Free Riding Isn't A Bug, It's A Feature
from the ditching-the-myth dept
Whenever we write about various business models around here that involve using free infinite goods to get people to buy some kind of scarce good, we always get some people who self-righteously exclaim that if they got content for free, they would never, ever buy those scarce goods, and somehow this disproves the model. This is similar to the common refrain that all of the “free riders” would destroy any such business model, to which I usually ask whether or not all those “free riders” who watched a BMW commercial and didn’t buy a BMW somehow destroyed BMW’s business.
In response to a similar question, concerning all of the “free riders” on Wikipedia, Tim Lee has done a fantastic job explaining why the whole concept of the “free rider” problem is a myth in most of these scenarios. In the case of Wikipedia, for example, all of those “free riders” who don’t contribute are actually what makes it worthwhile for the smaller group of contributors to take part. Those “free riders” aren’t a negative: they’re the audience. If you set up the model right, then any free rider actually becomes a part of the solution, not the problem. The more “free riders” on Wikipedia, the more people want to contribute. The more “free riders” who listen to a band, the more other people want to hear it — and the more some of those people will be willing to pay for scarce goods to associate themselves with that band. In other words, if you set up your model correctly, free riding isn’t a bug, it’s a feature that helps drive your model forward.
Filed Under: crowds, free-riding, value
Comments on “Free Riding Isn't A Bug, It's A Feature”
On the Mark
Hello, long time reader, but this is my first time commenting.
This hits the nail on the head, IMO.
I do wonder though, Mike, how would you suggest the video game industry use free in its business model? I can see how it can work for some games that require a server to play (like MMOs or Battlefield-like multiplayer games), but how can games that don’t require a company’s server to play (RTS’s like Starcraft, for example), but are infinite goods work?
I’m not trying to punch a hole in your position, I’m earnestly curious what you think.
Re: On the Mark
Actually, there are plenty of games.
A good example are those free to play online games. Gunbound lets their users play for free, but charges money to buy points to buy better equipment (or you can simply earn gold and buy that equipment at a greater cost of gold than point, but not have to pay a cent, just pay in time spent earning the gold).
Many other games work on this premise, in fact there’s a HUGE fan base for many of these free games, all of which provide in game content for a fee. You don’t have to pay to get the better items, but you can if you want to get them earlier. 🙂
Re: Re: On the Mark
Yeah, I’ve seen those before but that’s not the kind of game I’m talking about. I’m talking more about a game that can be played off-line and isn’t necessarily character-based. Strategy games, like StarCraft I mentioned above, would be my best example.
Re: Re: Re: On the Mark
Using starcraft as an example, you already have a solution: permitting free riders (slave installs) you create more value for the master install.
Another way you can do this is by the ‘crack cocaine’ effect. Let people play offline or in small groups for free. That gets them hooked. Then charge for online play.
So, suppose there is no online play. Then, the tried and true model of shareware applies. Many people play and enjoy the shareware episode (say, 1/3 or 1/5 of the total game) but will never pay for the game. Those are free riders. But yet, you can create many sales by letting them exist, since they are a necessary consequence of having a shareware episode.
None of this is new. People are perpetually rediscovering the idea that sometimes you have to give a little to get a little.
Re: Re: Re:2 On the Mark
See, the problem with the Spawn Installs and and Shareware model is that it’s still forced scarcity. The remaining parts of the game are still infinite and can still be downloaded in their full versions from unofficial sources.
And, for what I’m talking about, the “crack cocaine” effect doesn’t apply since the games either don’t have online play or don’t have a reason to pay for online play.
Re: Re: Re:3 On the Mark
Well, this problem seems contrived. You won’t let me force scarcity, but you are not interested in scenarios where scarcity is necessary (due to the game intrinsically requiring online resources and thus scarce money to operate). OK, well I can play ball your way: user created content.
How about spore’s creature system (I havent played it, but this is what I think I’ve heard.) They dont have to design cool creatures–players create cool creatures, which are uploaded and then distributed to other players, even though gameplay doesnt take place online.
Extend that to other things. AI’s, cities, base camps, strategies, routes, puzzles.
