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The digital world demands a new business model. Information is meant to be free to all. Knowledge, which is what changes us and expands our universe, should not be a commodity. But then how will the creative community live?
This issue is one which is still searching for an answer. Media empires that ruled America and Europe for hundreds of years are crumbling. They must change to survive. This change will destroy some of them and place on the long list of former corporate monoliths that are now only found in history books, while the others will change and evolve in such a radical fashion that they will unrecognizable fifty years from now.
The Advent Of A New Age
What most do not understand about the Information Age we have entered is that for it to prosper and expand, information must be made freely available to all. The Internet, by its nature, shares. Once this essential quality is taken from it, the Internet loses all its appeal. But even more, no matter how much business interests wish it, or, work for it, there is no turning back to the old days. Newspapers are the first victims to this change. In 2006, Kevin Kelly, wrote an article in the New York Times titled, Scan This Book. This article was in our opinion prophetic. It dealt with the new ways in which the world of print is being affected. Print and words not synonymous.
As long as man has a mouth, words will have power. Print served as a medium by which could increase their influence on society, even more than it had when it was merely spoken. Spoken words were lost; print served as way to memorialize them. With the advent of video and film, print is no longer necessary, but words will always remain. Kelly eloquently explains,
Authors and publishers (including publishers of music and film) have relied for years on cheap mass-produced copies protected from counterfeits and pirates by a strong law based on the dominance of copies and on a public educated to respect the sanctity of a copy. This model has, in the last century or so, produced the greatest flowering of human achievement the world has ever seen, a magnificent golden age of creative works. Protected physical copies have enabled millions of people to earn a living directly from the sale of their art to the audience, without the weird dynamics of patronage. Not only did authors and artists benefit from this model, but the audience did, too. For the first time, billions of ordinary people were able to come in regular contact with a great work. In Mozart’s day, few people ever heard one of his symphonies more than once. With the advent of cheap audio recordings, a barber in Java could listen to them all day long.
Kelly goes on to explain the present situation,
But a new regime of digital technology has now disrupted all business models based on mass-produced copies, including individual livelihoods of artists. The contours of the electronic economy are still emerging, but while they do, the wealth derived from the old business model is being spent to try to protect that old model, through legislation and enforcement. Laws based on the mass-produced copy artifact are being taken to the extreme, while desperate measures to outlaw new technologies in the marketplace “for our protection” are introduced in misguided righteousness. (This is to be expected. The fact is, entire industries and the fortunes of those working in them are threatened with demise. Newspapers and magazines, Hollywood, record labels, broadcasters and many hard-working and wonderful creative people in those fields have to change the model of how they earn money. Not all will make it.)
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Distribution, which had for many centuries, been the area of specialists (who gained power from it), is available to all. Indeed, this article which you read now, is being read by people all around the earth of many different cultures, languages and views. It is always available. It can be copied endless number of times without loss of quality. Indeed, we encourage it. We wanted copied endlessly. We do not want to be the distributors of it. We want mankind to distribute it. We echo Kelly’s words.
The new model, of course, is based on the intangible assets of digital bits, where copies are no longer cheap but free. They freely flow everywhere. As computers retrieve images from the Web or display texts from a server, they make temporary internal copies of those works. In fact, every action you take on the Net or invoke on your computer requires a copy of something to be made. This peculiar superconductivity of copies spills out of the guts of computers into the culture of computers. Many methods have been employed to try to stop the indiscriminate spread of copies, including copy-protection schemes, hardware-crippling devices, education programs, even legislation, but all have proved ineffectual. The remedies are rejected by consumers and ignored by pirates.
We are writers, but really, and essentially, all people are writers. They all have story to tell. We may have creative gifts, but indeed all have such gifts. Not the same extent, but the day of people being spectators is over. The Internet invites us, seduces us to involvement in ways which the world has yet to fully understand.
