How do you sell data when information is free?

The old hacker motto used to be “information wants to be free”. This was the driving philosophy of the 80’s and the 90’s when the Internet was going through it’s awkward onset of puberty, and turbulent teenage years. We currently live at a peculiar junction in history where information is truly free. And it’s all thanks to advances in communication technology, ubiquitous broadband access and ever growing transfer speeds. Information is no longer scarce – it is a commodity much like water, or electricity. It’s obviously not worthless, but it’s relatively cheap in the grand scheme of things and it’s plentiful. For a modest monthly fee you have unlimited access to all the water and electricity you want.

In the very same way for a flat monthly fee you get unlimited access to the Internet which contains most of the information you will ever need. Every song, every movie, every book or piece of software ever made is out there for the taking. All you need is a torrent client and a little patience. Sure it’s not entirely legal but the odds of getting caught are incredibly small – not much bigger than the odds of winning the lottery. And there is just nothing that can be done about it right now. Neither the lawsuits and aggressive take downs of p2p networks nor the copy protection and ever more restrictive DRM have put any dent in the overall p2p traffic. Anything that is in digital format can be copied – no exceptions. Anything that can be copied will end up on the internet. Anything that is not in digital format, but can be digitized, will also end up on the internet. For free. And unless we completely change the fundamental rules of electronic communication this trend will only escalate.

Naturally the cost to produce these digital goods (movies, songs and software) is nonzero. It is actually quite expensive make them – both in terms of investment capital, and labor. But thanks to internet, their effective market price approaches zero. You either sell yourself cheep, and loose money or sell high, and put up really tough competition from p2p. This competitor is different though – he cannot be thwarted, legislated away, sued into oblivion or absorbed via hostile takeover. You are competing with the basic human nature. There is nothing – and I repeat, NOTHING that can be done against this. Unless of course you can figure out a way to turn back the clocks, and cripple the internet to where it reverts to it’s slow and non-threatening form you remember from the 80’s. For better of for worse, you are stuck with broadband internet as the most efficient distribution system, and the fiercest competitor you will ever encounter.

How do you compete with free? Obviously you can’t cut the price, unless of course you are willing to pay your customers to use your product. The only thing you can really do is to add value to your product. Believe it or not, but people are always willing to pay for a superior quality. Think about this next time you are shopping for a new cell phone. You provider probably offers a fully functional free phone with the service, but a lot of people opt for the sleek looking $200-$300 alternative which has extra features, bells and whistles. You have to do the same – you have to add bells and whistles to your product – and once you do, people will eagerly hand over their money to you, even if a free version is available.

The only problem here is that you can’t add value to information by combining it with more information. Adding bonus tracks, or blooper reel to your album or dvd doesn’t do anything because these things will end up on the internet as well. You need to add something that cannot be easily digitized and sent over a wire.

Kevin Kelly in his excellent article Better than Free identifies 8 value adding features you can use to make your digital product more desirable to customers. I highly recommend reading his piece in it’s entirety but if you are to lazy here are the 8 things he proposes:

  1. Immediacy – ie. the ability to ship the product to the customer before 0-day crack comes out
  2. Personalization – tailoring your product to customers specific needs
  3. Interpretation – lifetime support, warranty, 24 hour helpline, etc..
  4. Authenticity – genuine article is bound to have highest bit rate, sharpest picture and no embedded trojans
  5. Accessibility – pay once, download from anywhere and in any format
  6. Embodiment – no mp3 can beat a live concert, and no ebook is as nice as a beautifully bound hard cover edition
  7. Patronage – fans usually buy original cd because they want to support their favorite musician – not because they can’t find the mp3’s of the songs it contains
  8. Findability – iTunes are more user friendly than bittorrent – even with the DRM – you can capitalize on that sort of thing

So there you have it. Kevin goes into much more detail there, but I don’t want to steal his thunder. Read the article and see if you agree. All you need to do to make money on the seemingly free data, is to implement one or two things from this list above. And most digital content producers are already halfway there. They are just to set in their old ways to develop their strengths and capitalize on them. They still think it terms of distribution and scarcity. But this is a dead end.

Internet is the most efficient distribution channel you can imagine. You can’t get your data faster to your customer than over a high bandwidth fios connection. And if you try to use a slower channel or introduce artificial scarcity, into the equation to drive the price up the consumers will simply pick the free (illegal) alternative. If you concentrate on adding value in one of the 8 ways listed above however you can easily rise prices without scaring away or alienating the customer.

The funny thing however is that information is not the only thing that is becoming a free ubiquitous commodity. Even the physical products that were once scarce are heading that was as the technology improves and the prices fall due to normal market mechanics. Just go and read Kevin’s Technology Wants to be Free essay. I don’t think I can explain this concept any better than he does. But he is right – and his vision of future is certainly bright for us as consumers.

[tags]copyright, copyfight, digital distribution, freedom, information wants to be free[/tags]

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8 Responses to How do you sell data when information is free?

  1. astine UNITED STATES Mozilla Firefox Windows says:

    Isn’t the market nice? So long as you keep people from overtly ripping each other off, things usually just keep improving.

