Sunday, October 2, 2011

A Business Model For Digital Creators? 2

If we are entering this brave new world of the Freemium, how can businesses, content creators and artists survive?
We have shown in our previous post in this series that the trend toward free digital duplication is unstoppable.  Ultimately, copyright laws which were designed to protect people's thoughts and inventions worked well in an older age, but are obstacles to innovation in this Internet age.

But as we began to speak about in the earlier post, the digital screen has arisen as the portal of digital communications.  Everywhere we look at screens in all kinds of different situations.  In 2008, Kevin Kelly wrote an article in the New York Times entitled, Becoming Screen Literate.  In it he states,
Once, long ago, culture revolved around the spoken word. The oral skills of memorization, recitation and rhetoric instilled in societies a reverence for the past, the ambiguous, the ornate and the subjective. Then, about 500 years ago, orality was overthrown by technology. Gutenberg’s invention of metallic movable type elevated writing into a central position in the culture. By the means of cheap and perfect copies, text became the engine of change and the foundation of stability. From printing came journalism, science and the mathematics of libraries and law. The distribution-and-display device that we call printing instilled in society a reverence for precision (of black ink on white paper), an appreciation for linear logic (in a sentence), a passion for objectivity (of printed fact) and an allegiance to authority (via authors), whose truth was as fixed and final as a book. In the West, we became people of the book.
This era has changed.  Not that the book will disappear as a communication technology, but it will not longer play the dominant role it once did.  Kelly further elucidates,
A new distribution-and-display technology is nudging the book aside and catapulting images, and especially moving images, to the center of the culture. We are becoming people of the screen. The fluid and fleeting symbols on a screen pull us away from the classical notions of monumental authors and authority. On the screen, the subjective again trumps the objective. The past is a rush of data streams cut and rearranged into a new mashup, while truth is something you assemble yourself on your own screen as you jump from link to link. We are now in the middle of a second Gutenberg shift — from book fluency to screen fluency, from literacy to visuality.
Chris Anderson points out in his book, The Future Of A Radical Price, that George Gilder in book Microcosm was the first to observe this idea that every revolution produces something that beforehand was very expensive and made it very cheap. Gilder gave the example of the Industrial Revolution,
In every industrial revolution, some key factor of production is drastically reduced in cost.  Relative to the previous cost to achieve that function, the new factor is virtually free.  [Thanks to steam,] physical force in the Industrial Revolution became virtually free compared to getting it from animal muscle power or human muscle power.  Suddenly you cold do things that could not afford to do before.  You could make a factory work 24 hours a day churning our products in a way that was just incomprehensible before.1
In essence, digital technology is deflationary as Anderson states,
In the atoms economy, which is to say most of the stuff around us, things tend to get more expensive over time.  But in the bits economy, which is the online world, things get cheaper.  The atoms economy is inflationary, while the bits economy is deflationary.
Possible Business Models In The Internet Age
In this new world where digital duplication costs close to nothing and the copy loses no quality from the original.  Business models which are based on charging for copies of a document, film or other kind of media are doomed.

There are according to Anderson four kinds of the free models.
...four broad kinds of free, two that are old but evolving and two that are emerging with the digital economy...let's pull back and observe that all forms of free boil down to variations of the same thing: shifting money around from product to product, person to person, between now and later of into non-monetary markets and back out again.  Economists call these cross-subsidies.
  1. Free 1: Direct Cross-Subsidies- This is a product that is given away for free that in turn is used to influence you to purchase another product.
  2. Free 2: The Three-Party Market - a third party pays to participate in a market created by a free exchange between the first two parties.  This model may be more confusing.  The classic example is newspapers and magazines which sell [at a very reduced cost] or give away their products in exchange for advertisers being able to present ads to the consumers.  The advertisers are the third party in this model.
  3. Free 3: Freemium - This term was invented by venture capitalist Fred Wilson.  This is the most common model used by most websites like Flickr, Endnote, etc.  As Anderson puts it, "...freemium can take different forms: varying tiers of content from free to expensive, or a premium "pro" version of some site or software with more features than the free version."
  4. Free 4: Non-Monetary - Anything people choose to give away with no expectation of payment.  A perfect example of this model would be wikipedia.  A great example of this model is Google, which in exchange for their services which are free, use the consumers of these free services to perfect their search engines, their translation service and other programs as well as perfecting their ability to more precisely target the proper ads to the consumers.
In our next and last installment, we shall examine how successful these models have been and might be.

References

1.  Anderson, Chris (2009). Free: The Future of a Radical Price (p. 13). Hyperion e-books. Kindle Edition.

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