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free

Foldit – crowdsourcing disease solutions using games

By | Business models, Casual Games, free | No Comments

Crowdsourcing and third party monetisation (aka the trend to ‘free’) are a couple of my favourite themes and Foldit combines them both to help solve biology problems that have applications in cancer, HIV and Alzheimers.  Brilliant.

Foldit have released a puzzle game in which the solutions that the players come up with are real world possible solutions for how proteins might fold.  That is signifcant because there are many, many ways in which proteins might fold and finding the optimal solution is one of the hardest problems in biology, and more importantly one that can’t be solved cost effectively through the use of raw computing power.  It is important because understanding how certain proteins fold is on the critical path for combating the diseases listed above.

You can download the game from Foldit’s site, and if you play you will see it is a game with similarities to some of the iPhone based puzzle games.  It is a little rough round the edges, but both the concept of what they are doing and the practical implications are very cool.

Thinking ahead, this idea of using games to crowdsource solutions to difficult science and engineering problems could be a way to finance free to play games.  The idea could even be extended to non-scientific problems like testing the response to advertising campaigns or product ideas.  Foldit feels like it has been put together by the people looking for the solution, but there is no reason why the problem couldn’t be defined in the abstract and offered up to third party developers who would then design the game in return for payment based on the value of the solution delivered.

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A couple more reasons why the price of content is headed towards $0

By | free, Startup general interest | 7 Comments

Back in 2008 Chris Andersen published his seminal book Free: The Future of a Radical Price: The Economics of Abundance and Why Zero Pricing is Changing the Face of Business.  The title is a mouthful, but the book is a monster and as I wrote when Chris published the preview of ‘Free’ I think Chris’s arguments are spot on.  I have written numerous posts on the topic since and as time has passed and events have unfolded my conviction has increased rather than decreased, and I say that in spite of the iPad, which I think at best will provide a temporary fillip to publishers but doesn’t alter the fundamentals of the argument.

I am writing all this now because my friend and 50 Questions co-author Nicholas Lovell wrote a good post on this topic last week which had a couple of new points/examples in this argument that are worth bringing out.

First Nicholas offers a recap on the central argument of ‘Free’:

As we transition from atoms (CDS, DVDs, books) to bits (MP3s, streamed movies, ebooks), the cost of making one more copy falls to zero. The original costs of content creation remain broadly the same, but distribution costs trend towards zero.

That means that charging a premium – and possibly any price at all – for that content becomes harder.

In other words the marginal cost of digital product is $0 and as basic economic tells us, in a competitive market price falls to marginal cost.

Content producers still need to get paid though, and this is where Nicholas’s two examples come in.  Firstly a great example of brand advertisers paying:

Barclaycard invested a six figure sum, perhaps as much as €250,000, into the creation of Waterslide Extreme, which took the premise of their television advertisements and turned it into an iPhone game. Over 10 million downloads later, the brand is happy and millions of consumers have had a high-quality, free experience.

If Barclaycard and other brands are now subsidising high quality games so they can be free for the consumer then to get people to pay for games becomes really hard.  I used the word ‘now’ in the previous sentence because most of the brand subsidised games I’ve seen to date have not been high quality.  Note that this model is little different to the ad funded television that we’ve been used to for years.

Nicholas’s second example draws on the new business model innovation of virtual goods.  The model itself is no longer news, but the scale of its success is now making headlines.

companies are taking advantage of close-to-free distribution to develop new business models. Zynga has a secondary market valuation of $7 billion based on a business model of allowing users to play their games entirely for free, but with the opportunity to spend money on virtual goods or faster progress in the game. ngMoco andPlayfish, both of which sold for around $400  million last year, allow users to play their games for free on the iPhone and Facebook respectively. These companies are developing new business models predicated on giving basic access to their content for free.

Nicholas’s conclusion therefore is that

on a ten year view, I don’t believe it will be possible to charge for basic access to content at all. We will all expect to have access to all the music, all the books, all the television and all the games that we could ever want. Sure, someone could invest in content and tell me that I can’t have it unless I pay. But there will be so many alternatives, both legal and illegal, that the model of paying access will be close to impossible to sustain.

I would be a little more circumspect as I believe that in some niche areas paid for content business models will remain workable, but I am fully on board with the broad thrust of this conclusion.  In the majority of areas the free alternatives to non-free content will be good enough capture a large market share, and as their share rises they make more money and the paid for folk will suffer, thereby re-enforcing the trend.

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iPhone games that charge to keep playing

By | Content, free, Mobile | 3 Comments

iPhone game download prices have been steadily decreasing over the last year and since Apple allowed developers to charge for in-game transactions on free to download apps the trend towards free has accelerated.  Free as a business model demands innovation from companies that will keep making money and Ngmoco has come up with a good one in Eliminate Pro it’s new multi-player shooter.

