Monthly Archives: March 2009

Free – the new internet business model and marketing….

Have just re-read this article about internet business models by Chris Anderson of Wired magazine fame.

His argument is that the declining cost of technology, and therefore information storage and distribution, means that costs for growing internet companies will decline rapidly towards zero. This means that businesses can evolve from cross subsidy business models (e.g. Pay for a mobile phone contract, get the handset free) to a model where the whole product is totally free and the company makes money in other ways. An obvious example, Google’s products are free, and they make their money by selling access to consumer information to other businesses for advertising and other purposes.

The ease and low cost of distributing information also creates a contradiction with regard to the value of information. On the one hand some information is valuable and so therefore it can be charged for if access to it is controlled. But on the other hand valuable information is hard to control, in the sense that it is one of the things that we most want to share with one another. In a way the information wants to be distributed. It wants to be free. Richard Dawkins described this type of information or idea as a “meme” (in his book The Selfish Gene).

This contradiction helps us understand the challenges to the traditional media’s business model, especially print media like the newspaper industry. In the past it was easy to control the distribution of information and charge for it, because you had to collect it all up and print it into some easy to distribute format (like a newspaper or, for that matter, a book or even a CD). But when the cost of distributing the information is close to zero, and the information is valuable there is little that can stop it being shared, something of which the music industry is all too aware.

Martin Sorrell recently bemoaned the failure of the newspaper industry to translate print revenues into digital revenues by charging for newspaper online versions. But this is a fundamental misunderstanding. Digitising the information means setting it free, and if it is free then it can’t generate revenue (at least directly). Subscription models don’t work because consumers understand this dynamic, not because they haven’t been trained up to pay as Sorrell seems to be suggesting.

In any case the newspaper industry has only ever derived part of its income from charging for content, and has been an advertising business for many years. As a result consumers aren’t really used to paying for the information in a newspaper anyway. I pay 2 quid for a Sunday paper because I appreciate the convenience and experience of the format – In a way I am paying for the printed paper, I am not paying for the information itself because I realise the vast cost of collating the information is covered by advertising revenue. I am not prepared to pay for the online version although it is the same content, because the format doesn’t offer me the same benefits as the printed version and because I understand that is funded by advertising revenue and low cost to distribute anyway.

So the issue is really that newspapers have not figured out how to become internet advertising businesses and how to cope with the fragmentation of that media and the new rules that apply. It is their attempts to translate display advertising models online that hasn’t worked and these approaches have under-utilised the potential of internet advertising.

So what are the implications for other marketers?

Well as most marketers know, the good news is that if you can create marketing messages that engage and resonate with consumers, messages that are valuable information, then there are lots of low cost ways for that “meme” to be shared.

The other good news, is that marketing no longer needs to just be the dirty commercial stuff that makes mass media cheap or free to consume and that distinction is declining in importance. Consumers don’t really need to distinguish between where an idea came from or who created it, just which ones are valuable and worth sharing. That means that there is no reason in theory why a commercial message that is sufficiently engaging, entertaining and valuable shouldn’t be as widely shared as a piece of content produced by a traditional media company.

This fact isn’t really that new, in the old days the classic cliché was that the TV ads where better than the programmes (well some of them). The difference is now that if your marketing isn’t as good as the programmes, then its ability to engage is going to decline in inverse proportion to consumer’s ability to share ideas that are engaging and edit out and ignore ideas that aren’t. When everything is content, and consumers can freely share it, or not share it, it is going to be tough for the brands that have no idea how to create it.


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