Guardian Changing Media: Business model for free content?

Session Chair: Nick Higham, correspondent, BBC News

Christian Ahlert, director,

Suw Charman, independent social software consultant

Adam Freeman, deputy commercial director, Guardian News and Media

Question to Christian, what did Google do right?

Christian: At first, they were kind of a bit crazy. They didn’t have a clue. Google created a really good technology, but they didn’t have a business model. Everyone could use good and they can still use Google. The only way that they could create a business model was on top of the attention they created. Giving something away on top of the attention they created. This is key way that the internet and business on the internet works.

When it comes to Web 2.0, social activity has become a product unto itself. I created OpenBusiness two years ago because of Bill Gates. I’m involved with Creative Commons. That is an alternative rights mechanism. Some rights reserved instead of all rights reserved. Bill Gates said two years ago, “What those Creative Commons guys are doing sounds like Communism to me.”

One business model is They give stuff away for free. It allows people to share their tastes.

Last year, he consulted with a major media company. They wanted to become a Web 2.0 company, but the first thing the company said is that they had sent a cease-and-desist letter to someone who had put something on YouTube. He thought the meeting was pointless. Six weeks later, they had another meeting, but a smart executive put the same message up on YouTube. But he got a cease and desist letter because they said he was using YouTube for commercial purposes.

There are hundreds of ways in how you can create revenue. Many of his business ideas are taken from the world of open source software development. People build very successful business models around open-source software. Or you can upsell, by adding premium or paid for services, or even free-ium content.

Suw Charman: There is an idea if you give something away for free that you can’t make money for it. We see this in the publishing world with Cory Doctorow, Lawrence Lessig and Tom Reynolds. Certainly, Cory Doctorow has been very open with his figures. His first novel has been downloaded 700,000 times, but Down and Out in the Magic Kingdom is also on its fifth or sixth printing.

The people who are most aggressive downloaders are also the largest buyers of music. We’re still seeing a shake out in business models. If you have a product that is desirable, then people will buy it. Downloads aren’t exactly equivalent to the physical product.

Nick: DVDs, the physical product comes with extras.

Suw: When you look at the music industry, you see a nice blip when people were replacing their tapes and vinyl with CDs. This created an artificial hump in sales. The music industry is shifting fewer units so are selling less. To blame this entirely on downloaders is spurious. You have a small number of bands shifting a large number of units.

Suw called it a power law issue. Mark Cuban calls it the ‘rat’s ass of the long tail’. And it takes a lot of money to climb further up the tail, although I’ll leave that image there.

Adam Freeman: We are a multi-platform player. Today it is printed words on paper. In the future, it will probably be video. We are not on the web but part of the web, and fortunately, that has coincided with a boom in advertising. It has to be compelling, and it has to be unique. You can’t do that in news, but you can do that in crosswords or news compilations for expats. They also have a dating service.

CA: Lots of business give away things for free but use that to generate business. We didn’t mention quality and convenience. To bash the music industry again, who developed iTunes? A computer company. (Nick Higham: How many have iPods? Almost 100%.)

The guys who started Skype have launched Joost. The quality is great. I mean, YouTube, Google Video? The quality is crap.

Question from audience: The music industry didn’t invent iTunes because it wasn’t their core competencies. He went on to insinuate that Suw and people like her thought music was ‘shit’ because her tastes were changing as she was aging.

Winning argument boss, or not. Suw’s a square because she’s getting older?!? Blame the user. Blame the listener. This seems to be the music industry strategy. Don’t innovate. Don’t invest in new business models. Defend your old business models with a stable of lawyers.

CA: Decoupling using a product and not paying for it is nothing new. Radio has been doing that for years. The internet has changed transaction costs forever.

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