'Free' is(n't) a four-letter word...
Just as Amazon and Google are obliterating profit margins for old-school publishers, so, too, is open source putting the squeeze on them, whether in cloud computing or in search or...you name it. As the world digitizes, there's a mad rush to commoditize everyone else's business. This is good for consumers (low prices!) but not so good for vendors (low margins!).
The problem (and promise) of digitization is, of course, "free." Everyone loves to pay "free," but few really enjoy selling it. Or competing with it.
As Bill Gurley suggests: "The key question for anyone in business is, 'Can someone do what you do for free?' If the answer is 'yes' you have a problem." In a digital world, that "problem" is wreaking havoc on an increasing array of industries.
The problem, however, isn't "free.'" It's that old businesses persist in trying to charge for goods that others give away.
Twitter, for example, may not be making much money from its service, but a host of companies are starting to derive considerable cash from the sale of ancillary software or services, as TechCrunch points out.
Or take the media industry. As Andrew Savikas persuasively argues, media continues to think it's a content business, while the world believes it's a services business.
JP Rangaswami illustrates why:
What if the troglodytes finally began to realise that customers were scarce and digital music was abundant? What if they finally began to realise that downloads were an excellent way to advertise scarce things like concerts and physical memorabilia, as Prince figured out?
And what if the customers have given up and moved on, from the download to the stream?
It was never about owning content. It was always about listening to music.
It was never about product. It was always about service.
The customer is the scarcity.
That scarcity only appears to grow as digital goods proliferate. So much content seeking audience with comparatively few consumers. Something has to give.
That something is, first of all, old business models premised on selling an abundantly available good as if it were scarce. The real model is to foster abundance while selling the scarcity that naturally accompanies it. Google gives away search so that it can help you narrow that search with ads; Red Hat encourages open-source development so that it can boil down that teeming mass of uncertainty to a certified, stable build of Linux; and so on.
Some in the software world don't get this. Microsoft CEO Steve Ballmer can repeat ad infinitum that "We just keep coming and coming and coming" with the same strategy, the same software, the same everything.
But eventually it won't, because even Microsoft's bank balance and "Tenacious. Tenacious. Tenacious" approach can't withstand a perennial battle with 'free' (or enterprise customers' apparent indifference to more of the same). Not unless it can re-learn how to make 'free' work for it, as it has with SharePoint.
The same is true for the media industries as well as new-school software companies like Google. Today's profit center is almost certainly going to be given away by one's competitor.
That's why creative destruction must be creative to pay off. It's what drives innovation. No one is entitled to its business model forever, for which consumers should be very, very grateful.
Follow me on Twitter @mjasay.
Matt Asay brings a decade of in-the-trenches open-source business and legal experience to The Open Road, with an emphasis on emerging open-source business strategies and opportunities. Matt is vice president of business development at Alfresco, a company that develops open-source software for content management. He is a member of the CNET Blog Network and is not an employee of CNET. Disclosure. You can follow Matt on Twitter @mjasay. 
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As far as music though, it's a long time coming and people forget it's only because technology has allowed us to get to the "service" stage instead of the mandatory "product" that this argument has come to light in the first place. And yet, especially for core genre fans (ie metal, goth, rap), outside of the pop mainstream, product can be of extra value and importance, so it shouldn't be discounted. KISS had it right years ago, people were just forced to buy the CD in addition to the belt buckle, the poster, the t-shirt, etc.
What i find distressing for "free market" entrepenurs is what might happens with instances like the Pirate Bay...tentatively going to sell off YOUR hard drive space that you've in turn used to "reduce" your monthly fee. Such things can get very complicated legally when any other criminal activity occurs on said partition of a computer. I don't want to be subpoena'd to a court hearing because a song I downloaded or streamed was part of a network Pirate Bay would exclude themselves of liability from because it isn't "their" servers that powered the transaction.
Or I could just be paranoid ;)
The product has to be intuitive and enjoyable to use.
