Trade-offs of offering content for free

Tim O’Reilly wrote a very insightful post on O’Reilly Radar last Friday on the trade-offs of making content freely available online. While making little-known content freely available could enhance the visibility of that content, there would be no such effect on well-known content.

O’Reilly notes that

[t]here is no one-size-fits-all answer. Advertising is a great model for people who can create or collect content that will generate sufficient traffic to pay for itself on the limited revenue per view provided by advertising. But that takes far more traffic than most people realize. Asking people to pay works well when the potential audience is smaller, and the cost of creating the content greater than can be recouped by advertising. But even then, you need to use “free” to some extent to make sure people find your content. If content is locked up too tightly, it drops out of the internet conversation.

Although visibility of little-known work is beneficial, one risk of making content freely available is that it sets the market value of subsequent content at zero. This happened to Scott Adams when he put his book God’s Debris online as a free e-book in the hope that people would then buy the sequel. Instead, they asked when the sequel would be available for free. In Adams’ words: “I inadvertently set the market value for my work at zero. Oops.”

If creators of content are to benefit from the visibility giving away content for free provides and still make money, they will have to come up with new business models. As Fred Wilson put it in a post two years ago “free is a great way to make money. You just have to know how you are going to get paid for being free”. O’Reilly believes such business models will emerge, but with such models come new trade-offs. He describes a conversation he had with Rupert Murdoch:

We talked about the tradeoffs in making the Wall Street Journal free online. It’s quite clear to me that when Murdoch’s purchase of the Journal is completed, the paywall will come down. He sees the Journal readers as among the most valuable advertising targets in the world. But more than that, he sees a future in which he’ll be able to make those readers even more valuable by carefully and completely tracking what they actually read in the Journal.

These privacy tradeoffs are going to become even more widespread as advertising becomes the dominant model. How much would you let an advertiser know about you in exchange for their free content? How much would you pay to avoid having them know that about you?

While such privacy issues may be worrying, they haven’t stopped the growth of things like Facebook which will apparently target advertisements based on users’ profile information, or Gmail which places advertisements beside emails based on the content of those emails. Chances are most people won’t mind letting advertisers know a bit about them in exchange for free content. What’s more, (targeted) advertising isn’t the only way to make money while offering content for free. One obvious way would be to offer premium content. Last.fm does this. The regular service is free, but users who pay for a subscription get an ad-free site, various forms of personalized radio, and higher priority to webservers. The free content – last.fm’s music catalog – is the same for subscribers and non-subscribers, but the additional features subscribers get offer that same content in ways people are willing to pay for.
Free may be more complicated than we think, but that doesn’t mean there aren’t ways to build business models around it.