Free is about price. AND availability. AND service...

This is the best article I've ever read about the enigma of free content on the internet. I wish I could email it to all filmmakers, musicians, software developers, movie studios, and record labels.

You think 'Free' is Only About Price? It's not.
by Stan Schroeder

Time and time again I see the discussion about free content, free services, free products, and how they’re going to liberate/destroy/change the current economy, especially when it comes to the Internet. Often, one important point is neglected. When it comes to free, it’s not the price that’s crucial.

It defies logic: after all, if you offer someone a free donut, he/she is going to take it because the price is zero, right? Well, not exactly. In the online world, there’s another equally important currency: availability. It can be defined by the number of steps it takes to do something or download some content. The bigger the number of steps, the bigger the cost of the product/service.

Free Donuts, But With a Catch

Let’s go back to the donut analogy. Many opponents of the economy of free say: if you give donuts for free, and the guy next to you tries to sell them at any price, he will inevitably lose because no one will buy them. But this criticism doesn’t take into account the number of steps required to retrieve the donut (which is a very important part of every online experience.) So, the real analogy would be this: if you offer donuts for free, but anyone who wants them has to run three circles around the nearby building to get one, many people will simply pay, for example, $1 for the donut if it means they can just take it immediately.

Recently, we’ve written about research which shows that kids in the UK pirate music less due to the rise of music streaming services. This is because music streaming is so easy, that it makes it cheaper (time is money, remember) than to search for a song on a torrent site, although the price of both services is zero.

Competing With Free

So, how do you compete with free? Let’s say that your product is a music album, which can be digitally duplicated at zero cost, and therefore it’s all over torrent sites, P2P networks and blogs. Sounds like a disaster, but it’s actually not that hard to compete with that. You can create a fantastic web site which offers all of the albums of that particular band, as well as many other albums, neatly organized and easy to search. Then, you can offer additional perks to people who download the album (I’m not talking about buying it yet, I’ll get to that bit later), such as free concert tickets, merch, access to rarities, singles, unreleased materials, live recordings, bootlegs, lyrics, guitar tabs, etc. Then, there’s the technical side: you can offer very fast downloads. You can have ads that are less annoying than those on torrent sites. In short, you can create a great user experience. I’ve covered this part of the story in an earlier article on piracy and the reasons why it works.

But I’ll take it a step forward. Here’s a bold theory: free will not last forever. No one has to be afraid of free, because it’s just a transitional phase in the history of the Internet. The current trend, where everything seems to lose value, and the price of all digital content seems to inevitably spiral towards zero, will reverse – at least for some types of content.

The Price is Not Only Money; It’s Also the Time it Takes to Pay

And here’s the reason: currently, paying for something online is, in most cases, too complicated. How hard can it be to just punch in your credit card number, one might ask? It’s very hard. It’s unbelievably hard in an environment where people are used to getting everything with a couple of mouse clicks. You have to own a credit card; if you do, you have to find it; you have to punch in a long number, then you have to punch in another, and a date. And on many sites, if you haven’t shopped there before, you have to register first, which adds to the annoyance.

If you think that telling people that getting the same content for free, with a couple of clicks, is evil, will make them go through this process, then you do not understand how the Internet has changed our collective mind. One click – one single click – can make the difference between yes, please, and no, thank you. Any blog owner who has added a RSS subscription button knows that it works infinitely better if it only takes one click. Add just another click – a landing page where you explain what RSS is, for example – and you’ll get a lot less subscribers.

An example that defies the notion that all digital content is going to be valued at zero dollars is Steam. You know why? You pay once, subscribe once, and then you just download games (*Update: this bit requires some explanation. When I say “pay once, subscribe once” I mean set up your payment details once, and they’re remembered between sessions; games are automatically updated; plus, Steam (Steam) lets you purchase multiple games at once. But most importantly, the entire process is so easy, and the Steam content distribution system offers so many perks, that it beats downloading games illegally. For more about Steam, go here). For a lot of people, that fact that it actually costs money is overshadowed by the simplicity of the experience. Many gamers have told me: look, I used to pirate games and spend days looking for cracks and serials, but now I just use Steam. It’s so much better.

This works for all content. Lately, we hear newspaper owners huff and puff about their demise, blaming it on anyone but themselves. I feel for them; it’s a complicated issue, but they have to figure the best way to resolve it. If I click a link on the Wall Street Journal and I get the notice “sorry, this is for subscribers only,” I’m just gonna go away. If I were to click the same link, and someone, somewhere, took 20 cents from me, without the need for my intervention, I’d be OK with it. But if what you offer behind that link is already available on 20 other free sites, then I won’t be OK with it. If I’m a stock broker and need to have that news the second it’s out, then I’ll be willing to pay even more. Are there enough stock brokers out there to justify a pay wall which annoys all other readers? It’s up to WSJ to find out.
The Wrong Way

Unfortunately, there’s a problem here that goes beyond the survival of an industry and threatens to change the way we use and perceive the Internet, as well as our online privacy and freedom. The entertainment industry and the media industry know that getting people to pull out their wallet is the hardest thing, so they’re trying to shove it down our throats. They think that they can charge their content in the same way a country collects tax from the people. It’ll never work. First of all, not all content can be charged for. Some content – news is a good example – will always have a tendency to be free. Video games, music and movies may not be worth more than zero if we’re talking about a digital file on your hard disk, but if you add the user experience and the extra value you can tie to them, there will always be a business model for selling them.

So instead of putting pressure on governments to adopt stupid laws and on ISPs to act like policemen, judge and jury, the industries mentioned should work to figure out which model works best for them. Some companies will fail, and go bankrupt. That’s OK: when the car came, not all horse carriage manufacturers successfully transitioned to a new business model. Some will have a hard time. Some will do as well as they did before, and some will do better than they did before.

But all of them need to understand that the key issue is not the price. It’s one piece of the puzzle; but there is also ease of use, the quality of the user experience, availability, the time it takes to do something. In the end, free is price like any other; every day I get free newspapers, handed to me by a boy on the corner. Obviously, it pays off to do that, otherwise that company wouldn’t give them for free. I don’t get cars for free, though: the fact that I drive a Ford, and thus advertise it to the world, is not valuable enough to Ford to give me the car for free. But if I were a very popular actor, they’d be very glad to give me the car for free. How did these companies learn what works and what doesn’t? They experimented, they tried different things, and those who were good at predicting what works, survived. I don’t see why, when it comes to digital content, this should be any different. Link.