Stop Saying 'If You're Not Paying, You're The Product'

from the there-are-more-options dept

We just wrote about how silly it is to argue that companies you pay for their services or software somehow treat you better or are more "aligned" with user interests than those who give you products and services for free. When you dig in on the subject, such claims don't make any sense. In both cases, companies have some alignment with users -- because without users, they're nothing -- and some alignment with trying to make themselves money. And sometimes those two alignments conflict, whether or not the user is paying directly.

Derek Powazek (random trivia: whose work inspired me to learn how to create a web page back around 1995 or 1996 or so) has an excellent take on the pithy and dismissive phrase that many often use to argue that free services treat users worse:

"If you're not paying for the product, you are the product."

It's pithy and clever... and wrong. Powazek dismantles the claim eloquently. He attacks the underlying assumptions in that statement. He highlights that "free with advertising" has been a pretty big business for a long long time, in which there's no indication that users were treated as "the product" or somehow treated poorly. And then there's the key one: this is not an either/or situation:

I’ve worked for, and even run, many companies in the last 20 years with various business models. Some provided something free in an attempt to build an audience large enough to sell advertising, some charged customers directly, and some did a combination of both. All treated their users with varying levels of respect. There was no correlation between how much money users paid and how well they were treated.

For example, at JPG Magazine we sold something to our audience (magazines, subscriptions, and ultimately other digital services) and we also sold ads and sponsorships (online and in print). We made it 100% clear to our members that their photos always belonged to them, and we had strict rules for what advertisers could do in the magazine. We also paid our members for the privilege of including their photos in the printed magazine (as opposed to Instagram’s new policy that they can use your photos however they want, even in ads, without paying you a dime).

This example is much more complicated than the black and white “you’re the product” logic allows. In some cases, users got the service for free. In others, they paid us to get the magazine. In still others, we paid them! So who/what is the product?

And just because you pay doesn’t mean you’re not the product. Cable TV companies take our money and sell us to the channels, magazines take our money and still sell ads, banks and credit cards charge us money for the service of having our money. Any store that has a “loyalty card” takes our money for products but gives us a discount in exchange for the ability to monitor what we buy. In the real world, we routinely become “the product” even when we’re already paying.

He also points out, as I have many times, that there are plenty of companies whose services you pay for who treat their users atrociously. And then points out what many of us have been arguing all along: there are all sorts of business models online. Some work in some cases, others work in other cases. But to argue that "free" services mean you're "the product" and thus not treated as well, simply isn't an accurate or realistic statement. So can we please agree to kill it?

Filed Under: customer service, free, internet business models, paid, product, users

Once More With Feeling: Paid Software Doesn't Mean A Company Treats You Any Better Than Free Software

from the kill-this-myth dept

A few months back, we wrote a post about how there was this idea gaining steam that somehow a fee-based service (such as a fee-based Twitter clone) would likely result in better service for users than a free one, in which revenue was paid by other third parties (advertisers and others). While I understand why the idea is compelling, it's hogwash. There are plenty of examples of companies who you pay who still treat you like crap (think: pay TV providers, mobile phone providers, airlines, etc.). The simplistic argument is that when users pay, the company's interests and the consumers' interests are "aligned." But that's not true. The company's interests remain to get more money out of you, and your interest (generally speaking) is to not have to pay that much more money (there's more to it than that, but...). Furthermore, the idea that a service that shoots for volume via free services, and then supports it with third party revenue still has tons of incentives to treat users right: because if they don't, those users go elsewhere, and the third parties no longer want to pay. Yes, there are some exceptions on both sides, but the idea that one automatically leads to better service than the other just doesn't seem supportable.

And yet... we're still seeing people arguing this. The latest is from Alexis Madrigal at The Atlantic -- someone I tend to agree with more often than not. But, this time he falls into that same simplistic argument without thinking through what he's saying. The post complains about Instagram's overhyped plan to change its terms of service, meaning that your photos might be associated with advertisements (which they later backtracked), and then quotes someone's silly, misleading and inaccurate "chart" about why only companies that make money directly from users should survive, and then assumes that all of that is true:

Truly, the only way to get around the privacy problems inherent in advertising-supported social networks is to pay for services that we value. It's amazing what power we gain in becoming paying customers instead of the product being sold.

