2008-02-17

In addition to free (Part 1: Free is not a cure-all)

"Digital contents should be free. Anyone who resists is clueless."

That was the overall impression I got after reading various blog posts recently. Here are some of those blog posts.

Many of the suggested business models are basically giving away digital contents for free and get compensated for something else like paper books, lectures, consulting services, etc. This does work. In many cases, it could be better than selling digital contens for a price. However, I don't think this is a cure for all. It works only in certain conditions. Here are some of them.

It works when the paid market is large and highly correlated with the free market.

This is obvious. The after market should be big enough to keep you motivated, and hopefully bigger than the 'free' market so that you have not given away too much. However, I wonder if all contents markets have enough after markets. What about comics, novel, poem or photo? It would be interesting to see a research based on many (not just a few eye-catching experiments of an already well-known people) cases.

In addition, the paid market popularity should be correlated with the free market popularity. If you are sure that more popular free contents result in more revenue in the after market, many people will go this route. The problem is, it is only 'expected' to be correlated. On average it can be fair and correlated. But it is not like the old model of selling CDs or paper books for a price, in which popularity 'is' revenue.

It works when your market is segmented in a way that the free digital market is different enough from the paid markets. (Differences of demands)

It is easy to imagine this case. You are a digital generation, but your father is not. He is not used to downloading MP3 files or using music services or reading on screen. Ideally, the market is different, but not entirely separate so that the consumers in the paid market can 'hear about' what is hot from the free users. Effectively, you used the free market users as marketing agents to promote your products in the paid market.

However, this tends to be temporary. Usually it relies on the fact that certain people are effectively blocked from a new market because they have not heard about it or do not have the skills to use it. Over time, this separation will probably decrease.

It works when your paid product has significantly different value propositions than the free contens. (Differences of supplied products)

In this case, 'you' are two markets. You buy the paid version when you already have the free version. You heard "The band is so good at live concerts. You cannot get it by listening to the recording". Or you want the feeling of seeing your favorite book on the bookshelf, though you have read it online already. Or you read a free book about tax-saving principles, and seek for a consulting from the author. (By the way, the book you read was titled 'All you need to know to save tax by 30%'. Realizing you cannot do it yourself, you pay the author to do that. How generous...)

I predict the different value propositions that atom-made contents have won't last long. A CD has many other values that an MP3 file or an online music do not have: sounds better, looks good when you have CDs in your living room (or wherever is your home theatre), and has beautiful jacket design (though it was already diminished compared to LP). Nevertheless, people are not buying CDs. Certainly not in Korea, where CD market decreased to about 15% of what it used to be in 2000. See the table below.

Korean music market size (Billion Korean Won. 950 won = 1 USD)

  2000 2001 2002 2003 2004 2005 2006 2007
CD/LP 410 373 286 183 134 109 85 65
Mobile (ring tone, etc.)   89 129 177 191 225 230 220
Online   2.1 3.8 4.4 20 37 120 150

If you were a musician, would you give away your online music for free and get paid with CDs? I wouldn't. What if the same thing happens to the book? At the moment, we are lucky. People seem to love paper books much more than music CDs. As the displays quality improves and we have more books digitized, however, it will be a matter of how quick and how much.

By the way, you see the rapid increase of online music in Korea in 2006? That is about the time when Korea became tough on illegal download/p2p sites, thereby removing a lot of free option for people. And yes, there are still a lot of piracy.

It works when it is doable for creators to use the after market.

Currently used and suggested models require extra work in addition to making the original contents. I believe that the more efficient market is in which division of labor is well-developed so that each of us can focus on what we have a passion for and what we do best. There, people who do not have multiple skills or affluence will have a better chance. Of course, if you want, you could do multiple things. I am just saying you 'can' do onething well and still get paid, not you 'should' do one thing only.

Division of labor is a great thing. Because we don't have to build blogging software (and manage servers, manage network, and on and on) ourselves, we can enjoy reading so many interesting writers around. Because YouTube does the nitty-gritty job of showing a video, we are impressed by creative people. I call this kind of market, which is driven by creative crowds, Mass Niche (or longtail by longtail), which I believe is, and hope to be, the future of market economy.

I wonder how easy it is for a poor and unknown artist, not a Harvard Professor or a famous rock band, to plan and execute after-market activities. Is having live concerts easy for an unknown musician? Is lecturing (not to mention consulting) easy? First of all, you may not be able to afford the time it takes from creating the content to monetizing in the paid market.

Even if you have a day job so that you can wait longer, you need to have extra skills. I have done consulting for over 10 years, and I know I can do that but writing a short book, though the topic was business, was horribly difficult. Any extra work requires extra skills. Should we all become talented in multiple things in the future?

To be continued:

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