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Why Creative Entrepreneurs Don’t Need to Worry About Free
I'm going to join a conversation that I think has been moving way too quickly. Yes, it's the whole Free
conversation. So, a quick recap:
Chris Anderson wrote Free: The Future of a Radical Price (amazon link), which showed how prices for digital goods tend to fall to zero. Businesses must adapt their marketing and distribution plans to account for this, or they'll find themselves beaten by their competitors who are offering a similar good, service, or content for free.
Malcolm Gladwell wrote a review of Chris's book, arguing that some of the examples Chris gives aren't actually viable businesses and providing counterexamples that seem to show that in some cases, information (digital goods) wants to be expensive. His main conclusion: "the only iron law here is the one too obvious to write a book about, which is that the digital age has so transformed the ways in which things are made and sold that there are no iron laws."
Then Seth Godin joined in, showing how Malcolm is Wrong. Seth's point: "[A business model based on Free] is happening ... the world will change around it, because the world has no choice."
Jonathan Fields' post "Why I Hope The Free Brigade Got It Wrong" brought the conversation back from the right/wrong tones that it had reached and showed a more moderate position that questioned whether Seth and Chris actually agreed with each other. But what Jonathan is most worried about is that "solopreneurs, professionals, small business owners, and local, passion-driven content-creators, performers and solution providers" won't be able to do what makes them come alive when Free becomes the major market force.
I'm picking up where Jonathan left things, and I'll start by agreeing with him: I'm not really sure that Chris, Malcolm, and Seth are at odds at all. It seems to me that they've been talking past each other.
But my main point is that creative entrepreneurs running online businesses don't have to worry about Free because we're playing a different game. The game we're playing actually benefits from Free, if we play our cards right.
A Tale of Two Capitalisms
In an earlier posts in this series, I advanced the idea that what we have right now are two different versions of capitalism playing in the same economy. I took a break from writing this series to figure out what I meant by that, and as it turns out, the distinction is critical when it comes to Free.
I'll need to do some quick clarifications. In the first post in this series, I suggested that we could divorce industrialism from capitalism so that we end up with industrial capitalism and "post-industrial capitalism." After I thought about it for a while and did some research, I determined that "post-industrial capitalism" was inadequate because the reality is that the form of capitalism I was shining light on has always been with us. The only thing "post-" about it is that the technological solutions that have led corporations to dominate our economy could be modified so that creative entrepreneurs could prosper.
So instead of "industrial capitalism" and "post-industrial capitalism," the more appropriate terms I'll use are corporation-dominated capitalism and people-centered capitalism. Everything else from my prior posts remains the same, and I think this way of expressing the ideas captures the essence of the exploration better.
What I'd like to draw out here is that much of Chris's book focuses on corporation-dominated capitalism - for corporations, Free is a much bigger problem. The structure and overheads of corporations make it such that they're really expensive to operate. By the time you get R&D, Marketing, Sales, and everybody else on the same sheet of music, the resource investment in a particular product is so intense that any given product has to either sell a bunch for cheap or sell fewer at a higher price.
This creates a terrible dilemma for corporations. They can get in either the "cheap for everybody" market or the "expensive for a niche" market. If they get in the former, they'll have to fight against the Free trend - and too often, they'll make an unremarkable product so they can sell to more people, but it's easy to displace that unremarkable product. If they get into the expensive niche markets, they'll have to compete with the corporations that have already moved into and are dominating those niches; it's risky and resource-intensive to move into a niche market on the corporate scale. If you win, you win big, but if you don't, you've lost years and millions of dollars.
Chris, Malcolm, and Seth are largely talking about the rules for corporation-dominated capitalism, and their books, strategies, and concerns sit squarely at home in that sphere. But the rules for people-centered capitalism are different because the scale is much different.
As an independent creative entrepreneur, I can move from idea to market in a month. Since my overheads are lower, I can charge much less for a product, and my needs for revenue are much lower. This is where the power of small kicks into overdrive.
Let's say that I produce a product in a month, charge $10 for it, and sell it to only 150 people, which would bring in $1,500 revenue. That amount of money is a drop in the bucket for corporations - they spend more than that per year on pens and paper clips. But $1,500 is my mortgage and utilities.
Obviously, I can't live off $1,500 per month, but if I've got enough small income streams like that, I can live quite well. Creative entrepreneurs that reach a critical mass of income streams can survive indefinitely, precisely because it doesn't take us tens of thousands of dollars to change directions.
While this doesn't yet address Free, what I do want to point out is that many of Chris's ideas depend on corporations dropping prices below the point at which it's not worth their time to charge for their products. For instance, corporations selling digital products for $8 have to fight against Free - so much so that it makes more sense for them to release a product for free and use it as a loss leader to sell another product. However, for creative entrepreneurs, dropping that $8 is the difference between eating well and sliding by for another month on Spaghettios.
So, though staying small and being agile enables creative entrepreneurs to navigate the market better, it still doesn't show how Free doesn't pose a huge threat to them. For that, I'll need to show that...
