This posts needs to be read in concert with a previous post titled What will people pay for online? Maybe this one should have come first, but I’ve only recently had the chance to see Chris Anderson’s Wired magazine (March 2008) article “Why $0.00 is the future of business”, so here it is now.
It is a really interesting and stimulating article. Read it for yourself as it explains simply many mysteries about “freenomics”. What you get here is my take on that article and my attempt to put it all into a “what might this mean for museums or cultural institutions?” context.
Chris captures the attention of anyone with anything to do with money-making in an online venture with his statement that:
. . . the trend lines that determine the cost of doing business online all point the same way: to zero.
The economies of scale that can be achieved on the web give us the chance to spread the costs of business over increasing audiences, but the emerging business models are more complex than just bigger scale and decreasing prices. He cites three examples of completely free services now provided to users online: unlimited storage (Yahoo Mail); bandwidth (YouTube); and processing power (Google). As he says: “The Web has become the land of the free”. And this has resulted in the spread of two trends that are driving free business models across the web economy:
- Giving away goods or services to some customers while selling other things to others; and
- Anything that touches digital networks is affected by falling costs.
So, if we (in cultural institutions) are to look at ways of recovering our costs or making money from e-sales or even measure the value of what we do online, we need to understand those trends and what they mean to us.
Chris also points out the stark difference, from the consumer’s perspective, between the cheap and free economies. He says the psychological gap between a price or market that is free and one that is almost free is why micro payments fail. It is why Google does what Google does for free. Even a small fee charged would fail. As Chris says: “The winners made their stuff free first.”
So how do they make money then? He begins by explaining the traditional “free to air” media model where the media owners are not selling their products to an audience. Instead they are selling their audiences to advertisers. He says that this model has simply been extended on the Web, but advertising isn’t paying for everything and he offers six broad categories for the web’s priceless economy, some of which seem more relevant to cultural institutions than others:
- FREEMIUM: Stuff like software, services and some content is free to users of the basic version. We already do this with some pretty decent free content on our website. If, however, you need a higher resolution image for publication or some other reason, you need to pay a premium. Or, if you want something digitised for you, you’ll also pay for jumping the queue. But is there a better model or even a different one we could offer for certain services?
- ADVERTISING: Yahoo, Google and Amazon use advertising big time. Chris says that: “these approaches are based on the principle that free offerings build audiences with distinct interests and expressed needs that advertisers will pay to reach”. The Australian War Memorial now has an advertisement on Facebook! For cultural institutions, however, there is something we probably need to do before we approach potential advertisers for our own sites and that is to build bigger audiences. So again, delivery of popular content that is easily found, searched used and re-used is kinda critical to this, but that’s a whole other ball-game that I won’t get into here and now.
- CROSS-SUBSIDIES: This relates to the provision of free or cheap products or services that entice you to pay for something else. Maybe those annoying “interest free payments until 2025” advertisements also fall into this category. The money is free (for a while) as long as you buy one of our products. I’m not sure we’ll go there, but perhaps there is something for us to learn from musicians who are providing free online music as simple and cheap publicity for the more lucrative tours they run? Maybe the equivalent for us are free online content such as podcasts, images and even film that relates to our real exhibitions and serves as an enticement to come and see them in the flesh (regardless of whether they are free or paid entry). For many museums the generation of actual visitors is still more important than any form of revenue from the sale of its goods and services. I know, I know, I’ve really twisted Chris’ category this time, but hey, cultural institutions aren’t really competing with Kmart (or Wal-Mart).
- ZERO MARGINAL COST: I know, scary economic terms, but stay with me. (I think that the main difference between this category and #6 is that this one is more about zero cost to distribute the item.) Chris gives us a great description that the force to make the price zero : “is so powerful that laws, guilt trips, DRM and every other barrier to piracy the [music] labels can think of have failed”. Many creative artists like musicians, visual artists and even short film makers give away their content online for free, sometimes as a way of marketing other things they do, but as Chris points out, many have just accepted that for them their art is not a money-making business. The altruistic provision of free content, (especially when there is no cost of distribution to consider) like the sharing of knowledge, experience and real wisdom, is growing exponentially on the web (IMHO), so perhaps cultural institutions are more part of that side of the web, than a new dot.com push?
- LABOUR EXCHANGE: This happens when users either improve a service or contribute something to it (like a wiki). Another example that I’ve used recently is Linkedin.com. I set up a quick profile, asked a question about collaborative or forum software to assist in networking for some colleagues of mine and was overwhelmed with answers provided freely by other members from all over the world, within a few hours. Some museums are now playing with user added tags or “folksonomies” that give a new perspective to our online catalogues and descriptions of our collections. I think that is only the tip of the iceberg and much deeper user-collaboration could be facilitated online to generate content. See a previous post here on “produsers“.
- GIFT ECONOMY: Everything is free: to everyone. Here the web can be used a platform that gives individuals global impact. Altruism comes in again as a motivator, perhaps by becoming more important as a motivating factor and reason in this economy than a price, a cost or a simple monetary value. Maybe for cultural institutions we need to look for better ways of measuring online success than simple commercial revenue targets. It is a bit conceptual, but nonetheless a worthy ideal.
Later on in his article, Chris goes on to suggest that reputation (metric=PageRank) and attention (metric=traffic) are two non-monetary values or “scarcities” that can in turn realise better advertising (as I suggested in point #2 above). Cultural institutions already have an advantage here because we are seen as reliable sources of credible information and content and this is very important in an environment almost overwhelmed by the abundance same. It all gets back to how we best use that advantage and what we want from this new free web. Allowing users to collaborate with us and to generate some of our content will help, but ultimately the audience will also look to us for the qualities we can deliver from our collections such as: uniqueness, rarity, quality, credibility, authenticity and dare I say it, accessibility.