Chris Anderson's theory that all things digital (information) are trending in cost downward (eventually to a cost of free) has a large amount of truth and merit, but a lot of it is dependent on the perspective you are looking at each example's instance. Where the critics tend to get it wrong is taking general concepts out of context.
In Malcolm Gladwell's criticism, he seems to miss the boat completely. He starts off with a propaganda scene at the beginning, to help build a tone of skepticism for his later arguments. This scene is led by James Moroney, the publisher of the Dallas Morning News, talking to congress about negotiations he had with Amazon. He complains that Amazon wants to take 70% of the revenue to publish his newspaper on the Kindle, and pleads for understanding of what a horribly impractical business model this is. He then rambles on hoping to gain the sympathy of his listeners. What Moroney leaves out of his pleads are the other benefits. The 30% gain is 30% profit for his company. There are no printing or material costs subtracted from this 30%. There is no distribution cost for this 30%. Also just think about all of the other costs part of the old "print" model. Storage costs, transportation, machinery.
Next it's Gladwell who fails to tell the whole story, as he goes on to defend the newspaper, "Amazon wants the information in the Dallas paper to be free, because that way Amazon makes more money. Why are the self-interested motives of powerful companies being elevated to a philosophical principle?" What is being left out of this is that the newspaper "profit" isn't being affected by the measly .50-$1.00 cost of the newspaper. After all, that barely covers the cost of the paper itself. Their profits come from advertising, and the higher the distribution rate the higher advertising fees they can charge.
Gladwell goes on to re-tell a behavior experiment described in Anderson's book, where the following happened:
"Ariely offered a group of subjects a choice between two kinds of chocolate—Hershey’s Kisses, for one cent, and Lindt truffles, for fifteen cents. Three-quarters of the subjects chose the truffles. Then he redid the experiment, reducing the price of both chocolates by one cent. The Kisses were now free. What happened? The order of preference was reversed. Sixty-nine per cent of the subjects chose the Kisses."
Gladwell starts belittling this concept by carrying over the same model to YouTube. He argues that the YouTube service, which is completely free to be used and abused by anyone, lost a half billion dollars last year. Where Gladwell missed the mark is the point of the experiment in the first place. The point wasn't to show that “free” has "the power to create a consumer stampede". It was to show how having ANY cost creates a barrier to entry. And when the cost is going to be so minimal, why have any sort of barrier. Those pennies aren't worth anything on the bottom line.
If losing $500 million dollars was of major concern to Google, why would they continue investing in the product. After all, the main cost for running the service is bandwidth, and in the last year they just started offer HD service (something that just eats up more bandwidth).
From the best I can see, Seth Godin best explain the reasons of "why" for the critics:
Like all dying industries, the old perfect businesses will whine, criticize, demonize and most of all, lobby for relief. It won't work. The big reason is simple: In a world of free, everyone can play.
The biggest impact of FREE for web-based is that you have to be as creative with your business modeling, as you are with the content producing itself.
No comments:
Post a Comment