Are you a content provider or publisher who thinks the reason most consumers won’t pay for online content is because they’ve gotten used to accessing it for free? That consumers have become “habituated” to not paying and must be “educated” to pay?
You must have nodded off during Economics 101: The Principles of Supply & Demand. Sure, economics and history can be boring, but so are most highway warning signs. Violate the laws of economics or collide with history’s trends, and you’re doomed. If you’re a content provider or publisher who doesn’t understand how historical trends in technology can change economics, well, Baby, you and your contents will crash. Another dot-com failure.
In 1965, Gordon Moore, director of the Fairchild Semiconductor Research and Development Laboratories, noticed an economic trend: Technological progress was doubling the capabilities of computer chips annually while halving their production cost and, hence, sale price. His observation became known as Moore’s Law. It’s not really a law, but an insightful observation of an economic trend. Smart business people (including Moore himself, who later founded Intel) can safely base business plans on Moore’s Law. Indeed, any chip manufacturer who ignores it is doomed to misfortune or failure.
Content obeys an economic trend similar to, but not nearly as severe as, Moore’s Law. The trend is Brand’s Dictum. In his 1987 book, “The Media Lab: Inventing the Future at MIT,” author Stewart Brand wrote about an economic trend he’d noticed years earlier as editor and publisher of “The Whole Earth Catalog,” organizer of the first Hacker’s Conference (back when the term “hacker” meant programmer, not cracker), and founder of the pioneering Whole Earth ‘Lectronic Link (WELL) electronic community:
Information wants to be free because it has become so cheap to distribute, copy, and recombine — too cheap to meter. It wants to be expensive because it can be immeasurably valuable to the recipient. That tension will not go away. It leads to endless wrenching debate about price, copyright, “intellectual property,” the moral rightness of casual distribution, because each round of new (technological) devices makes the tension worse, not better.
Like Moore, Brand noticed an economic trend caused by technological progress. He observed as communication and media technologies progress, consumers’ access to information eases and their choice of information sources increases, all of which simultaneously decreases the cost of obtaining information.
Not rocket science, Ace. It’s Economics 101: Principles of Supply & Demand. Consumers’ access to and sources of information were limited to whatever broadcast TV or radio aired and print media mailed, hand-delivered, or purchased retail. Information was relatively scarce, so the publishers who distributed it could charge premium rates for that information or for advertisers’ access through a few distribution channels to consumers.
The Internet eased consumer access to information and astronomically increased choice of information sources. Most information is no longer scarce. It’s becoming surplus. Publishers who distribute information are economically compelled to charge increasingly less.
Those of you who didn’t nod off in economics class may remember how supply and demand works: You can charge much for something scarce or otherwise hard to obtain, but you must charge less if that something is surplus or otherwise easy to obtain.
Technological progress continually makes products more surplus and easier to obtain, even information. Result: Prices for information make ineluctable progress toward zero. Or, as Brand’s observation is partly remembered, “Information wants to be free.”
Let’s debunk what I call the free content habituation myth. Sure, consumers have gotten used to not paying for online content. The reason most online content is offered for free or sold at low prices is the simple economics of technological progress, not because content providers made a mistake by offering it for free. Stop fooling yourself into thinking consumers can simply be educated into paying more for information that simple economics now lets them pay little or nothing for.
The Real Problem
Progress of new information technologies (such as the Internet) has dropped the true price of information online into an abyss, one today’s transactional infrastructures can’t yet handle. The gravity of that situation has temporarily pulled the price down to zero. Sound straight out of an economics textbook? Here are two real life examples.
Time magazine can charge $3.95 per print copy, but it won’t find users willing to pay that much per month for access to its Web edition. Time’s online users might be quite willing to pay $0.25 per month. Likewise, users of The End of Free — the incongruously free content Web log about the end of free content online — might not be willing to pay $5 per month for access, but they may be willing to pay $0.10. The problem for Time and The End of Free are the service fees that MasterCard, Visa, American Express, and even PayPal charge to process $0.25 or $0.10 transactions. The fees are larger than the transactions themselves. As current infrastructures can’t process the prices online users might be willing to pay, the sites can’t charge anything at all. They’re free access.
The price of online information hasn’t actually hit zero, but it has fallen to a level where it can’t be easily transacted. Hey, who said the path of technological progress is always smooth?
If you’re a content provider or publisher stymied by the inability to sell at new, lower prices users are willing to pay for information, what do you do?
You withdraw from online or find ways to make your content intrinsically more valuable (more about the latter in my next column).
If Brand’s Dictum is a bitter pill for publishers and content providers to swallow, they can take comfort that they aren’t in the computer chip business. A transistor costs one millionth of what it once did. If Brand’s Dictum were as severe as Moore’s Law, today’s edition of The New York Times would contain 100 million pages and cost a quarter-millionth of a penny (assuming its publisher didn’t long ago go bankrupt).
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