There is already a bit of a meta-game where you can expect players to research the game and post it online. Then some puzzles and secrets and maps can only be found by the distributed playing abilities of all the games’ players. That is a bit forced, by you withholding easy clues, but I dont think you would object.
Re: Re: Re:3 On the Mark
Simple. Charge people for creation of games.
For example, you could ask your fanbase to donate 2000 dollars collectively to fund the complete development of games.
The demo to entice your customers can be the actual game, in complete as it is right now. Offer it and see if people like it enough to want to donate some money to reach the $2,000 goals or whatever you set.
Re: Re: Re: On the Mark
Have a free download of StarCraft. But then have supplement material on the download site, like oh I don’t know, a special keyboard that makes navigation easier, a mouse with 5 uniquely placed buttons, a collectors edition coffe mug, or sell a retail store box with a starcraft t-Shirt that says “I paid for Starcraft because I’m not cheap like your mom.” Or Maye a starcraft jacket that says “I pay for stuff because I like supporting free loaders; it’s why I’ve already casted my vote for Obama.” Just kidding…that’s not an attack…just a little SNL style quip… Seriously, let’s stay on topic folks. Alrite who said flame bait?
Re: On the Mark
In addition to the game question; what about music since that is the most often discussion here. Without CD sales to fund the tour; how do bands get the money to tour? If CD sales fuel record label profits and concerts fuel the artists profits, w/o the CD sales the record labels (or other investors) would want a cut of the concert proceeds. This leaves less for the band.
Re: Re: On the Mark
Without CD sales to fund the tour; how do bands get the money to tour?
Hmm. I’ve yet to hear of a band where CD sales funded the tour. In fact, it’s usually the other way around. Most bands make much more money touring than from CD sales.
If CD sales fuel record label profits and concerts fuel the artists profits, w/o the CD sales the record labels (or other investors) would want a cut of the concert proceeds. This leaves less for the band.
I think you may have just answered your own question. First you claimed that CD sales funded the tour, and in the next breath you admitted that they don’t.
Yikes.
But, the point you are missing — and this is the point most people miss the first time they come across this concept — is that in embracing free, what you’re doing is INCREASING the size of your audience, thus INCREASING the amount of money that you can make from those scarce goods (not just concerts), meaning that there’s a LOT more money to go around.
It’s not difficult to see this in action. On the “big” side of things, both Radiohead and NIN made a lot more money when they embraced free.
Among smaller artists, Maria Schneider, Jill Sobule and others have also made much more money by garnering a wider audience.
Re: On the Mark
*I can see how it can work for some games that require a server to play (like MMOs or Battlefield-like multiplayer games), but how can games that don’t require a company’s server to play (RTS’s like Starcraft, for example), but are infinite goods work?*
You can play BF2 without a company server using a LAN simulator such as Hamachi.
Re: On the Mark
It’s not all that much more difficult, in fact, many video game companies have already done it. Providing a free trial version where you can play, but only a portion of the game would encourage the purchase of the game, as long as the demo was enjoyable. not as good as the wikipedia model, but still good.
Re: Re: On the Mark
Well, as I said earlier, though, is that trial versions aren’t a solution because the full game is also infinite. It doesn’t actually make the game worth buying, at best it’ll make a person say “Man, I’ve got to download this when it comes out”
Re: Re: Re: On the Mark
You can still make people *want* to shell out cash for your product, even though it is technically available for free. I buy games very rarely, but I bought two copies of Syberia and Syberia II to give away as gifts because I thought they were totally excellent games. I probably could have downloaded a copy, and I certainly could have made a copy of the disc I owned, but then I would have a) not supported the game company that deserved it, and b) looked like a cheap jerk (“Here, have this burned copy of my favorite game. That means I love you $.12 worth.”) Clearly, a gift-only business model isn’t going to go far, but it’s part of a business model and a reason to sell physical copies of a non-scarce good.
Re: On the Mark
Phillip, corporate sponsorship is one of the primary untapped venues for funding that game developers have not yet pursued; think PBS style funding. We already have in-game advertising which can be greatly expanded. You used Starcraft but it doesn’t lend itself to consumer advertising. Something like SimCity, however would be a potential marketing gold mine, as would Fallout3.
I think too many software developers see themselves as Artists and such funding as a sell out, not to mention the uproar this has caused among elitist gamers in the past.