Microsoft can charge for their products because even an idiot can use them.
Linux can say oh our products are free but first you'll have to install it then you'll have to find alternative products to use. Oh also some programs you install you'll need to manually type in the file name and oh one last thing some of your drivers and tech support won't be that easy to come by.
Microsoft has the upper hand here because people can get it on their machines easily.
Any program you want works for it.
You never need to use the command prompt for anything.
And every company writes drivers for it Vista and Windows 7 will even install them for you.
And tech support is simply a call away no searching through forums.
I'm not trying to bag on open source but if you can't offer the support and ease of use of Windows or OSX the free part is much less of a selling point.
he used "tech support" and "microsoft" in the same sentence.
But then Linux has a much larger developer community. it may be a lot more loosely organized- or not even organized at all, but it's there without the restrictions imposed by things like reliability or compatability testing, market research, tech support, or planning as corporations do instead. There are a few exceptions like Red Hat, but even they have to make money and they do it by charging for tech support.
To each their own. Use whatever OS fits your needs.
Microsoft tech support is not bad better then scouring the web for forums only to have some elitist prick try and talk you down.
Try and submit a change to the Linux kernel (or Firefox, or OOo, or MySQL, or...) source sometime, then come back and tell us how you did. Until then, you're speaking in pure ignorance (and pure FUD) when it comes to testing for reliability, compatibility, and planning.
You should actually try Linux OS sometime.
I have installed Windows XP , numerous times, and aso Ubuntu Linux .
Not much difference , except that Ubuntu install is faster.
If someone like me , a non geek , 78 year old can do it I don't see why you think it is difficult.
The difference is that very few people ever install Windows themselves , as it comes pre-installed and a lot of them don't have a disk to do a re-install ,they go back to where they purchased the computer ,
You really should try it out and not just parrot the FUD that you have read about, it is all very out of date.
@monkeyfun14 - most people get their Windows pre-installed. In this case Microsoft does not really offer tech support, but refers you to the OEM manufacturer. There it all depends on the company, but unless you have a standard question a real knowledgeable person is very hard to find there.
@BSinton - I don't know why do you need to install an OS. I have several computers and the only things I ever installed was the Win 7 RC and once Ubuntu and SUSE on my old machine, where both of them sucked so much I went back to Win2K.
@Random_Walk - I know this was not your point, but most of us have no need, interest, or skills to deal with the kernel. This is one of the hard points for Linux. I know that nowadays one does not really have to deal with any heavy stuff, but still the image is that unlike Windows it does not work out of the box.
Now, sure, Linux these days come with OpenOffice and Firefox and Adobe reader. But OpenOffice is not a real replacement for PowerPoint or Excel, I am not sure there is Acrobat Pro for Linux, and so on. So, if all you want to do is web, email, and occasional text documents, then Linux is sufficient. But if you want to do more, then you need to put in some efforts to make things work for you in Linux and most people do not have time or interest to do it.
Copyright is really about this: I will let you have access to these bits only under these particular terms that you must follow. Otherwise, I won't give you access. It's a contract. And no bits that can cost upwards of $100Million to make (a feature film) can be construed as abundant, to be given away. The scarcity is that GOOD bits are hard to make, bad bits are not. It's the reason why the most popular of anything should and must earn an outsize return, incentivizing the creation of all the other bits (which may be the ones you personally like)
The end result of piracy will be simple: you will not be given access to the bits. Content creators will pull them back into the cloud and into closed services. It will be a service, and you will pay every month.
He has a point.
People who can't afford something expect to be given it for free.
Companies who try to make money are slandered as evil by Open Source community because they don't follow the same business model.
Its sort of like.
"If I don't want to make money you shouldn't either"
re: "It's a change of business model at gunpoint." No, it's a change of business model by having the consumer decide that they prefer paying less (or nothing) for similar and LEGALLY PROVIDED content/quality goods. Subsequently, the money flows away from the higher-priced goods providers who have no justification by which to sustain their higher prices.
