but" is that he wants to make money from his writing and the "old industry" relies on copyright, and if he wants to make money he has to play ball with their ways of thinking.

People ask to see what I’ve written and I have little to show them online. I want to be published and broadcast and paid for my work and I fear that sticking things on the net puts that at risk. For example, if I sell a short story to a magazine they will want first rights, and if I’ve put that story on the web already, there is a grey area as to whether that counts as prior publication. I play it safe and put very little of my writing up, in the hope that through conversation I can keep people interested in me anyway, in the hope that a time will come when I can send people off to read a book of mine, or hear my play on the radio.

In other words, copyright isn't promoting progress at all here. Instead, it's really doing the opposite, causing this author to hide his works and hope that some old gatekeeper decides to publish it.

This is a much more mild version of an argument we've seen elsewhere. Copyright defenders, for example, like to assume that when folks like myself talk about doing things without copyright, we mean either doing things for no money or through some sort of "charitable" set up. That's simply not true, of course. We talk about all sorts of business models that let people make more money than they could have otherwise -- and we're certainly seeing that happen in the world of writing. We're hearing more and more success stories in the world of self-publishing of ebooks or using platforms like Kickstarter or testing other business models selling additional scarcities.

There are lots of business models that seem to work quite well for people who can and do connect with their fans -- and one of the best ways to connect is to get the actual writing out there and get people hungry for more and more and more. Those who are doing the math (and are fanatical about connecting with fans) are starting to argue that there's a lot more money to be made in going with some new business models -- even for those who can make a lot of money the traditional way.

Compare that to going the old gatekeeper route: you have to deal with a lot of making no money while you deal with rejections. If you get a book deal you may get an advance, but then you're unlikely to ever see much more than that, unless the book is fabulously successful. That's not to say that there aren't still roles for those gatekeepers, but relying on them solely and feeling the need to hide your works away -- especially when you recognize the overall benefit to creativity from sharing and openness -- just seems like a really depressing statement on copyright.

Filed Under: business models, copyright, david glass, writing

If You Can't Understand The Difference Between Money And Content, You Have No Business Commenting On Business Models

from the please-shut-up dept

I've been noticing a really silly trend lately, of copyright maximalists trying to "debunk" people who actually understand the economics of content, by trying to sarcastically equate money to content and then saying, "if it's okay to copy content then isn't it okay to copy money?" It's an argument stemming from pure ignorance, mixed with an unhealthy dose of smugness, and we should try to pop this bubble before it goes much further. In order to do so, let's take a look at a picture perfect specimen of this sort of argument from (of course), an IP lawyer (who else?) named James Gannon, who wrote "How I Learned to Stop Worrying and Love the Copy," all about copying money. It's getting passed around by various copyright maximalists with comments about how "brilliant" it is.

It's brilliant only if you don't understand all of the following: money, economics, copyright, business and value. If you understand any of those things, you might recognize that the analogy makes no sense. Misunderstand all of them... well, then I can see how this argument might make sense. It's also not a very original argument, because we see it all the time and it's been debunked before. But now that it's rising in popularity, let's dig in a little and see if we can explain how utterly ridiculous the comparison is.

Gutenberg did not invent the printing press so that it would be controlled in the hands a few rich and powerful central bankers who desperately cling to outdated business models. With the advent of digital technologies, everyone can and should be free to copy their own money.

I see what you did there. Of course, here's the key thing: money and content are two totally separate things. We write about content frequently, but we also write about money quite a bit, and in fact, have spent an awful lot of time discussing what money is, how it might change and where it's heading. Traditionally and classically, money is defined as three things: a store of value, a medium of exchange and a unit of account. Content is none of those things. You can't compare the two, because they're nothing alike.

And here's the key point that the "har har copy money durrr" crowd doesn't seem to comprehend. Money is a scarcity. They used to go on and on about how content was the same as a car ("you wouldn't steal a car") but the switch to using "money" as the example is because enough people have so debunked that argument by explaining the differences between scarce goods and abundant goods that they (mostly) don't even try any more. But by switching to money, they show that they don't understand what they were being taught. They thought people were only focusing on tangible goods, not scarce goods in explaining the differences. Tangible goods are scarce, but not all scarcities are tangible goods. Money is a perfect example of that.

Money is scarce. It's not scarce because there are a limited number of bills. In fact, most money isn't in bill form at all, so that's clearly not it. Money is scarce because of that first characteristic listed above: it's a store of value, and money, by itself, doesn't create any additional value. The overall value is a scarcity and the money is a representation of that value. You can print more money, but that creates inflation, because the overall value remains the same. That's not the case with content. Contrary to what some claim, getting more content on the market does not take away value. In a culture where shared culture and shared cultural experiences are highly valued, the fact that you can copy content makes it even more valuable. It makes it easier to share that cultural experience.

In other words, content can create new value. Money does not. Money is a store of value. Content is not. Pretending these two things are the same is wrong and will make you look foolish.

Don't get me wrong. I love the bank notes that are created by the Bank of Canada (BoC). In fact, I consider myself to be one of their biggest fans. Even though the BoC will try to stop me if I try to make my own copies of their bills, they should really be flattered.

Imitation is the sincerest form of flattery and I only want to share their work with my friends and family. By allowing me to make copies of their works, my friends might become fans of their currency too. Everyone knows the value of a currency is based on its demand so why not try to get as many fans as possible?

Right, except all of that is simply wrong and shows ignorance of the basic factors of both content and money as described above. When you copy money, you are actually decreasing the value of money. That's not true of content. When you share content with people, you increase the market opportunity for the content providers. That's not true with money. Pretending otherwise is either ignorance or propaganda.

