Another Business Model That Leverages 'Free'

from the having-someone-else-pay-for-it dept

When I first heard about TrialPay, I thought it was a bit gimmicky. However, in reading through a NY Times article about the company, I'm realizing it's actually yet another example of how to use "free" in a business model. The service is mainly used by software providers (who, remember, are offering an infinite good, which will face pricing pressures towards a zero price). The software developers officially offer their software for a price, but then also offer it for free if you agree to buy someone else's product. For example, you can get free anti-virus software if you also agree to get a subscription to Netflix. Note what's happening here (and how it sounds familiar). Software providers are giving away their (infinite) product, but they're attaching it to the sale of a totally unrelated (scarce) good, and are then profiting from the referral fees associated with those other goods. In other words, even if not explicitly, they've realized that their software products act as a promotional good for those other products. What's most interesting here is that those scarce goods are totally unrelated to the software that's for sale, other than through TrialPay's service. Effectively, TrialPay has helped makers of infinite goods tie up their products with other scarce goods that people would have thought were unrelated. So, the next time someone insists that there can't be a scarce good attached to certain infinite goods, remember this example.

Filed Under: abundance, affiliate programs, free, scarcity
Companies: trialpay

Kevin Kelly's Eight Key Scarcities

from the business-models-for-the-next-century dept

One of the coolest things in writing out my own economic theories on new business models has been seeing some other, much smarter, folks coming up with similar thoughts at the same time. Chris Anderson, editor-in-chief of Wired Magazine and the author of "The Long Tail" is working on a book about "free." He'll be showing how it's not such a crazy idea to price things at free -- and it's actually been done for ages. It should go well with the books on the number zero that inspired some of my thinking. Chris and I have had a few talks about these theories, and I can think of no one better suited to chronicle the history of "free" as it fits into the economic realm. On top of that, it appears that former Wired editor-in-chief Kevin Kelly is now working on another book that touches on the space, and he revealed some of the thinking behind it last week, noting:

"When copies are super abundant, they become worthless. When copies are super abundant, stuff which can't be copied becomes scarce and valuable. When copies are free, you need to sell things which can not be copied."

Hopefully that sounds familiar, just much more eloquently stated than I could put it. While I noted that, even beyond tangible goods, there are always scarcities associated with digital goods, Kelly has put together a fantastic list of eight categories of scarce goods associated with digital goods, noting that each one is "better than free." It's a list worth memorizing, because combinations of those eight things represent the key to a bunch of new business models: Immediacy, Personalization, Interpretation, Authenticity, Accessibility, Embodiment, Patronage and Findability.

It's fantastic to see these ideas getting more and more serious study -- and it also highlights how ideas and concepts spread. All three of us (and quite a few others as well) all came to these ideas through a combination of factors -- mostly independently, I'd imagine. Some interacting with each other. Some through interacting with others. I know that much of my thinking was driven by certain professors I worked with and other books that I read -- combining the different ideas I learned about into this understanding.

If you truly believed in the importance of artificial scarcity, we would all be hoarding our ideas or keeping them secret. Yet that would limit all of us. Seeing Chris and Kevin independently writing and speaking eloquently on these topics helps me both better understand the concepts myself, while also giving me an opportunity to build on their works, to incorporate their thoughts into my own writings, and to hopefully take those thoughts (combined with my own) into new and different areas as well. I can't see how anyone could consider the idea of building on someone else's thoughts "stealing." It appears to be a lot more like "learning" to me. It's the same thing that I see happening here every day as well. While there continue to be people who challenge us in the comments (often helping me to better understand my own arguments as well), I'm also constantly amazed at others who take my own arguments in the comments and make them better. We're all building on the work done by each other, making all of us better off in the long run. It's really quite an eye-opening experience.

Filed Under: chris anderson, economics, free, kevin kelly, scarcity

Losers Relish Scarcity, Winners Leverage Scale

from the yeah,-what-he-said dept

For quite some time now, we've been trying to convince many folks in a variety of industries, but especially the recording industry, to recognize why their rush to create and embrace business models that rely on artificial scarcity was not sustainable. What's been most amazing is how the folks in the industry themselves turn a blind eye to it (or falsely seem to accuse us of just promoting "theft.") However, with the recording industry continuing to struggle, it looks like insiders are finally starting to hear the message. Mathew Ingram points us to a talk given by Yahoo!'s Ian Rogers to a music industry conference last month with the title: Losers Relish Scarcity, Winners Leverage Scale. He goes on to discuss the "physics" of media, which is nothing more than basic economics. However, using the word "physics" makes sense here. For whatever reason (and economists may be at fault here), too many people still assume that economics are what people want to happen or what should happen, rather than recognizing that it describes forces that actually are happening. Talking about economics as "physics" helps get that point across. It's a good pitch, though my experience suggests that the important people won't listen (or, rather won't "hear" what's being said). While much of the industry is figuring this out, the big bosses of the record labels are still a long way from waking up to the reality they face.

