Pay Me My Money Down
Two brothers in New York City have a truck. They decide to drive down to Georgia, buy a bunch of watermelons at a buck apiece, fill the truck, drive back to New York, and sell them all for a buck apiece. At the end they count up their money. One brother says to the other, "We didn't make any money." The other brother says, "See? I told you we need a bigger truck!"
What makes this joke funny, of course, is that the second brother's conclusion is absurd. Obviously, no matter how big the truck gets, you don't make any money selling inventory for cost.
Now, suppose I change the punch line, thusly: "See? I told you we should give the watermelons away for free and just sell advertising on the truck,"
Is it still funny?
There's a growing sentiment that everything -- and certainly everything digital, everything "made of ideas" -- should be free. Which means all media content. You know those guys billing you for cable access and selling magazine subscriptions and charging for satellite radio? Hopelessly Old Economy, every one of them. (I'm sure your company, dear reader, has long stopped charging for stuff.)
But if the content should be free, then of course the ads all this free content are designed to push should carry a premium price, right? (The premise being, free content supported by ad revenues.) Well, it turns out, not so much; ad and data exchanges are offering end-around access to publisher audiences -- even, sometimes, lookalikes of your own hard-earned visitors -- for pennies on the dollar.
So don't monetize content, and let someone walk away with the majority of your ad sales income.
Am I just hopelessly out of touch with the ways of the New Economy? Because I still think the best business model is charging for stuff.
In his book "Free" (which you can get at Amazon for 18 bucks, by the way) Wired editor Chris Anderson (the guy who brought you the Long Tail) talks about an experiment conducted by MIT economist Daniel Ariely, in which subjects were offered a choice between a Hershey's kiss for a penny, or a truffle for 15 cents. Consumers overwhelmingly chose the truffle. But knocking a penny off each price reversed the results. Suddenly, a free kiss was far more appealing than a 14-cent truffle. The conclusion being, well, the price differential remains the same -- 14 cents in either case -- but "free" is a magic price. Consumers are, to quote Ariely, "predictably irrational" about free.
I've been hearing about this a lot lately, and I have to debunk it. This is a flawed argument, made through a piece of mathematical misdirection. Yes, there is still a 14-cent difference. But the relevant relationship isn't one of subtraction, but rather one of division; at 15 cents and a penny, the truffle is 15 times as expensive as the kiss; at 14 cents and zero, that ratio becomes infinite.
This actually isn't irrational consumer behavior at all. Suppose I had 15 cents and I knew I wanted a truffle. How many kisses could I buy? In the first scenario, I can't buy any; all my money goes to the truffle. But in the second scenario, I can buy an infinite number of kisses -- a billion, say -- and still buy that one truffle, with a penny to spare.
Information, we are told, wants to be free. Well, teenagers want to eat junk food, get high and have unprotected sex, but that doesn't make it a good idea (and it sure doesn't make it a business model.) I think perhaps it's time we sat information down for a heart-to-heart.
Remember back in the '90s when everyone was calling the Internet the Information Superhighway? At the time I disagreed. I thought it was going to be the Information Supermarket: everything that could be rendered in zeroes and ones would migrate online for distribution. Admittedly, this changes the cost structure of industries. In a near-worst-case scenario, digital distribution of music undermined the record business, not because "music wants to be free," but because the record business had evolved into a manufacturing and distribution business, not a music business, and the need for physical manufacturing and distribution went away. But I have friends who are musicians, and believe me when I tell you, music doesn't want to be free.
Let's think about newspapers. Yes, the newspaper business has a problem, because readers are moving online, and it is more difficult to monetize a digital than a print reader. But this doesn't mean "journalism wants to be free." It doesn't mean "valuable local content wants to be free." All it means is that when you remove the printing press from the equation, the economics change. Personally I think newspapers will thrive when they work out a way to get over the "paper" part of their business model and focus on the "news" part. But that's tough to do with that big monster of a press thundering in the basement.
Dave McClure does a nice job, in an extremely rude and potty-mouthed sort of way (warning: it's unfiltered and there's lots of colorful cussing), of arguing in this rant that the Internet wants to get bleepin' paid on Friday. I couldn't agree more (although I could agree more politely.)
What's all this got to do with metrics? A couple of things. First, let me direct your attention, if you haven't seen it yet, to Eric Peterson's post on the coming bifurcation in Web Analytics tools (tell him I sent you.) We know that there are some free analytics tools, but Peterson talks about the place in the mix for the higher-end solutions (hence bifurcation).
Also, if you've been reading my entries here at the Online Metrics Insider (Hi, Mom!) you know that I've written often about the value of branded, differentiated content, and about the branding value of display advertising (as opposed to click-throughs) as delivered by online advertising. Content matters, context matters, engagement matters, branding impact matters. All these things have value, and ultimately that value can be measured.
But I think there may be a bigger issue here. We all know the economy needs stimulation right now (although we may disagree on how to accomplish that.) But what does economic stimulation mean, exactly? I was talking about this recently with a couple of colleagues, over at Taco Tuesday at Lucy's across the street. See, there isn't suddenly less money in a downturn; it's just that the money stops moving. In a robust economy, money moves. If you pay a dollar to the dry cleaner, and then he spends that dollar at the coffee shop, and then the coffee shop guy spends it with the contractor, and the contractor goes and buys groceries -- it's still just the one dollar, but the circulation is good for the entire community.
So I'm puzzled that so many in the digital space are so quick to embrace economic constructs that suck the money out of the business. Moving money around: that was the true promise of the Internet, the Information Supermarket, all along. Digital facilitates commerce. That's an important message; I'm thinking of having it printed on T-shirts. That's why the digital space revitalized the American (and global) economy in the '90s; that's why it is robust in an otherwise soft advertising market today. So what do you say, let's not all be so quick to jump on the "free is the new black" bandwagon. It's not good business, it's not good economics, and it isn't even true.