If the majority prefers to pay $15/mo for an endless supply of essentially disposable content (movies via Netflix, for example), then the movie studios will just have to live with the idea that they won't sell as many DVD's. These studios can rectify the situation facing them by lowering the cost of goods, delivering higher-quality content or adding features that the consumer actually thinks to be worth keeping on more permanent media, or by spiraling into the ground until they crash and die.
re: "Copyright is really about this:" Nobody is arguing for or against copyright, or the circumvention thereof. Copyright is assumed to be universally enforced and heeded in Asay's arguments.
re: "The scarcity is that..." The one and only retail scarcity in modern digital media is bandwidth. Otherwise there is none, and bandwidth itself is not controlled by the producer. This is why traditional media's entertainment business models are hating life: They no longer have any control over what little scarcity exists.
re: "the most popular of anything should and must earn an outsize return..." This is not true. Popularity of a resource only guarantees more sales.
re: "It will be a service, and you will pay every month" Heh - that's part of what is killing CD and DVD sales of traditional in the first place - see also Netflix, Gamefly, Rhapsody... meanwhile, Indies and Freelancers are providing better content, for less cost, and with more convenience (and making far more money themselves than what they used to make from the traditional middlemen of the RIAA, MPAA, et al).
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re: "People who can't afford something expect to be given it for free." Really? Then where's my free BMW? Oh, wait - I don't expect one to cost $0.00
re: "Companies who try to make money are slandered as evil are slandered as evil by Open Source..."
No, companies who abuse monopolies, break laws, provide shoddy product, and generally treat the customer as a disposable easily-abused resource are the ones who get the "evil" label. Clean up your act, and you cease to be evil. Money has bugger-all to do with it.
Never confuse the TOS, EULA, and contracts for copyright.
Copyright doesn't at all control how I consume your IP (read all fair use means and methods are just fine) however the impositing of TOS, EULA's and Contracts on top of that often do impinge no fair use. Copyright by itself can't impinge on that.
The more control you do exert over how those "bits and bytes" (which aren't IP, just a means of transfer of IP) are used the less the prodcuts is worth because the less useful it is.
Another point of confusion. Abundance. Movies may not be producded in abundance becasue of the cost. However once they are, they can be digitally replicated an infinate number of times. You can't do that with a car. Thus digital distribution has the ability to provide an abundance. Then you have the classic marketing question. Do I sell less for more or more for less?
"re: "the most popular of anything should and must earn an outsize return..." This is not true. Popularity of a resource only guarantees more sales."
And if you sell more (assuming you make a profit on those sales) what happens to your return? By the way, you might need to spend a little less time in front of a PC. Bandwidth is NOT the only thing that is scarce - the creative talents of people who's work we really want, and who make this digital content in the first place, is also quite scarce.
Writers, photographers, artists, producers, etc. must have a way to be rewarded, and while that business model is CLEARLY changing, I think sources like Netflix, Pandora, Flickr, and other service business (higher up the value chain) are more in line with where we want to go. We need to figure out how increasingly "digital content" can be leveraged, and the ones who do it successfully will be the industry leaders of the future. That said, that model will (must) (always) be one that rewards creativity of the people creating the content, otherwise none will exist at all...
You can have your free BMW. You just have to be able to steal it without being caught. And have you ever tried replicating a car at no cost and giving it away to everyone in the world? You can't compare cars to software.
The last time that "all free all the time" had dominion, reality finally caught up and caused the dotcom crash. Now, with free being reinterpreted as "promotion" for other revenue streams, the day of reckoning may be less explosive and more implosive: free news sites will eliminate newspapers and wire services, thus killing off the very sources they feed on; free music will limit the success of promising new performers who can't attract enough people to the local bar where they perform; free software will reduce the R&D funds that can help create real breakthroughs....
We all have to change, but there's a difference between change and mutation.
