James Ledbetter of the Washington Post penned a great rebuttal argument that takes some of the air out of the argument that all businesses should give away some key part of their products. The piece is designed mainly as a counter to Chris Anderson, editor of Wired, who has aggressively promoted the idea that virtually any kind of business, but especially ones operating in the digital realm, can and should give away key components of their products or services.
Ledbetter points out that this model makes no sense in many industries;
“Just about any activity that merits the title “business” has a cost of producing its goods or services. Take the oil-and-gas business. It costs a huge amount of money to extract petroleum from the ground (more now than it used to in many places), as well as refining the stuff, storing it, shipping it and so on. Those costs may or may not justify the price of a barrel of oil or a gallon of gas, but neither do they justify a price of zero. It’s exceedingly difficult to envision a way in which the oil industry could recoup its expenses without charging for its product…”
He also names a number of businesses operating online that have failed or are failing, despite their model of giving away services for free. I can name plenty myself - to name just two popular sites, Twitter and YouTube.
My favorite point that Ledbetter makes is that many Internet-based businesses think that if they give away lots of stuff for free - say, music for example - they can make up the difference (and more) with advertising. However, the problem is that the value perceived by advertisers in any given ad space is entirely dependent on the target market, and, for the majority of businesses, it is far preferable to advertise to a small group with a higher response rate than to a dispersed group.
Here’s a practical example. It would be possible for me to buy a billboard outside of 30th Street Station in Philadelphia and advertise my sample library products. This would be exorbitantly expensive, and it is highly unlikely I would get more than a handful of conversions as a result, despite the massive expense. On the other hand, $300 gets me ad space on Northern Sounds, a web forum devoted entirely to discussion about sample libraries. Which would I want to spend my money on?
Ledbetter’s point is well-taken. Musician industry veterans know that giving out hundreds of copies of a CD at a convention will likely result in absolutely no return on investment, because your target audience is too broad. Internet companies would be ill-advised to simply gain as many ‘customers’ as possible by giving out free products with no consideration for how this may dilute their advertising prospects.
Call It Free, But It Will Cost You [Washington Post]