People Intuitively Understand the Difference Between People and Corporations
I'm a fan of Seth Godin and Apple. But there's a critical difference for me when it comes to buying products for them: I'll buy any book that Seth writes, but I won't buy everything that Apple produces.
I feel that there's a one-to-one relationship between me and Seth. We've written each other - okay, he's replied to me. I recommend Seth's stuff to friends, not just because it's Seth's, but because it's good.
My relationship to Apple is more nuanced. Even if Steve Jobs wrote me, I still wouldn't feel like I was in a personal relationship with Apple. I wouldn't send Apple posts that I thought they'd like to see, and I wouldn't hear songs and think "wow, that's something Apple would say."
Of course, this isn't limited to Seth. I bought Chris Brogan's Trust Agents: Using the Web to Build Influence, Improve Reputation, and Earn Trust (amazon link) last week because I met Chris Brogan last year at SxSW and have since come to appreciate that he's a good, knowledgeable guy. I bought the book because I know Chris, the person, will deliver and because he's a person I want to support.
I could go on about other individuals but it would be redundant. I'm sure you have your own list of people that you identify with in the same way, and the point that I'm trying to make is that, as consumers, we are more willing to send money to support people we identify with than we are to support corporations.
But there's still more to it than that...
People Make Things Unique and Meaningful for Other People
I'm going to take this straight from the other Chris's (Anderson) book:
Commodity information (everybody gets the same version) wants to be free. Custom information (you get something unique and meaningful to you) wants to be expensive. (emphasis mine)
Sure, we may think about economic exchanges differently when we're in different economic contexts, but the real reason creative entrepreneurs aren't put in jeopardy by Free is that creative entrepreneurs are in the unique position to make unique and meaningful stuff for other people.
Since we talk to our people, we know what they need and want. We know what conversations they are already having. And many creative people want to help others. You've got all the ingredients there to create information and products that people are willing to pay for: you've got the technical skills to create stuff, you've got the passion to want to help and connect with others, and you know what people are wanting and needing. And your "market" is already predisposed to support you, to boot.
Earlier, I said that corporations have a terrible dilemma, and now I can more fully show how creative entrepreneurs have a crippling advantage. Creative entrepreneurs are able to do what corporations can't: we can be both cheap(er) and niche. Since our financial needs are a lot lower, we can talk to a very select group of people, find out what they want or need, and create it just for them. In fact, it's easier for us to make something unique, remarkable, and meaningful for the few than it is for us to make something that appeals to a mass market - after all, if we get into the mass market, we've got to play with the big boys, and that's more resource-intensive for very little effective reward.
I want to loop back and cover what Chris thinks is a better expression of "information wants to be free":
Abundant information wants to be free. Scarce information wants to be expensive.
What we've seen a lot of in online businesses is marketing to scarcity. Unfortunately, the scarcity that's most often pitched to is scarcity of patience. The prevailing practices are to figure out what people are desperate (!) to buy and then sell them a solution that they can get now (!) to solve that problem they're desperate to solve. I'm not questioning the effectiveness of this strategy - I know it works.
But what I also want to point out is that there's another scarcity that we don't see pop up as often: products that qualify as art. I think we'll see a change here in the next few years, as more and more people get savvy about the science of producing products. As we see more and more of the same sales pages selling what seems to be the same product in the same way, prices will drop. And as more creative entrepreneurs put out products that appeal to something besides urgency and desperation, we'll probably see different pricing norms emerge besides the $47, $97, and $197 price-points that now run rampant.
In other words, as more and more creative entrepreneurs launch online businesses, what discriminates the best from the rest will change, and it'll revolve less around the science of product creation and more around the art of product creation. Creative entrepreneurs stand to clean up here because they're more able to be High Touch and High Concept.
We Live in a Hybrid World
I started this post with a conversation that was beginning to become a Right/Wrong or Free/Not-Free dialogue, but such a dialogue glosses over a lot of the grey areas that we're seeing. I worry whenever I see an Either/Or conversation because such conversations usually leave out the important details that would show that there are different options. Even in my own distinctions between people-centered capitalism and corporation-dominated capitalism, there is some grey, as there are outlier corporations and creative businesses that are pushing the limits.
To bring this home, though, Chris said "it's a hybrid world, with free and paid coexisting." The degree to which it's a hybrid world extends further than that - corporation-dominated capitalism and people-centered capitalism are coexisting as well. The threats that Free poses to corporations are different from the threats that it poses to creative entrepreneurs, and corporations and creative entrepreneurs will have to respond differently. Likewise, the opportunities that Free provides for corporations are different from those that it provides for creative entrepreneurs.
Furthermore, Chris's exploration shows that Free "turns billion-dollar industries into million-dollar industries" - but it does this by redistributing the wealth from the billion-dollar players to million-dollar players. The money doesn't just disappear into the ether.
So, whereas I see how corporations are worried about Free, I see only opportunities for the rest of us willing to show up and play the new game. But of course I'd see it that way - I'm a creative entrepreneur.
Photo Credit: DonnaGrayson