Authors and musicians are already finding out the hard way that listening to an A&R man or publishing agent is a great way to get a pittance while the label/publisher rakes in shedloads of money. No need to bad-mouth the artists and authors who are at least trying to find better ways to survive the changes and gain more control over their own fates... for once.
Complain all you want about the ship sinking, and heck - you can stand on the deck and loudly demand that it not sink... problem is, the ship is still heading for the bottom whether you like it or not, so you may want to find a seat in the lifeboat (or in Reznor/Prince/BNL's case, build one of your own while there's still plenty of time).
It doesn't stop R&D in something that will create a real breakthrough. It makes R&D go into things that will create real breakthroughs, the smart companies will survive, the less savvy companies won't. I won't cry over a poorly run company going out of business and a well run company will adapt to the changes in the marketplace.
I work in creating specialty software in a niche industry, if someone came in and gave away free software similar to mine I would either have to make mine that much better in order to sell it or find a different way to make my services worth buying. Would I be in a tough situation? Yes, but that's the risk we all run.
The problems start when government tries to step in and 'save' certain industries. It causes unnatural safety, mutates competition and stagnates the industry. The consumer loses because they no longer dictate what products and services they want. Some politician does.
So like Asay said 'Free' is not the problem. Free market is the name of the game and that's where the best innovation and companies come from.
Ignoring economics. Some industires need to exist in the USA for this country to be strong especially in a time of war. We don't need GM or Chrysler, but we do need an American Car Indiutry. We don't need any one steel company or foundry but we do need steel companies and foundries.
This is all part of the free market system, demanding innovation, competition, and the best from producers.
I don't agree with the premise that any industry is 'too important' to fail. The industry won't fail if it's something the consumer needs. All that the government does by stepping in is prevent the market from changing naturally. Maybe there's a small auto company with some innovative ideas for reducing manufacturing costs but they can't compete with the US government and they can't sell there ideas to a US auto maker because it's politically bad to put union workers out of work (they own part of the company after all). So who loses? The consumer! We are dictated what types of cars we will buy and at what price if we want to buy american. So why wouldn't we turn to a foreign auto maker for less money and more choice?
As for an industry to big to fail. That was an interesting slip of the typing. The industry will remain even if the companies "too big to fail (without causing so much harm that it's well worth saving them)" do fail. However I think it's valid to ask questions here as well. A company to big to fail, probably isn't too big to break apart into much smaller pieces. AIG could be broken into much smaller business segments. Personally I would have bought some Chevy stock had they split GM into GMC, Chevy, Saturn, Hummer, Pontiac and whatever other car companies they could have spun off. Still while I like that answer it would take far more time to do than what they ended up doing. If time is of the essence, choices are limited.
Now, if I buy a disk, I should be able to make myself a back up copy. I am not talking about the Internet. I am talking about an actual DVD that my son will destroy in an instant if I am not watching after him - he's still a baby and thus does not understand value yet. Same with music - I might want to listen to a CD in the car, but then I would rather make a copy. Any law/business model that precludes me from doing this is wrong and there is no way you can convince me that I have to follow it.
Finally,
@ content_creator - it's quite clear that current legal approach to copying is an abuse of the system. On the example of a pop song: is it playing on the radio? If so, can I make a record of it? Is it legal? Once I have that record, can I digitize it, make a file? Is that legal? If so, then what do you care if I did that myself or got it from someone else? This is to me the point that RIAA and MPAA are not getting. Movies and especially TV shows are on TV, music is on the radio. And that's free already. Sure, file sharing made it simpler for people to get content for free, but it is available anyway and law should not deal with the concept of easiness.
- by workshopmusic July 19, 2009 9:29 PM PDT
- This discussion seems to be focused on the channel and the customer. What about the financial interest of the creatives and makers of intangible goods?
- Like this Reply to this comment
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(27 Comments)Can anyone explain why the people who make the "content", the music specifically, would keep on making it when they won't get paid? There has to be a financial incentive for people to keep on producing the goods.