As copies have been dethroned, the economic model built on them is collapsing. In a regime of superabundant free copies, copies lose value. They are no longer the basis of wealth. Now relationships, links, connection and sharing are. Value has shifted away from a copy toward the many ways to recall, annotate, personalize, edit, authenticate, display, mark, transfer and engage a work. Authors and artists can make (and have made) their livings selling aspects of their works other than inexpensive copies of them. They can sell performances, access to the creator, personalization, add-on information, the scarcity of attention (via ads), sponsorship, periodic subscriptions — in short, all the many values that cannot be copied. The cheap copy becomes the “discovery tool” that markets these other intangible valuables. But selling things-that-cannot-be-copied is far from ideal for many creative people. The new model is rife with problems (or opportunities). For one thing, the laws governing creating and rewarding creators still revolve around the now-fragile model of valuable copies.1
Battle Between The Book & The Screen
The screen, no matter in what form, whether it be e-ink technology, LED, etc., will triumph over the paper book. This age is one of the eyes, those who do not have the gift of sight, will have to adapt (perhaps the onset of this screen dominance, will spur breakthroughs in cures for blindness). No single medium will be dominant. They will all merge into one digital soup to be consumed by all. This is not intended to be an Orwellian dictatorship, quite the opposite. All the media will have opportunity to fight for our attention. In fact, our attention and focus will be the ultimate prize, in a world where so many voices compete for it.
…copies don’t count any more. Copies of isolated books, bound between inert covers, soon won’t mean much. Copies of their texts, however, will gain in meaning as they multiply by the millions and are flung around the world, indexed and copied again. What counts are the ways in which these common copies of a creative work can be linked, manipulated, annotated, tagged, highlighted, bookmarked, translated, enlivened by other media and sewn together into the universal library. Soon a book outside the library will be like a Web page outside the Web, gasping for air. Indeed, the only way for books to retain their waning authority in our culture is to wire their texts into the universal library.2
If we are entering this brave new world of the Freemium, how can businesses, content creators and artists survive?
We have shown in our previous post in this series that the trend toward free digital duplication is unstoppable. Ultimately, copyright laws which were designed to protect people’s thoughts and inventions worked well in an older age, but are obstacles to innovation in this Internet age.See These Pages: FUTURISM TECH TRENDS SINGULARITY SCIENCE CENSORSHIP SOCIAL NETWORKS eREADERS MOBILE DEVICES
But as we began to speak about in the earlier post, the digital screen has arisen as the portal of digital communications. Everywhere we look at screens in all kinds of different situations. In 2008, Kevin Kelly wrote an article in the New York Times entitled, Becoming Screen Literate. In it he states,
Once, long ago, culture revolved around the spoken word. The oral skills of memorization, recitation and rhetoric instilled in societies a reverence for the past, the ambiguous, the ornate and the subjective. Then, about 500 years ago, orality was overthrown by technology. Gutenberg’s invention of metallic movable type elevated writing into a central position in the culture. By the means of cheap and perfect copies, text became the engine of change and the foundation of stability. From printing came journalism, science and the mathematics of libraries and law. The distribution-and-display device that we call printing instilled in society a reverence for precision (of black ink on white paper), an appreciation for linear logic (in a sentence), a passion for objectivity (of printed fact) and an allegiance to authority (via authors), whose truth was as fixed and final as a book. In the West, we became people of the book.
This era has changed. Not that the book will disappear as a communication technology, but it will not longer play the dominant role it once did. Kelly further elucidates,
A new distribution-and-display technology is nudging the book aside and catapulting images, and especially moving images, to the center of the culture. We are becoming people of the screen. The fluid and fleeting symbols on a screen pull us away from the classical notions of monumental authors and authority. On the screen, the subjective again trumps the objective. The past is a rush of data streams cut and rearranged into a new mashup, while truth is something you assemble yourself on your own screen as you jump from link to link. We are now in the middle of a second Gutenberg shift — from book fluency to screen fluency, from literacy to visuality.
Chris Anderson points out in his book, The Future Of A Radical Price, that George Gilder in book Microcosm was the first to observe this idea that every revolution produces something that beforehand was very expensive and made it very cheap. Gilder gave the example of the Industrial Revolution,
In every industrial revolution, some key factor of production is drastically reduced in cost. Relative to the previous cost to achieve that function, the new factor is virtually free. [Thanks to steam,] physical force in the Industrial Revolution became virtually free compared to getting it from animal muscle power or human muscle power. Suddenly you cold do things that could not afford to do before. You could make a factory work 24 hours a day churning our products in a way that was just incomprehensible before.1
In essence, digital technology is deflationary as Anderson states,
In the atoms economy, which is to say most of the stuff around us, things tend to get more expensive over time. But in the bits economy, which is the online world, things get cheaper. The atoms economy is inflationary, while the bits economy is deflationary.