Gannon's piece goes on from there, continuing to pretend that he's sarcastically making a point. It's a really pointless argument, and doesn't make him look particularly intelligent. If he wants to debate actual economics or business models, plenty of us would be happy to do so. Instead, making arguments like this is just silly and doesn't make his point. It just makes him look like he has no real argument, and has to resort to pure sophistry.

Filed Under: business models, content, copying, economics, money, scarcities

We May Have Unbundled The Music... But We've Smartly Bundled The Music Experience

from the doing-it-right dept

Ian Rogers, from Topspin, has an absolutely fantastic blog post on the question of "unbundling" and "rebundling," in the music business. What kicked it off was David Pakman's writeup about how unbundling the album into songs that can be purchased individually may have had the biggest impact on the record labels' bottom lines -- much bigger than unauthorized file sharing. It goes on to talk about the economic impacts of unbundling in a variety of industries. It's a good read.

Rogers picks up on this, and notes that plenty of people agree with this point, but they may be missing out on the fact that while this aspect of the music business may be in the midst of a massive "unbundling," other parts are seeing themselves bundled in highly profitable ways:

A new, more positive story is emerging. As artists get their arms around all their rights and build direct relationships with their fans we’re seeing artists’ output RE-BUNDLED into higher value packages and average revenue per transaction greater than those delivered by the Compact Disc. Instead of selling their art across a variety of channels (CD at Best Buy, digital download at iTunes, t-shirt at Hot Topic, ticket at Ticketmaster, and vinyl at Amoeba) artists are able to bundle their collective output into a single direct-to-consumer sale where they are the retailer (and pocket half the retailer margin, too). It’s true the CD was an incredibly efficient product with massive distribution (the move from “record stores” to big box retail in the 90s was a large contributor to the bubble you see in the above slide) with an average revenue per sale of greater than $10. It’s also true both piracy and individual track sales have unbundled the product and driven the average revenue per transaction for most artists to less than $3. But at Topspin we see people selling new bundles, different from the CD and as a result very high revenue per transaction:

We've seen this before. And, obviously, I've spoken about this for years now. There are all sorts of opportunities, and those opportunities often come in recognizing how to best bundle scarce and non-scarce goods. This is why I think it's important to recognize the differences between what Pakman is talking about and what Rogers is talking about. Pakman's discussion on unbundling is focused on taking apart artificial bundles that were put together due to the inefficiencies of the technology at the time. You put a bunch of songs together on an album so you could distribute (and sell... and promote) them all together in one shot.

What Rogers is talking about, however, is a more natural bundle. Rather than a bundle borne out of the inefficiencies of existing technology, the bundling he's talking about is bringing together natural bundles of products that fit together smartly in packages that give fans real options -- and which are done for the overall convenience of fans and buyers, not the convenience of retailers and middlemen. That's a key difference and we're going to see more and more of it in a variety of industries. The bundles that will disappear are the bundles that were done to help serve the middlemen, and what will replace them (much more profitably and economically efficiently) are bundles that help serve the end user/buyers.

In the case of music, what's happened is that the unbundling is of the album, which certainly many music fans enjoyed, but which was often seen as inconvenient for the fans who just liked a few songs. What the new bundles are about is not about bundling music per se, but bundling the full music experience, which is what the industry should have been selling all along...

Filed Under: bundles, business models, experience, music, unbundling

Why Authors Shouldn't Sign On With Publishers Focused On 'Fighting Piracy'

from the they're-not-looking-out-for-your-best-interests dept

Copycense points us to a blog post by Timo Boezeman on a book publishing blog, in which he points out that "fighting piracy is the dumbest thing you can do," as a publisher. There isn't necessarily much new there for regular readers of this site, but it is a nice succinct summary of the issues.

In many ways, it comes down to the simple equation of which is more important: your overall revenue or stopping piracy. For some reason, many in various legacy industries have trouble separating those two questions, and often think that it's the same question. They assume (incorrectly) that "stopping piracy" automatically increases revenue, and that allowing infringement to continue automatically decreases revenue. But that's not the case. There are all sorts of other variables and unintended consequences. That's the point that Boezeman is making:

Not only does it cost you time and money (and hardly shows results, again learn from the music industry), it can cost you your image. This might be a difficult one to grasp. Especially if you do not want/dare to look at other industries that have already dealt with this before. The reason people illegally download is not always because they want something for free. Common reasons are: convenience (in a file format of your choice to use on a device of your choice), speed (why wait for it to become available here if you can already get it elsewhere? It feels unfair, and more important: the consumer doesn’t want to wait) or availability (see the Harry Potter example, as mentioned on FutureBook two weeks ago).

If these are the reasons for people to download illegally, then how can it make sense for publishers to start actively fighting them. Because the most important fact is: they want your product! It’s up to you (as a content creator/provider) to ensure that consumers can buy your products in the simplest way, as quickly as possible, for a good (reasonable) price and without any fuss (no DRM, no unnecessary copyright notices and usable on a device of their own choice).

Of course, this raises a separate issue. If you're an author, do you want to work with a publisher who's going to focus on "stopping piracy," or one who's going to focus on maximizing revenue for you? Again, if you can't separate the two, you may assume that they're one and the same. But if you recognize these are two different things, suddenly the publishers who focus so much on "stopping piracy," appear to be publishers who probably aren't that good at maximizing your revenue.

Filed Under: business models, infringement, publishers