In a hark back to the arcade players can pay to keep playing.  In more detail, the game is free to download, and then during gameplay you use up ‘power cells’.  When these run out you can either wait for a re-charge (whilst your buddies play on) or you can pay to get topped up and playing again immediately.

I haven’t played the game, but on paper this has several elements of a compelling free proposition:

  • It is free to get started
  • There is a viable option to always play for free
  • For a subset of users paying for a better experience will make sense (in this case the impatient and/or cash rich)

There is a direct analogy here with earning gold in World of Warcraft – it can be done for free with time and patience but many choose to cut out the wait and pay (the key difference of course is that in the case of Eliminate Pro payment is within the game whereas in WoW it happens in a black market outside the game).

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The difference between price and value

By | Business models, free | 12 Comments

Mike Masnick at Techdirt has a post up lambasting Dean Singleton, MediaNews CEO and Chairman of Associated Press for the saying the following whilst defending his decision to make one of his papers start charging for online news:

“When you give it away for free it has no value. When you begin charging for it it has some value.”

Now, as Mike says it is nuts to think that sticking a price on something gives it value, and I agree that in this instance Dean is misguided.  That said, I can understand where the thought originates.  It is a common, and I think accurate refrain, in business that if you start giving something away for free people value it less – largely for psychological reasons.  Dean’s mistake is to not spot that this causality is only one way – i.e. just because giving something away lessens the perception of value doesn’t mean that charging for it increases the perception of value.

To get theoretical about it – utility determines value whilst supply and demand determine price.

Mike explains this point in more detail in his post from Jan 2008 News Is Valuable, But Value and Price are Two Separate Things in which one of the commenters points out that oxygen is perhaps the best example of something which is free but has value.

All this is important, critical even, for the news industry as it grapples with its future business models.  All to often the arguments in defence of charging for news focus on the fact it has value rather than the price it can command when supply is abundant.  Much the same logic applies to music, film and games as well.

Opinion: the news industry needs to look beyond news to find a business model for 21st century business

By | Business models, Content, free | 10 Comments

I originally wrote the post below as an opinion piece that was published on paidcontent yesterday – although I’ve changed the title here to one I think is a little better.  Ahhh, the joys of being one’s own editor.

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News Corp (NYSE: NWS). and other traditional news businesses are hand-wringing over how they will make money on the internet. I think they are focusing on the wrong problem.

The web is more than just a new medium. Rather than thinking about how they can sell the same old news via a new channel, media bosses should be taking this opportunity to re-examine old assumptions, to rebuild their product for the 21st Century.

The interesting thing about the news industry is that, when we examine it from the ground up, we quickly realize that it lost touch with its customers a long time ago, and that the model for the future will most likely look very different to what we are used to.

The great tragedy of the newspaper industry in the late 20th Century was that, in the pursuit of profit, quality journalism became a dying art. Budgets were reduced, journalists were asked to write more stories per day and were given less time to check facts. At the same time, editors were instructed to avoid stories that might create controversy and the expense of lawsuits. The result was more and more bland articles recycled from paper to paper, more politically motivated editing and the collapse of public trust in the newspaper industry. This story is chronicled in Flat Earth News by Nick Davies.

We kept buying, though, because we didn’t have any choice. The newspaper industry operated as an effective oligopoly and the value of the news itself was impossible to pick out from the bundle of hard copy distribution, advertising and content that we all purchased.

Fast forward to 2009 and the situation looks very different – all of a sudden, there is choice and the bundle has been picked apart. And, to make matters worse, the industry is possibly more exposed than any other to the trend towards $0 pricing for online content.

As Chris Anderson argues in his seminal book on this topic Free, The Future Of A Radical Price, the answer to this conundrum is not to swim against the tide and find a way to start charging for news, but, rather, to understand what is becoming commoditized and abundant, and what new scarcities are created as a result. In the book, Chris points out that, when he was young, food was scarce and the main problem of poverty was hunger, but now food has become so cheap and abundant that the biggest problem of poverty is obesity. The new scarcity is health, spawning huge industries in diet food and health services.

In the news industry, it is the news itself that has become abundant.  Making a trip to the corner shop and buying a paper to find out what is happening in the world has shifted from being the only option to being the least good of a thousand options. I prefer to check Techmeme and Twitter, but there is the choice of thousands of other sites, aggregators and services that can deliver to your desktop or mobile. Moreover, there is no exclusivity in news per se – getting the headline from one place is pretty much equivalent to getting it from another.

The good news is that every abundance creates new scarcities and this is where the news industry must go to make money in the 21st century. The scarcities created (and enabled) by abundant news are interesting stories, thought provoking analysis, conversation and community, and trust/verification.

