Freemium Works For Content?

Jason Chervokas says I am wrong, that a freemium business model works well for content and cites the Greatful Dead as the example of how to do it.

The Dead certainly did show the power of freeing their music to power a fan base that bought concert tickets like sugar water.  It's a great example, but I don't think that was exactly what I was talking about when I was critical of the Times Select program.

In any case, I am glad that this discussion is going on.  It's healthy to debate these issues, put them out there, form opinions, and try to figure this stuff out.

Comments

[Mike Masnick]

I think Jason is a little off in his definition of "content" concerning the "freemium" model.

The Dead model recognized that *content* should be free. What they then sold was never the core content, but services around the content -- and that's a model that works.

Concerts aren't content. They're a service: watching content created live. But the Dead freely encouraged people to tape and distrubte the concerts. It wasn't the "content" that people paid for, but the experience of being there.

CDs (despite what the RIAA would have you believe) aren't content. They're a delivery mechanism -- a channel for delivering the content conveniently.

And, in both cases, they meet the other element you described in your original post about the model: both CDs and concerts add noticeable and easily understandable marginal costs -- and that makes people more willing to pay.

That's not the case with Times Select.

I think the core point that you realized, Fred, is an implicit understanding of efficient pricing in an economic market -- and it's something I think many people actually realize subconciously.

It's pretty simple. Basic economics tells you that in an efficient market at equilibrium, price should equal marginal cost. Despite what a few (bad) economists will tell you, this doesn't change when marginal cost = $0. Over time, if the market is competitive, it just means that the price *will* be driven to $0 -- and that's okay.

I believe that most people recognize this simple fact subconsciously -- and that's why it doesn't disturb many people to share music. They recognize the marginal cost, and realize they're not really *costing* anyone anything when they make a copy. However, when the marginal cost is non-zero, then people recognize that as well -- and understand the true costs, and therefore are much more willing to pay. Of course, none of this means (as you've noticed) that when the marginal cost = $0 there's no business model. All it means is there's no business model selling that specific content.

Instead, you look for business models that embrace the wonderful benefits (lack of scarcity!) when the marginal cost is $0. Basically, you recognize that any such good automatically becomes as promotional good *at no marginal cost to you*. In other words, you've flipped the equation. Those who fret that what they're selling is being passed around for free have missed the most amazing thing. Their promotions expenses have just been cut drastically.

[Raphael]

I also see a case when content works under the freemium model.
Music free = Concert Tickets
/\ Added Value = Experience /\

Alan Krueger's study Rockonomics give could insights on these changes.

I also see see critics as Freemium models.
Advice = Affiliation sells
/\Added Value/Service = Speed on acquisition = avoid forgiveness/\ How many stuff i missed because i don't have acces and critics in the same space.

Leafar

Thanks for your insights, it's been very helpfull.

[Raphael]

Ok that's a good reply.
I agree with mike

[stu]

That the Dead's business models was built to last (cheesy, but had to throw it it in), shows how important luck is when it comes to these unpredictable times, because they were the last guys on earth to sit around and think about business models.

This point was made when 60 minutes interviewed them, a few years back, and asked the surviving members how they were able to find the one business model that works for artists in the digital age.

Their response was along the lines of, they stunk as businessmen, and the few times they tried to fund businesses, such as their own record company or a movie, they failed miserably, losing lots of money.

So does Freemium work for artists? It sure did for the Dead, and Fred, you made the solid point, a few weeks back, how the op-ed articles were routinely at the top of the Times list of the most frequently emailed articles, but No Mas.

I like Kristof's take, and miss reading his pov's. But not enough to subscribe to Time Select.

If it works for the Times cool, but I liked the ad supported model more. Charlie Rose gives me plenty of op-ed povs, as a replacement for the back of Section A.

Lots of choice out there.

[Jason Chervokas]

Concerts aren't "content," but recordings of concerts are.

[Oskar Austegard]

So how should one categorize CNN's Pipeline? (http://www.cnn.com/pipeline/) It clearly is a service, but one that delivers content. Anyone can now go to cnn.com and watch free (commercial-supported ) video, but Pipeline gives you a premium 4 commercial-free channels, for a price.

Whatever it should be categorized as, I'm sure that next time some major news story breaks, CNN's Pipeline will see equally major traffic.

[Stu]

Check out this article on Freemium Flying on CNN.com

It is up on the digg front page now

http://money.cnn.com/magazines/business2/business2_archive/2006/04/01/8372814/index.htm