Instagram has, what, 100 million users? If they got $5 a month from 20 million of those users, they'd be looking at $300 million in quarterly revenue. That's a nice chunk of change when you have a baker's dozen employees. You think those guys could split more than a billion dollars a year and call it good.

Of course, this is silly, top down math that never works. Here's what would actually happen in the scenario described above. If Instagram started charging $5/month, within two months, the vast majority of those 100 million users would have moved on to another competing service that does essentially the same thing for free. While I'm sure that some percentage (way, way, way, way, way below the 20% that he posits) would pay, the value for them would actually decrease since so many fewer people would be using Instagram. And, before too long, they would stop paying, because all their friends were using some other free service that does the same basic thing. And getting much more value out of it.

Yes, there are some services worth paying for, but it's ridiculous for people (especially those as knowledgeable and thoughtful as Madrigal) to fall for this silly claim that somehow "paid" online services automatically function better and treat users better than unpaid services.

Filed Under: customer service, free, paid
Companies: instagram

Artists: Don't Expect To Get Paid For What Imeem & Snocap Owe You

from the sorry,-too-bad dept

We always hear the record labels and politicians screaming bloody murder over the concept that musicians aren't being paid "what they're owed" due to piracy -- but when there's a situation where musicians might actually not be getting paid what they're owed? Silence. A few weeks back, MySpace "bought" Imeem in a fire sale. But, the details of the deal suggest they didn't actually buy the company, but "certain assets," which means they get to ignore the liabilities. Guess what those liabilities include? You got it: paying artists what they're owed. Now, as the Wired article notes, there's nothing technically wrong with MySpace acquiring just the assets, but it is notable that it's the musicians left without getting paid what they're actually owed (not some theoretical concept like what they might be "owed" due to unauthorized file sharing). And, yet, we don't seem to hear any politicians or record labels screaming about this. Funny, since they keep insisting that they're really just interested in helping artists...

Filed Under: copyright, money, music, paid
Companies: imeem, myspace, snocap

The Debate Is Not Free vs. Paid

from the that's-over dept

Michael Scott points us to a column by Shelly Palmer that clearly articulates a point I've tried to make in the past, but haven't been able to make that clearly: arguing "free vs. paid" is the wrong debate. Professional content is always paid for somehow -- it's just a question of how. In some cases it's a third party paying. In some cases it's a user paying. And, in some cases, it's a user paying not with money, but with something else, like time or attention, which helps give a third party the reason to pay:

Can you frame this conversation as free vs. paid? No. Not if you are trying to get someone to pay you cash directly for something that is ubiquitously available for free. Free vs. Paid is not the great debate, it's a no-brainer -- free wins! Valueless vs Valuable, Scarce vs Ubiquitous, Demanding of attention vs Commanding of attention are the debates and the winners will be the individuals and organizations that can most effectively translate the value of content into wealth.

Exactly. This is why the focus on "free" is almost always misplaced. People stop thinking once they hit that big oval zero -- and forget that free is simply a part of a larger business model, which is often about bringing in a larger audience that gives other reasons to pay.

Filed Under: debate, free, paid

Forget Free, Indie Band Offers To Pay People $1 To Download Album

from the could-get...-costly dept

For all the talk about the benefits of giving away music for free as opposed to charging for it, it appears that one indie bands is going even further: it will pay you $1 to download its songs. The band, Officer Roseland, has set up a website called MyStimulusPackage.org, where it offers to pay people $1 to download its new album. You actually have the option of having the $1 sent to you via PayPal... or donated to charity (I chose to donate). It's obviously a gimmick (and, I'm guessing the band will shut down the offer if it reaches a certain budgeted amount), but as we hear all sorts of bands whining about not getting "paid" it's quite interesting to see a band go in the opposite direction.