Re: On the Mark
I do wonder though, Mike, how would you suggest the video game industry use free in its business model? I can see how it can work for some games that require a server to play (like MMOs or Battlefield-like multiplayer games), but how can games that don’t require a company’s server to play (RTS’s like Starcraft, for example), but are infinite goods work?
It really depends on the company and the game. Someone else mentioned corporate sponsorship, which is one way, but I’d take it a step further. As companies begin to recognize how a video game can help them elsewhere, they may pay for it. I’ll have another post up soon about one big company that is giving away video games to help promote something else it’s doing, and there are opportunities there.
I think that companies like Intel may find that it makes sense to pay developers to create really compelling video games that push the power of computing forward — as that helps them sell more chips, for example. Imagine Intel paying studios to create new games, and then giving them away free to encourage people to upgrade? That’s giving away the infinite to sell the scarce.
Car companies found that Grand Theft Auto was a *huge* boost in getting people interested in certain cars, so imagine car companies creating really awesome car racing games.
The more you look, the more ideas there are for how the video game market can thrive by leveraging the infinite and selling the scarce.
And I’m Free…
…Free Ridin.
I believe that “free riding” is the solution to marketing that people haven’t figured out yet. It is marketing, pure and simple, and too many people view it as everything but.
If I had to pitch a “giveaway” idea to a big CEO of some “Anti-Free” company, I’d simply compare it to those grocery stores that give away food samples. For every 100 dollars spent on “giveaways”, you earn back 50 dollars in instant return, and over 200 in long-term repurchasing of the beloved product that was sampled for free.
If I let a bunch of people listen to my music for free, I may loose a few sales of CD’s from casual listeners, but what I attract in fans, I will earn more over a longer period of time through merch and further releases.
It’s all about the pitch, and I think that’s where everyone is failing… How do you pitch what goes against everything in marketing?
No Free Ride
Free Riding is more of an oxymoron than any other buzz word.
I use open source as much as I can, and promote as I can.
Everything has a value to it. It may not cost the end user anything, but by “Giving” it to the user for no cost, the user becomes a promotional entity for the product (assuming it is a good product) and will be telling anyone who will listen about the product. For Free (to the company that owns product).
Free Riding, from a Musician perspective
I’m a musician in an Erie, PA industrial-metal band, DisgraceD, and this is an ongoing argument between myself and the singer/manager. He’s resistant to the idea of a service such as AmieStreet because it involves giving away ANYTHING for free. (AmieStreet scales the price of downloads to the number of previous downloads. Your music starts off as free, and increases to a max of 99c as more people listen.)
His feeling is that he won’t give away something that he’s worked so hard on; he doesn’t realize that especially for a band in our position (relatively talented, largely unknown), there is no downside to free riders. What a band in our position needs is listeners, paid or not. We need people at our shows, we need people to buy t-shirts. (seriously, as opposed to most mentions of selling t-shirts)
Every person who downloads a (lossy) free mp3 of ours is many times more likely to pay a lousy $5 cover to get into a bar we’re playing at, and might shell out $10 for a double-cd.
Once they have those CDs, I hope they burn them for their friends, who might then come see us the next time we’re in town.
You brought music into this so here my two cents worth
Please read this entire post before you hastily attack it.
I think Wikipedia is a perfect example of a business that is suited to the idea of infinite goods. Instead of one group of people the site encourages all users to participate (eventhough only a small segment of that group contributes).
This would be the equivilent of bands releasing their works into the public domain and encouraging you to edit, enhance or otherwise modify the content – which has happened in the past with varied results. It would no longer be theirs but instead a derivitive and possibly collaborative work. But it was the bands decision to give away the music – it is also their responsibility to determine if and how they will make money.
And now to play devil’s advocate…
I think we should apply Mike’s “infinite good” argument to every idustry. Why do I have to pay for wireless phone service? Why can’t I just use a phone for free, I mean seriously the towers are always there and it’s infinitely available. Who knows maybe some wireless company will read this and make it a reality.
Just because something can be duplicated at NEAR zero cost does not preclude payment for the service of content creation (or in the case of wireless phone service the cost of building the wireless network). In other words you are paying for the media or service in order to repay the person who created it for the time they invested in it’s creation.