Possible Business Models In The Internet Age
In this new world where digital duplication costs close to nothing and the copy loses no quality from the original. Business models which are based on charging for copies of a document, film or other kind of media are doomed.
There are according to Anderson four kinds of the free models.
…four broad kinds of free, two that are old but evolving and two that are emerging with the digital economy…let’s pull back and observe that all forms of free boil down to variations of the same thing: shifting money around from product to product, person to person, between now and later of into non-monetary markets and back out again. Economists call these cross-subsidies.
- Free 1: Direct Cross-Subsidies- This is a product that is given away for free that in turn is used to influence you to purchase another product.
- Free 2: The Three-Party Market – a third party pays to participate in a market created by a free exchange between the first two parties. This model may be more confusing. The classic example is newspapers and magazines which sell [at a very reduced cost] or give away their products in exchange for advertisers being able to present ads to the consumers. The advertisers are the third party in this model.
- Free 3: Freemium - This term was invented by venture capitalist Fred Wilson. This is the most common model used by most websites like Flickr, Endnote, etc. As Anderson puts it, “…freemium can take different forms: varying tiers of content from free to expensive, or a premium “pro” version of some site or software with more features than the free version.”
- Free 4: Non-Monetary - Anything people choose to give away with no expectation of payment. A perfect example of this model would be wikipedia. A great example of this model is Google, which in exchange for their services which are free, use the consumers of these free services to perfect their search engines, their translation service and other programs as well as perfecting their ability to more precisely target the proper ads to the consumers.
In our next and last installment, we shall examine how successful these models have been and might be.
1. Anderson, Chris (2009). Free: The Future of a Radical Price (p. 13). Hyperion e-books. Kindle Edition.
In an information world information is abundant, nearing the point of zero cost.Nicholas Carr in his book The Big Switch, stated, “Google wants information to be free because as the cost of information falls it makes more money.” Anderson explains the pain in this transition in society towards “de-monetization” of society.
From the coal miners of Wales to the automotive workers of Detroit, this race to the cheapest, most efficient models has a real human toll. As Jeff Zucker, the head of NBC Universal, put it, the TV industry is terrified of “trading analog dollars for digital pennies.” Yet there seems little he or anyone can do to stop it: TV is a scarcity business (there are only so many channels), but the Web is not.
Like any other changing market, new winners are created and yesterday’s leaders (if they do not change) will slip to obscurity. The money has not been lost, it has been redistributed. As Chris Anderson said, “Just because products are free doesn’t mean that someone, somewhere, isn’t making lots of money, or that lots of people aren’t making a little money each.” Anderson continues,
The point is that the Internet, by giving everybody free access to a market of hundreds of millions of people globally, is a liquidity machine. Because it reaches so many people, it can work at participation rates that would be a disaster in the traditional world of non-zero marginal costs. YouTube works with just one in a thousand users uploading their own videos. Spammers can make a fortune with response rates of one in a million.
Using the free to to shrink one industry while opening another one was called by Fred Wilson a “zero billion dollar business.” Past empires like Britannica are examples of this. They were dramatically shrunk before encarta or wikipedia came along in 1993.
There is a paradox with this model of the free. There are short -term negative consequences of de-monetization. Companies like Google could destroy the very content makers that it uses to make its money from ads place in the web searches. Anderson continues about Google,
…it needs those other companies to create information that it can then index, organize, and otherwise package to create its own business. If digital free-demonetizes industries before new business models can re-monetize them, then everyone loses.Pay What You Want
This “network effect” can work very well if one has the numbers to offer a free model where the user can contribute what he thinks the product is worth. Radiohead did this with their famous event in 2007 where they offered for free with the announcement that their album “In Rainbows” would be available for just the credit card fee. The results were spectacular. Radiohead. They sold 1.2million copies. They made more money from this album since they had no middleman, no record company to share the income with. Radiohead was not the first artist to do this. Prince offered his album 3121 for free in the UK. It sold 73,000 copies this way. Some movie theaters have offered this on selected movies. Panera Breadtried this in 2010 with selected restaurants where people were asked to pay what they wished for the food and put the rest of the money in a box to feed the needy and poor.Is there a magic business model for the new digital age? Not yet. There may never be just one. But that such business models are necessary and will be invented is for certain. Maybe you will be the one who will discover one.
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