    I like the model that webcomics usually adopt these days. The primary content is offered for free, but they are able to turn a profit by selling fans merchandise associated the comic.

    In fact, this makes for a great proof of concept: With many webcomics you can see any comic for free almost instantly, yet people still opt to buy hardbound collections.

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  2. Luke Maciak UNITED STATES Mozilla Firefox Ubuntu Linux Terminalist says:

    Indeed, I actually own few XKCD t-shirts. :)

    Then again I don’t know of that many artists who make their living exclusively on their web comics. It is possible to get a decent stream of revenue from advertising but only if you have a strong reader base.

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  3. vacri AUSTRALIA Mozilla Firefox Ubuntu Linux says:

    Information doesn’t want to be free. It doesn’t yearn, it doesn’t struggle against bonds. It just is, like a rock just is. People want information to be free. There’s a significant difference between the two.

    It’s a bit like petrol. Petrol doesn’t yearn, but people want it to be free. In places where security isn’t tight enough, people puncture oil pipelines and take it for themselves.

    Think about it – it’s not ‘technology wants to be free’. It’s ‘consumers want technology they use to be free’. How many people in the street are clamouring to know how to make the ceramic compounds that make up the space shuttle’s heat shield? Not many, because they couldn’t care less. So, if you want to make your own, it’s not cheap, let alone free.

    While this isn’t really what you’re discussing (which is how to maintain a business in the current environment), we do need to move away from anthropomorphosising ‘information’ and ‘technology’, especially as things that need to be freed (in the sense of freeing an animal from a cage).

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  4. Luke Maciak UNITED STATES Mozilla Firefox Windows Terminalist says:

    [quote post="2292"]nformation doesn’t want to be free. It doesn’t yearn, it doesn’t struggle against bonds. It just is, like a rock just is. People want information to be free. There’s a significant difference between the two.[/quote]

    Yes, this is true but there is more to the “information wants to be free” mantra. I think it alludes to the very nature of information – that it can be transmitted and copied effortlessly. That given potent transition medium it spreads like a wildfire. And that once you release it into the wild, you can never really make it unavailable – once you put something on the internet, it will always be there – as long as someone will want to see it, it will always resurface somewhere.

    On the other hand, it is very difficult to keep information from spreading. If you want it to be scarce, you keep it to yourself, or share it only with a select group of people. But the more people you share it with, the higher probability is that one of them won’t be able too keep it a secret.

    [quote post="2292"]How many people in the street are clamouring to know how to make the ceramic compounds that make up the space shuttle’s heat shield? Not many, because they couldn’t care less. So, if you want to make your own, it’s not cheap, let alone free.[/quote]

    Very true but that is not the point. The point is, that it is only expensive as long as it is kept a trade secret. Once it leaks out, it’s free. Making the compounds using this knowledge is not free, but the knowledge itself is. :)

    Anyway, look at Kevin’s article on the “Technology wanting to be freee”. He doesn’t anthropomorphosise technology either. He just notes that as the technology improves the basic commodity becomes cheaper and cheaper.

    For example, when you compare the price of your first cell phone plan (you know, that huge brick weighing a ton and having very poor reception almost everywhere) with what you pay today (factoring in inflation) you will probably notice that they are relatively close to each other. But the service you get today is probably much better than the one you got years ago. There are more cell towers, the reception is better, the phone has a more powerful antenna. In addition your phone now has much more built in features – it has a camera, a loud speaker, a gps unit, a web browser perhaps. In other words you get much superior service than what you got with your very first cell phone for relatively the same price. In other words, the cost of making basic calls over a cellular network must have dropped significantly over the years due to advances in technology. What you are paying for now are all the added features, and new services that ride on top of that basic utility.

    This guy theorizes that this applies to all technology. Every popular technology becomes a commodity, and it’s base price tends to gravitate towards zero as we build new services and products on top of it. He explains it better though. It is a really interesting read. :)

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  5. astine UNITED STATES Mozilla Firefox Linux says:

    nformation doesn’t want to be free. It doesn’t yearn, it doesn’t struggle against bonds. It just is, like a rock just is. People want information to be free. There’s a significant difference between the two.

    Dude, when people use anthropomorphisms, they don’t usually intend to be taken literally. When people say that, I don’t think that there is a person on earth who thinks that what is meant is that information has thoughts, feelings and desires, instead of that information, by it’s nature (and our), is difficult to contain, and is rarely worth the effort.

    I think that the term ‘free’ here refers as much to liberality as to cost.

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  6. ACK SWEDEN Mozilla Firefox Ubuntu Linux says:

    Just a small nitpick:

    The headline should probably read the other way around, as what people make money of these days is mostly information, ’cause as you say, data is free…

    (for those not following me; data is the raw material used to make information. Information is a refined product, filtered and tailored to an entity’s wishes, knowledge is what comes from information)

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  7. Luke Maciak UNITED STATES Mozilla Firefox Windows Terminalist says:

    Good point ACK. I’m to lazy to change it around now. :P

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