Do you have any idea how many hours and in some cases years are invested in learning to play, writing music, editing music, recording music? Should the band not be able to make the determination that they want to be paid for their music and not be required to hire a company to produce goods for them? Should a band be forced to go on tour to earn a living, what if they want to spend that time with their friends or family? It should be the band that ultimately determines which business model works for them.
I am not saying that a band can not make money by selling premium content, but it can not be the only business model to which bands are expected to adhere. Some artist are terrible at live performances, the merchandise offered by some artists does not appeal to me in the slightest (many metal bands come to mind on this one – I like the music I hate the merchandise).
There is room in this world for many different business models, the free music model may work for some bands but not others. Regardless of which business model a band chooses the band should be responsible for making that determination. Individuals who illegally violate copyright laws by sharing content created by others must be discouraged from doing so in order to make sure the band is paid for their services in the way the band sees fit.
Re: You brought music into this so here my two cents worth
It should be the band that ultimately determines which business model works for them.
Exactly. I’m certain that Mike has always promoted that view point. The problem some of us have is when a specific business model, especially a dying one, is given some form of government protection. Let the market decide which business models succeed and fail.
It’s been 10 years since the DMCA was passed. Do the RIAA and MPAA really think it has helped to improve their business model? It may have slowed down the inevitbale death, but the only people benefiting from the DMCA are lawyers and technology companies promising some form ‘unbreakable’ protection.
Re: You brought music into this so here my two cents worth
the copyright argument is based on two unreasonable expectations:
1) that all content should be shared freely
2) that all artists will be compensated for all content that they create.
it is not reasonable to expect someone to work for nothing. it is also not reasonable to expect to be paid well for everything you create.
therefore, you have to do some stuff for free and do some stuff to make money.
there are also two universal truths that cannot be escaped:
1) your content will be shared without your authorization and there is nothing that you or anyone else can do to stop it
2) no matter how much or how little you think your content is worth, it’s at least twice what the market is willing to pay
free riding is an inevitable, inescapable, unequivocal certainty. you can use it to your advantage, or fight it to your detriment. the choice is obvious.
Do you have any idea how many hours and in some cases years are invested in learning to play, writing music, editing music, recording music?
why did you bother? if it’s because you love music, then it was a good investment. if you did it to get rich, you wasted your time. those days are gone.
the rich rockstar ship is sinking. no one is forcing you to get on a lifeboat… but it’s a really good idea.
Should the band not be able to make the determination that they want to be paid for their music and not be required to hire a company to produce goods for them? Should a band be forced to go on tour to earn a living, what if they want to spend that time with their friends or family? It should be the band that ultimately determines which business model works for them.
no one is forcing you to do anything. you can try all that stuff and fail if you want. or you can embrace free and do something that has a chance at succeeding. or you can get a grownup job like the rest of us. the choice is yours.
you want to be a star? then sacrifice. you want a family and a house and to be secure? then get a real job.
the reason that your parents talked you out of trying to be a professional musician is that it’s not a stable life and you are not guaranteed money or success. that’s why so many of us have jobs that we hate, because it’s safer and it pays the bills.
i’m sorry that the world has stopped buying CD’s and that your master plan needs an overhaul, but that’s the reality that you and many others are facing.
Re: You brought music into this so here my two cents worth
I think we should apply Mike’s “infinite good” argument to every idustry.
Actually, it can be applied to every industry. I wrote exactly that, but the key is understanding what is an infinite good. You’ll make a fool of yourself if you call a scarce good an infinite good…
Why do I have to pay for wireless phone service? Why can’t I just use a phone for free, I mean seriously the towers are always there and it’s infinitely available.
Bandwidth actually is a scarce resource, so this is incorrect.
Just because something can be duplicated at NEAR zero cost does not preclude payment for the service of content creation (or in the case of wireless phone service the cost of building the wireless network)
No one said it precludes payment — but if you understood economics, you would realize that it means that pricing pressure will eventually push you to zero. If you can go there ahead of the pack and create a larger market for yourself in doing so, why wouldn’t you?
In other words you are paying for the media or service in order to repay the person who created it for the time they invested in it’s creation.
