Category Archives: free

How Apple could destroy publishing in 5 easy steps

Publishers such as Condé Nast, masters of our beloved Wired magazine, are so hopeful the iPad and the tablets chasing it will revive their economic health: you know, more readers will pay for subscriptions; no paper means lower operating costs; advertisers will suddenly yearn for higher CPMs to get aboard such gorgeous, interactive content …

Yet perhaps Apple has deeper motives for the iPad, say, moving the margins of the book and magazine industries directly into its own pockets. (See: iTunes, the No. 1 music vendor in the United States.) Here’s how Apple could destroy publishing in five easy steps:

1. Launch the iPad, then gradually reduce price points while adding features (webcams, backside video cams, slimmer bezels, 3-D) until ramping gadget sales achieve lock-in for Apple as the de facto tablet-cum-publishing store in the world.

2. Upgrade the Apple word processing program Pages to include simple templates for books, novels, pamphlets, and magazines, all publishable electronically as gorgeous interactive PDFs. And just as an iTunes software version exists for Windows, promote a version of Pages to work in Microsoft environments as well.

3. Give consumers new incentives to publish books or magazines themselves by including interactive ads that fit in the margins of their self-published PDFs. You’ll get paid for every thousand eyeballs reading your stuff, and advertisers will compete for this new form of contextual advertising tied to GPS location systems built into the iPad.

4. With a click, allow these aspiring authors to upload their now-beautiful, already monetized book layouts to the iBookstore.

5. Build in social media features to help you promote your own book to your network of followers on Twitter and Facebook, and pray that they scale it to their friends.

You may not sell a million books or a best-selling magazine, but you’ll no longer need all that thorny pitching, rejection, approval, editing, and self-whoring that comes from working with big publishing houses. Don’t look at us. Chris Anderson called his own book “Free.”

Freed up, locked down


Rupert Murdoch is mad. It seems Google has been lifting his content for free (Google helps you find things by copying paragraphs of material it doesn’t own every time you punch a query into its search engine) … and so he is threatening to shut Google down. You know. Refusing to release content from The Wall Street Journal in a format that search engines (or others beyond his walls) can read and republish. All you have to do is subscribe to his protected (unphysical) material.

Sony is happy. It seems Sony wants you to buy its new TVs. Alas, you just upgraded your television two years ago to the big flat-panel in your basement, and Sony’s new gadget is only marginally better with, um, slightly more contrast. Sony knows you’re saturated with electronics and don’t really need a new device … so it is offering to open content up. You know. Giving away free movies from Hollywood in a format your family will enjoy and rewatch. All you have to do is buy the Sony (physical) material.

Payment force = mass times acceleration

Who wins in these scenarios? Both involve cross-subsidies — in which you pay for one thing (subscription, gadget) to get another future series of stuff (stories, movies) for apparently free. Murdoch wants you to spend a few hundred a year for a stream of business content. Sony wants you to spend a few thousand for a giant slab of glass that streams “free” content. Our bet is the Sony scenario wins. Consumers perceive value at the point of purchase, and a sexy device (think, the iPhone in your pocket) feels worth a sudden outlay of cash, even if that outlay is bigger.

We admire Murdoch’s stubbornness in defending the value of content streams. We just don’t think people want to pay for it. The pain of spending has to be tied to something substantial, like a big block of glass. Perhaps it’s all the result of the caveman bartering logic that we relied on for thousands of generations before the advent of electronics just one breed-cycle ago: If the deal doesn’t involve mass, we can’t accelerate payment.

Image: Hey Mr Glen

FriendFeed and the dance of the Free



You may have missed the news that FriendFeed, a free online aggregator that lets you manage updates from multiple social networks, was purchased recently by Facebook. Ad industry observer Bob Knorpp pondered what the acquisition meant for free business models in general, so we responded:

Bob,

Regarding free, all this hyperbole is really just ornamentation on the basic “cross-subsidy” economic model. Television and radio have done this for decades giving away content in return for advertisers funding access to eyeballs (3-party exchange). Google gives away search to attract an audience to attract advertising bids (another 3-party exchange). USPS delivers mail to Alaska for 44 cents because it is subsidized by more profitable routes in urban cities. It’s all so simple — if you draw a circle around all the parties involved in any supposedly free business, someone pays to offset the costs for a profit. People get confused by free because they often only look at 2 of the 3 parties directly involved.

A is free to B as long as B attracts dollars from C that are paid to A.

Cross-subsidies can also pull payment from the future. So any startup — Facebook, Twitter, FriendFeed — can burn in the red and be “free” when really it is pulling payment from a future IPO or acquisition. Sure, burn $20 million today, but if you’re bought for $50 million next year, that’s cool. The funding model is simply tied to confidence in the exit strategy.