Filed Under: economics, scale, scarcity
Companies: yahoo

Edgar Bronfman Rewrites History, Has A Pretend Epiphany

from the not-quite-there-yet,-cuz dept

My distant cousin Edgar Bronfman Jr., the head of Warner Music, is getting some attention today for his remarks at the GSMA Mobile Asia Congress in Macau, where he seemed to be admitting to past mistakes in how the recording industry treated customers. However, when you look at the details, there's a bit of revisionist history, and not a full realization of what's going on. In saying "we were wrong," Bronfman concludes: "By standing still or moving at a glacial pace, we inadvertently went to war with consumers by denying them what they wanted and could otherwise find and as a result of course, consumers won." This sounds nice and plenty of folks will want to believe it, but it's totally wrong, and Bronfman knows it. After all, it was Edgar Bronfman Jr. himself who very actively declared war on consumers who were file trading in the summer of 2000. As the head (at the time) of Universal Music, Bronfman Jr. announced that he was preparing to send "an army of lawyers" after file sharers. That's not "standing still or moving at a glacial pace." The "war" wasn't inadvertent. It was an active decision by Bronfman Jr., which kicked off the entire RIAA war against consumers.

As for the rest of his "epiphany," don't buy it. About the only thing he seems to have realized (way too late) is that Apple isn't the enemy. He does say, repeatedly, that they need to offer a better customer experience, but he's said that before. And he's talking about the mobile industry, which he's talked up before, without realizing that the troubles it faced were coming from the ridiculous requirements (pricing, DRM, bundles) that he required them to have. Just a couple months ago, Bronfman was going on and on about why the record labels need to come up with new ways to make ubiquitous content more scarce, and the only reason he's so focused on the mobile platform is because he (incorrectly) thinks it allows the record labels to have more control. So, while it's nice that he finally (sorta) realizes that going to war with consumers is a bad idea, he doesn't seem to actually understand what happened or how to really fix things. Of course, we're more than willing to help him sort out the problems and come up with a better model. I'll even provide a discount for being family.

Filed Under: copyright, edgar bronfman, music, scarcity

Hip Hop Stars Understand The Real Business Models For The Music Industry

from the making-all-the-scarce-goods-valuable dept

It's funny every time we hear someone say that the music industry is in trouble. There's very little evidence that's true. More music is being produced today than ever before -- and plenty of people are still making a ton of money in the music business. What's actually in trouble is the traditional recording industry, which is quite different than the music industry. When we point out business models for musicians, we seem to get a lot of pushback, but there's more and more evidence that artists are successfully embracing the model we've put forth -- and they're raking in the cash doing so. Forbes just came out with a report about how much money the top hip hop artists are making, and they're doing quite well. However, it's not because of just the music, but how they've used the music to sell all sorts of other things.

It's exactly the model we described (though, many could probably do even better if they further embraced freeing their music). The music itself is an infinite good and can be used to the musician's advantage to make scarce goods much more valuable. As Lea Goldman, the associate editor at Forbes who put together the story notes: "they are smart enough to know that it's not just about selling albums. That'll keep you going for maybe two, three years tops. It's about building an empire and plowing those earnings into lasting businesses that will generate income long after the music stops selling." For some artists, that means branching out into totally different businesses. When people attack the business model we've described, they snicker at "selling t-shirts." However, the article notes that hip hop artists are creating full lines of clothing that sell well and sell for a premium because of their association with the artist. Also, the successful hiphop stars all seem to recognize one of the key "scarce" resources they can sell: an association with themselves. Many of these musicians took in millions by doing sponsorships, by producing other musicians albums or simply by appearing on other musicians' recordings. So, can we now set aside the myth that the music industry is in trouble? It's only in trouble if you're solely in the business of selling plastic discs -- and that's because those discs are increasingly obsolete.

Filed Under: business model, hip hop, music, scarcity

Edgar Bronfman Got The Wrong Message About Scarcity

from the time-to-repeat-that-lesson dept

Warner Music Group's chairman Edgar Bronfman is no stranger to failing to see the big picture when it comes to online music. After all, back in the summer of 2000 (when he owned Universal Music), Bronfman was the first music exec to rant and rave about Napster and say he was preparing an army of lawyers to start suing people for downloading music. In retrospect, many now admit that Bronfman's declaration of war on Napster kicked off the recording industry's problems. It was clear then that Bronfman simply did not understand the economics of digital goods, and in the eight intervening years, it appears he hasn't learned very much. While he's dabbled in digital music, the strategies always come back to him trying to control how the music is used, providing less value for music fans. Amusingly, he then complains that downloadable music isn't easy enough. Of course, the only reason that's true is because of the restrictions he insists must be included. In discussing Warner Music's latest earnings, Bronfman complains about the ubiquitous nature of music, and insists that the strategic response is to create additional artificial scarcity. This is exactly the opposite of what he should be doing. All that does is shrink the market, piss off potential customers and create wide open opportunities for competitors to better serve the market. Ubiquity isn't a problem -- it's an opportunity. There are plenty of ways that Bronfman and Warner Music could embrace that ubiquity, expand the market, increase the value and profit handsomely from it. But, instead, Bronfman seems stuck on his failed plan from the summer of 2000, and yet another opportunity will be squandered. Update: Then again, news is coming out that Universal Music will at least experiment with DRM-free music "for a limited time." That's a step in the right direction, just 8 years too late.

Filed Under: copyright, edgar bronfman, music, scarcity
Companies: warner, warner music group