Interesting stories go beyond simple reporting of what has occurred, bringing in relevant context and staying with a topic as it unfolds. Thought provoking analysis will dare to shock, and to be wrong. Conversation and community will both make the experience richer for the active participant and improve the quality of the content on the site for the more casual reader. Trust and verification will make you go back to one site rather than another as you know the stories there will be more accurate (note breaking news should be published first and verified second, with appropriate caveats).

The successful news company of the future will have to take all this on board and deliver it with a radically lower cost base than this industry is used to. In the digital world, the news industry, like many others, will be radically smaller. This contraction is partly a consequence of much reduced distribution costs, but is also a reflection of the fact that the monopoly rents Fleet Street enjoyed in the last century are a thing of the past. Witness how Craigslist has reduced the multi-billion dollar classifieds industry to nearer $100 million.

Companies that follow the blueprint above are emerging already, notably TechCrunch for technology news, Talking Points Memo, FiveThirtyEight and The Huffington Post for politics, PerezHilton for celebrity, and Pitchfork for music. These niche sites all write compelling content, spend time building up their sources, check their facts, encourage writers to find the real facts behind stories and are trusted by their readers. And, they all generate solid advertising revenues and benefit from relatively low cost bases.

Note that none of them charge for news. They do, however, have the option of leveraging their standing in the community to generate other revenues.  TechCrunch runs the TC50 conference, Pitchfork organizes the Pitchfork Music Festival and Perez Hilton charges for personal appearances. This is, I think, the real business model for news companies in the future – build a community around news and stories and maybe make a little in advertising, but the real money will come from leveraging the position in the community to offer services no one else can.

I drew inspiration for this piece from a number of sources, and thanks to those who provided some pointers via Twitter.  I’d like to point to two authors/articles in particular that may recognise some of their thinking in my words – Paul Carr’s The future of journalism and Umair Haque’s – The Nichepaper Manifesto.

Making heavy users pay – the optimum freemium model for news?

By | Business models, Content, free | 9 Comments

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Having an attractive free offering and building a large non-paying user base as first steps to building a large paying user base is a theme that has been running through a number of Fred Wilson’s posts recently – and so it was again at the weekend when he wrote Monetize The Audience, Not The Content.

I’m going to pick out two quick quotes.

First – on the absurdity of putting only some of the content behind a paywall:

The worst examples of subscription services are those that break the content up into free and paid. It’s as if some content is worth more than other content.

And second, on the merit of making the whole site open and asking only heavy users to pay (a model the FT has had for a while):

[The FT] model recognizes a few fundamental facts about the internet. First, you need to make your content available for search engines and social media linking. That drives as much as half or more of the visits these days. And if you have an ad model at all, and most newspapers do, then you need those visits and that audience.

Its also true that the ‘drive by’ visits will bring new audiences, some of whom will become loyal and ultimately paid audience members.

Most newspapers are struggling with profitability online and thinking about introducing charging, with many proprietors musing publicly about the question.  One of the obstacles is the fear that the first news site to crack and begin charging will haemorrhage traffic to those that don’t  – adopting the FT’s model doesn’t carry that risk.

 

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Freeconomics – maybe people will start paying for things

By | Business models, chris anderson, free | 19 Comments

The folks at Chinwag were kind enough to ask me to chair a panel on the topic of freeconomics last night.  I’ve written extensively about ‘free’ as a business model extensively before, but to recap the argument for free is that more and more goods are being delivered digitally, the marginal cost of delivering a digital good is $0 (or pretty close to it), and that in a competitive market over time the price of goods trends towards the marginal cost of distribution.  Hence digital goods should be free to consume and companies will have to make money from advertising or by selling related goods – e.g. bands give away their music for free and make money from gigs and t-shirts.

The counter argument is that the only reason we have gotten used to getting stuff for free on the web is because VCs and large corporates have subsidised those services in a rush for market share, and that for most companies you can’t make enough money from advertising, or the other areas to make the free business model work – so it is unsustainable and we will all have to get used to paying again.

For the most interesting/surprising thing to come out of the discussion was a much greater degree of willingness to start paying for services than I had expected.  A lot of that was couched in terms of ‘if there was no free alternative I would pay’ which of course begs a very large question, but it will be intertesting to see what happens when people are actually asked to start paying, because I think they will be.  Subsidies from VCs and large corporates are drying up, if they haven’t run out already, and despite the fears of what it might do to their businesses I expect many companies to start experiementing with charging more aggressively.

The other takeaway that I hadn’t considered fully is that for many services in reality the marginal cost of delivery is not zero.  This was made most forcefully by panelist Alan Patrick, but also by panelist Bruce Daisely of YouTube who made the point that the worlds favourite video service now accounts for 10% of total bandwidth consumption – which I’m sure costs Google a lot of money.  This point knocks a sizeable whole in the ‘free’ argument, although ‘free’ fans would argue that these costs are going down all the time.