Filed Under: free, music, officer roseland, paid

Newspaper Tries Going From Free To Paid

from the good-luck-with-that... dept

A few weeks back, I wrote how, economically speaking, online news has no choice but to go free over time. It's basically the same argument we've made with other versions of digital content. It's an infinite good, and there's enough competition out there that prices will get pushed to zero (which has already happened in a lot of cases). Some people took offense to this, claiming that I was wrong. The main arguments are twofold: (1) there are some online newspapers that have been able to charge and (2) free newspapers have no value and shouldn't be produced.

Let's take the second critique first. It is a complaint we've heard before, and shows a fundamental confusion over the difference between value and price, which definitely comes into play in the news business. Value is only one component of price, playing into the demand part of the equation. But, price isn't determined by demand alone. It's the intersection of supply and demand -- and if supply is infinite, then pricing pressure will drive the price to zero. That does not mean the content has no value. It can be very valuable. But that doesn't change what the price is going to be for one simple reason: some competitors will figure out how to exploit the infinite nature of the content as free, and other will find it difficult to keep up unless they do the same.

And, of course, that leads us to the first critique: that there are some newspapers that have been able to charge and seem to be doing well. Again, this is one we've discussed at length, in the past. These sorts of changes don't happen overnight, but for the most part we've seen more and more newspapers move from paid models to free models (even the NY Times realized the math didn't make sense to keep a paid version online), recognizing that even if the paid version was something of a cash cow, growth was very slow (or negative), as people were moving to free online news that was "good enough." It's the classic "innovator's dilemma." Other models for revenue are growing much faster than trying to force people to pay for news, and it's nearly impossible to get a younger generation to ever agree to pay for news. It's just doesn't make sense.

With that said, it's a bit surprising to find out that one newspaper is trying to go in the other direction. Bluffton Today, considered one of the more innovative newspaper experiments -- combining a free newspaper with citizen journalism -- has decided to try switching to a paid model. The paper itself will have a paid subscription, as will an electronic version of the paper. Its website will remain free, but that appears to be more limited than the paper itself. It will be an interesting experiment to watch, but if I had to bet, I'd say that the paper will find it difficult to get enough paying subscribers to survive, unless it comes up with something else in its business model.

Filed Under: economics, free, newspapers, paid

Will Others Now Line Up To Get Paid From Google?

from the bad-precedents dept

I know that many folks disagree with my view that Google's decision to settle with book authors and publishers was a huge long term strategic mistake, but it appears others are beginning to recognize the issues. Already, we've seen Harvard bail out on the deal, since it seems to work at cross purposes to Harvard's mission, but more importantly, others are realizing the implicit statement behind Google's caving: information is not free, and those who have information should line up to Google and demand to get paid. In fact, as found on Romenesko, some are wondering when newspaper and magazine execs will realize what the book scanning deal means, and start demanding the same sort of deal from Google. I would suggest it goes even further than that. If Google is setting up a pool to pay authors, and if that leads to them doing a similar thing for newspapers and magazines, why not other websites as well? Google has now set a precedent of being willing to pay in order to display works in its index, and that's going to backfire badly.

Filed Under: book scanning, free, information, paid, settlement
Companies: google

Free Doesn't Mean Unpaid

from the follow-the-money dept

One of the problems we often run into whenever we write about economics involving "free" is that someone inevitably posts a comment saying something to the effect of "but if content creators can't make any money, they won't create content." The problem is in jumping to the conclusion that "free" to the user/reader/listener/watcher means that the content creator isn't getting paid. Nothing is further from the truth. In fact, most of the business models we talk about concerning embracing such "free" things points to ways that the content creators can make more money, while still allowing the consumption for free. Reader thepi points us to a blog post by author John Scalzi, who has long been a proponent of free e-books, where he explains that free to the reader doesn't mean unpaid to the author. It just means that the business model is slightly different; the money is coming from somewhere else other than the reader. For some, this may seem obvious -- but it's clearly a point of confusion that we run into frequently, so it's great that Scalzi is highlighting it.

Filed Under: business models, copyright, ebooks, economics, free, john scalzi, paid