One future form of cross subsidy is also new products or services. Twitter, for example, could be building up to 1 billion users in hopes of creating the world’s largest database of the now, in which that data could be sold to marketers. The exit strategy could be replacing Experian. Advertising may never rear its head in that Twitter model, because the third-party subsidy comes from an entirely new business. Marketers could use that data to serve you addressable TV ads or send direct mail to your home. But again, A is free to B because B will attract dollars from C that are paid to A.

Free doesn’t exist. Chris Anderson’s elegant argument is really just an articulation of cross-subsidies. His idea that falling data costs will make everything free is false, because as Porter has explained, three things flow in any economic exchange — information, value, and products. Information may get cheap, but products still come in three dimensions and have costs. And while information could approach free, the ideation of that information still costs money. Trust me, I do this for a living 😉

Now, finally, re FriendFeed — hey, that was a nice portal play for all of social media. I could aggregate my content from everywhere else and make FriendFeed the center of my universe. If I were Facebook, I’d be messing my pants. “Those guys are stealing our social graph!” Facebook bought it for several reasons, but if nothing else, to take a social media portal competitor off the table.

Nicely played, FriendFeed. Looks like your cross-subsidy from the future finally arrived.

Image: Ana Cotta

Less than zero: How ‘double-free’ killed the Danish newspapers


Wired and “freemium” guru Chris Anderson had dinner recently with Jon Lund, chief of the Danish Internet Advertising Bureau, and learned about a free business model gone sour. It seems in fall of 2006 a new newspaper called Nyhedsavisen entered the Danish market with a “double-free” model — the paper cost nothing, and it would also be delivered to homes for free. It was a foray by the Icelandic media group Dagsbrun to capture the Danish ad market but ended up decimating the nation’s newspaper industry, as other publishers tried to match the double-free model. In the end, three papers went bankrupt and the industry lost $150 million.

What’s intriguing about the tale is how demand plummets when oversupply swamps consumers, even if the goods are free. Local accounts say Danes got fed up with six newspapers a day. Reminds us a bit of all the social media and mobile free apps competing for attention in the U.S. … or worse, the advertisers trying to buy their way into social media conversations with paid posts that no one welcomes. If supply saturates and prices can’t move lower than free, demand is going to run away.

How online publishers can stop ad revenue from crumbling


A day after the Associated Press practically accused Google of stealing its content, Google CEO Eric Schmidt stepped before the Newspaper Association of America to explain his vision for the future of journalism. Yes, advertising will still work, Eric predicted, but the internet will continue to break down some ad models that rely on scarcity, because on the internet everything is ubiquitous.

What, oh what, can online publishers do in this cruel new universe where marketers can target customers online without paying high prices to web publishers? Why, get clever. Here are four ways publishers can defend their ad pricing.

1. Decommoditize your readers. Yes, marketers will use technological tricks such as retargeting to serve ads to publishers’ readers without paying the publishers themselves. But publishers who add additional data about their readers could continue to charge high CPMs. Surveys, sign-up questionnaires, click-streams within a publishing network can all pinpoint audiences that are prime targets for marketers. Surely there is information inside the publishers’ walls that can add value to justify higher ad rates.

2. Contextualize your content. Bloomberg.com, for example, offers a stellar closed advertising system in which marketers can target banner ads to certain keywords in ad copy, or within site searches. Brands are willing to pay for context that makes sense.

3. Band together. We received an idea from the vice president of a national news magazine that certain online publishers could form a group to resist behavioral targeting, or at least compare data sets among their readers to add unique value to marketers. The groups could align like-minded news organizations, industry verticals, or even customer verticals. Imagine, for example, a series of publications that encouraged retargeting only within their content networks — perhaps even allowing noncompetitive advertisers to target each others’ similar audiences. An insurance company wanting to serve banners to affluent men could chase respondents to an expensive men’s watch brand, and vice versa.

4. Forecast results. Come on guys. We research media on behalf of marketing clients, and every time we ask an online publisher for forecasts on basic performance measures — click-through rates, conversions, traffic, sales — we get a dazed, hurt look. “Results? Um, we don’t discuss results…” Until your salespeople can tell us what advertisers will get by advertising on your web sites, we’ll be tempted to put the money elsewhere.

Some didn’t like our recent BusinessWeek column suggesting ad rates will plummet for marquee web sites. We say, don’t ignore the future. Dig deeper. Data cuts both ways, and if you play it right, you can charge for it. Hat tip to Miconian for inspiration.