Newspaper transition to digital

By | Business models, Content, free, New Media | 11 Comments

There are a couple of interesting posts on this topic this morning.

First paidcontent reports the following:

  • John Ridding, CEO of the Financial Times and FT.com, says his business makes 20 percent of revenue from online
  • Tim Brooks, MD of Guardian News and Media, paidContent:UK’s parent company, said it was 15 percent for Guardian New Media
  • Guardian editor-in-chief Alan Rusbridger has already said he expects the company’s Berliner presses bought in 2005 will be its last—the presses have a shelf life of 25 years so theoretically 2030 is the switch-off date for The Guardian and The Observer in print.
  • FT.com gets less free: the FT‘s Ridding predicts a “happy digital ending” for newspapers, but said the answer will be found through subscriptions, not advertising – and they have reduced the number of free stories readers can access from 30 to 10 a month (you can get round this by deleting your cookies though ;))

To me this makes it abundantly clear that if there was any remaining doubt about where the world is going that is now over.  Between this and the Kindle and books on the iPhone I am 100% sure that printed newspapers are going the way of horse drawn carriages.

Which means that for existing newspapers the choice is adapt or die.

Which brings me to the second interesting post. A list of 10 US papers that look like they are going to take the ‘die’ option.

What is less clear to me is how the balance between ad supported and subscription models will pan out.  David of 37Signals has a post up today asking ‘how did the web lose faith in charging for stuff’, and it is interesting to note that the FT is backing subscriptions.  Yet on the other hand Chris Andersen’s arguments about free are pretty persuasive.

Local advertising – a market destroyed by the web?

By | Advertising, Business models, free, Search | 25 Comments

Sarah Lacy has an interesting on Business Week today: Local Advertising Isn’t Jumping Online.  In it she points out that few web companies have made much progress in this market – with leaders Yelp and Craigslist only successful in a handful of cities.

She also points out that local newspapers are suffering as their ad dollars dry – listing a host of US city papers that are either for sale, delisting or in danger of going under.

Putting these two facts side by side raises the obvious question of what is happening to the ad dollars that local businesses used to spend with local newspapers, as it clearly isn’t going online.

At this point I think that the answer is that these local companies have migrated to free offerings like Gumtree and that therefore the market has been effectively destroyed by the economics of free (ok, ‘destroyed’ is be a bit strong, but the statement is directionally correct).  There are strong parallels here with the decling sizes of the the music and video markets.

The reason I say ‘at this point’ is that the relative success of Yelp and Craigslist shows that if they are offered a good service local businesses will be happy to re-open their wallets if they are offered a decent platform.

Taking a lesson from our old friends Google and the thinking of John Battelle I think that a ‘decent platform’ will include a ‘database of intentions’ – i.e. it will incorporate data (think searches or tweets) that give advertisers some way to see what their targets are thinking about/intending to do.

On a related note Sarah pointed to this earlier post of hers which has a lot of interesting info about Yelp.  Picking out two nuggets – 1. they had 9m uniques in August last year, and 2. rather than a self serve platform they have a sales team calling local businesses one by one.

Update: Some are accusing Yelp of dodgy sales practices.  Thanks for the pointer Joel.

Music – the value is in the services around the content

By | Content, free, Google, Music | 6 Comments

Last week I wrote about Universal making millions from music videos, largely via YouTube, and then this morning I read on Techdirt that Warner is going the other way.  It’s content is now starting to disappear from YouTube after it failed to reach agreement on terms with Google.  It is unclear which side walked out of the talks, but it is pretty clear to me that Warner is the bigger loser.  Both YouTube and Warner are desperate for revenue at the moment – but Warner is the only one that is potentially in terminal decline.

As Mike on Techdirt says this is consistent with earlier behaviour from Warner where they overvalue their content – and he refers to earlier examples of the same phenomena.  The one I like best is their complaint that they don’t see enough money out of games like Guitar Hero and Rock Band.  Warner, and presumably others in the music industry misunderstand where the value is created.  Techdirt puts it well:

The industry simply assumes that, if something makes use of their content, all of the value is in the content. That’s incorrect. Yes, the content is a part of the value, but it’s the game that’s making that content valuable.

It is the experience rather than the underlying content that people pay for.  This is true for music – think concerts, merchandise, games, and even watching videos – and also for other forms.  To borrow some thinking from Techdirt experiences are the scarce good which you can charge for.  Content wants to be free.

I think that everything we are watching play out in music will follow in TV, movies, games and even books.  In many ways these other industries face greater problems than the music industry as the experiences components are less obvious.