Those are fixed costs, which do not play into the pricing equation. I recognize this is a difficult concept for those not familiar with economics to grasp, but the more you think about it, the more it makes sense. No company can survive very long if its pricing is based on fixed costs rather than marginal costs.
Do you have any idea how many hours and in some cases years are invested in learning to play, writing music, editing music, recording music?
Yes, absolutely. And all of those hours and years increase the value of the music itself, which open up plenty of opportunities to make a lot more money with the business models we describe.
Should the band not be able to make the determination that they want to be paid for their music and not be required to hire a company to produce goods for them?
Markets determine what the efficient price is. That’s the intersection of buyers and seller — or supply and demand. You’re only looking at one half of the equation.
Should a band be forced to go on tour to earn a living, what if they want to spend that time with their friends or family?
No one is forced to do anything — but I read a sentence like the one above, and I see the same thing as “Should a man be forced to go into his office and work 8 hours a day to earn a living, what if they want to spend time with their friends or family?”
It should be the band that ultimately determines which business model works for them.
In a capitalist world that does not happen. Again, it’s the market that determines it, not just one side of the market.
I am not saying that a band can not make money by selling premium content, but it can not be the only business model to which bands are expected to adhere.
I’m not sure what you mean by selling premium content. I’m also not sure what you mean by “only business model.” I am not advocating one business model. I’m discussing the economics that open up a plethora of business models.
Some artist are terrible at live performances, the merchandise offered by some artists does not appeal to me in the slightest (many metal bands come to mind on this one – I like the music I hate the merchandise).
So what? I’m not sure what that has to do with anything.
I like some BMW commercials, but I don’t like BMWs. BMW doesn’t consider me a free rider. They don’t care if I “free ride.” They know that some percentage will be interested in their scarce goods.
There is room in this world for many different business models, the free music model may work for some bands but not others.
I’m not sure what you mean by “the free model.” It’s not A model. I’m discussing the economics. It’s not a choice, it’s what’s happening. There are many different business models, but no business model will work if it ignores basic economics.
Regardless of which business model a band chooses the band should be responsible for making that determination.
Again, this is a false statement. The market decides.
Individuals who illegally violate copyright laws by sharing content created by others must be discouraged from doing so in order to make sure the band is paid for their services in the way the band sees fit.
And where did THAT come from? No one was talking about violating copyright here.
Re: You brought music into this so here my two cents worth
@13:
just to punch a quick hole in your devil’s advocacy: wireless service is NOT an infinite good. your paying for the opportunity to use a network wh/ is costly to maintain and power at a given period of time. If people stop spending the time/paying the cost to maintain and power the network, the network is not usable. therefore it’s a SCARCE good, not infinite.
For the video game argument, not everyone will download once given a shareware/demo choice, some people even download to get a taste of what the game will be like to see if its worth buying. Just thought it was worth mentioning.
Right On The Money
You are correct. Why should anyone go to a retail vendor and pay cash in advance for something (music or software) they have never heard before or used? What a rip off! I wish I could have back even HALF the money I’ve wasted on defective and unusable and user-unfriendly software, or horrendous music that I bought because the package bore the name or image of my favorite singer, but it was a knockoff or poorly done.
FREE music and software exposes millions of potential FUTURE customers to QUALITY companies. Who would have known how great Google was, unless their free products were ALSO superior. If they had charged for them, many millions would have never known of the qualify, and Google stock would still be barely above the cost of the paper to print it on.
I now know and trust Google and Sun Microsystems because of MY experience with their SUPERIOR products. I also know NOT to buy Microsoft stock, because they lured me into buying MANY of their products using deception and false pretense and fraud, then refused to provide even minimal customer service, thinking a robotic non-responsive reply fulfills that requirement. WRONG.
After paying for AOL for years, my experience with the FREE Google services has taught me that MONEY DOESN’T BUY HAPPINESS. I’ve tried FREE Yahoo, and FREE Google, and either one of them is leagues better than anything AOL or Microsoft offer at a price.
Wait until Microsoft Live comes out with their Cloud products and they want to charge you to access YOUR files. I can’t wait until that company withers on the vine when I look at all my UNANSWERED emails asking for help resolving issues with their high priced software.