Photo: Amanky

Free at last, business, you’re free at last


Chris Anderson’s blog just posted an overview of “free” business models, or ways your firm can make money in the coming crunch where prices are pressed lower by digital commoditization. Despite Anderson’s eloquence, we still wonder if all business models are being pushed to the free — digitization isn’t going to reduce demand for solid goods to the point where margins become zero for things made out of sheet metal. Still, if you’re running a small shop or startup, the list may provoke new thoughts on how to make money while passing along lower perceived costs to customers.

If you’re new to the Freemium idea, here’s an overview of Anderson’s speech at SXSW in Austin.

Playboy, like Chris Anderson, flows to the free


Wired editor Chris Anderson spoke at SXSW this week, arguing again that pricing on all products and services will flow to the free as the internet matches supply and demand more efficiently.

As evidence, we give you Playboy. The publishing empire, which has been severely threatened by free online alternatives, announced today it will post 53 issues from 1954 through 2007 at a free Playboy Archive web site, unedited, with no age restrictions. Now — if you’re still reading and haven’t clicked through, stay with us, people — this is a perfect example of Anderson’s freemium model, where a large portion of your services are given away in exchange for a small group of customers who pay. Marketers could learn from this move; rather than fight online competition or piracy, learn to coexist with free models while building future demand for paid services.

As if you’re still reading this.

What you can learn from the North Face iPhone app. Hint: Think free.


See the red logo above? Notice how small it is?

Dirk Singer, chief of the London-based Cow PR shop, has a nice review of the North Face iPhone app, which gives skiers free information on snow conditions. “Though it contains a link to the nearest store, North Face knows better than to interrupt users’ ski holidays with constant brand info,” Dirk writes.

This reminds us of the recent Bud.tv failure, which by comparison pushed the brand hard and made it difficult for users of the entertainment site to derive any content (Bud.tv had an extensive registration/log-in process that required your driver’s license). Unlike North Face, Bud.tv failed because it didn’t offer enough free value first before trying to identify (or sell) you, the user.

Wired editor Chris Anderson has been making rounds talking up his new book Free, filled with the concept that the rapidly diminished costs of data transfer and storage mean prices for many services are also approaching zero. In this competitive arena, marketers need to provide some level of service for “free” … while in reality they hope to make money by selling goods to a fraction of the users. As Chris has noted, even if you sell to only 1% of your audience, if your audience is big enough, 1% of a large number can still be a large number. North Face has gotten the free-vs.-selling balance right. Next time we head north to ski, we’ll check out their iPhone app … and then maybe buy some gear along the way.

Why everything won’t be ‘Free’ tomorrow


If you want to know why everything won’t be free within a few years, just think about your airport luggage.

Wired editor Chris Anderson is about to publish “Free,” a look at how the proliferation of free media online is expanding into other business dynamics. The über-designer David Armano explains the entire book in one graphic, above: Either you give something away by subsidizing it with sales of something else (either cross-sales of other products, or third-party advertising for free media), or you give something away while charging a small portion of your customers for premium service.

It’s a simple get-this-but-pay-for-that trade-off. And it seems to make sense; consumers have put up with advertising-supported free radio and TV for years, so why wouldn’t free expand?

Trouble is, when you push “free” models that work online to real-world goods or services, people rebel — because in the real world you see what other people get, and transparent cross-subsidies tick you off. The perfect example is the U.S. airline industry. When fuel prices skyrocketed, airlines had a big problem — they could either raise ticket prices or pass the extra charges along in other fees. Raising travel prices in a day when any consumer can shop for the best deals on Travelocity.com is suicide; if you jump $25 on your ticket price to Vegas, consumers flow easily to a competing carrier.

So airlines did what Chris Anderson recommends — move to Free Model 1, where the price of one good is subsidized by sales of others. Airlines held ticket prices steady but tacked on a range of surcharges, for baggage check-in, food on planes, etc., to cover their higher operating costs.

And people screamed.

The problems were many. First, surcharges forced lower-income consumers to bear a disproportionate share of the fuel increases; families going on vacation with four kids and 10 bags where walloped with high baggage fees, while affluent business travelers waltzed aboard with a single carry-on bag. Second, the perception of unfairness abounded as everyone in the real world could compare what others were paying; if you bring bags, you get charged, and your fellow passenger may not. And third, each surcharge created yet another negative touchpoint in the travel experience — a bump here, an unexpected fee there, a series of unfortunate events.

In theory, someone always has to pay and “free” models that move the cost around can work on many levels. But in reality, consumers going through a customer service experience do not like surprises, and they hate any perception of unfairness. A utility could reduce your electric bill by 30% and then charge you $350 every time a serviceman comes to check your electric meter. In this new model you’d pay the same amount every year, but the fact you pay so much for a home visit would probably be infuriating.

The online media world is moving to the free. Just don’t expect the offline world to meet it there anytime soon, because in the real world, the costs transfers are much more visible.