"Free" MUST BE supported to be successful - Thus, there is no "free"!
I don’t know why these blogs get under my skin so much, but I’m starting to think it’s the push Mike keeps trying that’s really getting to me, especially when he thinks free is just that.
I would like to know why anyone here thinks “free” is just that. It’s not. It’s got to cost someone, something, to support it.
Mike’s solution: overcharge for scarce goods! Yeah, that’s what consumers want: more expensive and harder to get items.
Give me a damn break, already. It’s bad enough prices are through the roof on non-scarce items, so now we need to prepare for a wave of increased prices?
For those who think “free” is true, let me remind you of cellphone companies (given someone brought it up earlier). Cell phones were (are?) part of the “free” program but look what it takes to get that “free” phone: a 2 year commitment at $70/mo! That’s a “free” phone?
In fact, long gone are the 1 year $40/mo plans because, like with any business, the model pushes prices up while limiting customers on choice.
“But I watch TV for free”, says those who still believe, but that’s not true either. If you’ve purchased a fast food meal, you’ve just help pay for that “free” TV because of the ads within the show.
Show me an example of free, and I’ll show you someone who actually pays for it.
Until then, knock this crap about free off. It doesn’t exist. Especially when there’s money to be made.
There’s a huge difference between free and 0 cost and if you’re even thinking about utilizing this model, you best know it or you will fail.
Re: "Free" MUST BE supported to be successful - Thus, there is no "free"!
I would like to know why anyone here thinks “free” is just that. It’s not. It’s got to cost someone, something, to support it.
You seem to have trouble understanding certain concepts.
First off, no one ever claimed that free doesn’t cost someone. We’re talking about free to YOU. Of course it cost someone initially. So you’re setting up a straw man.
Second, for infinite goods, there is an element of truly free in there — once the infinite good is created it is really and truly free to create new copies. That’s the root of economic expansion.
So if you can separate out the difference between the original creation (the fixed cost) and the marginal cost you may understand it better.
Mike’s solution: overcharge for scarce goods! Yeah, that’s what consumers want: more expensive and harder to get items.
Again, you are confused. First of all, it is not “my solution.” I am explaining the economics of what happens. And, if you bothered to learn economics, you would realize that it’s not about “overcharging” for anything. Overcharging will get you nowhere. It’s also not about raising prices. It’s about expanding a market.
For those who think “free” is true, let me remind you of cellphone companies (given someone brought it up earlier). Cell phones were (are?) part of the “free” program but look what it takes to get that “free” phone: a 2 year commitment at $70/mo! That’s a “free” phone?
No one claimed it was. Strawmen will get you nowhere.
Show me an example of free, and I’ll show you someone who actually pays for it.
I write a song and put it out there for anyone to take free. I paid for the creation of that song, but now that it’s created, it costs nothing for you to get a copy of it or for anyone else to get a copy of it.
It is free.
Until then, knock this crap about free off. It doesn’t exist. Especially when there’s money to be made.
You are very confused.
'Free ride'
Although anecdotal, most people that I know who pirate stuff typically purchase what they can. As I near my 30s, I find myself going more from ‘I wonder if I can pirate that since I can’t afford it’ to ‘How many paychecks until I can purchase it’
Good point
“But I watch TV for free”, says those who still believe, but that’s not true either. If you’ve purchased a fast food meal, you’ve just help pay for that “free” TV because of the ads within the show.
One of my professors in my 480 business class said some recent research showed that 70% of the cost of enterprise software is trying to sell it to you.
so, on average, you pay $70 per $100 for advertising.
That $2000 SQL 2008 may have costed only $600 if MS wasn’t pump so much $$$ into convincing you to buy it.
the meaning of "free riding"
Some economist once explained “the free riding problem” to me more or less as follows.
The “free rider problem” isn’t that free riders are getting benefits from Wikipedia. The “free rider problem” is that Wikipedia is underprovided relative to the efficient outcome because of its producers’ inability to internalize its benefits.
Actually, I think he used less jargon, and we were talking about free software. I hope the underlying idea comes through. Imagine a world where somehow the benefits of Wikipedia were internalized without negative effects, enabling people to spend as much expert time editing it as the expert time people save by having access to it. Wikipedia could be so much higher-quality!