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Monday, June 29, 2009

Free Malcolm Gladwell

I very much like Malcolm Gladwell's discussion of free pricing models on the internet. Gladwell's point is that in the long run they don't add up.

Although the magic of Free technology means that the cost of serving up each video is “close enough to free to round down,” “close enough to free” multiplied by seventy-five billion is still a very large number. A recent report by Credit Suisse estimates that YouTube’s bandwidth costs in 2009 will be three hundred and sixty million dollars...

So how does YouTube bring in revenue? Well, it tries to sell advertisements alongside its videos. The problem is that the videos attracted by psychological Free—pirated material, cat videos, and other forms of user-generated content—are not the sort of thing that advertisers want to be associated with.

In order to sell advertising, YouTube has had to buy the rights to professionally produced content, such as television shows and movies. Credit Suisse put the cost of those licenses in 2009 at roughly two hundred and sixty million dollars. ... To recap: YouTube is a great example of Free, except that Free technology ends up not being Free because of the way consumers respond to Free, fatally compromising YouTube’s ability to make money around Free, and forcing it to retreat from the “abundance thinking” that lies at the heart of Free. Credit Suisse estimates that YouTube will lose close to half a billion dollars this year. If it were a bank, it would be eligible for TARP funds.

Interestingly, the article is available (free!) on the New Yorker site.

We live in a golden age in which the online New Yorker, New York Times, Chicago Tribune, complete episodes of The Office, the Daily Show, this blog, and other stuff are free and have content. Enjoy it now! It won't last. Either the newspapers will go out of business (no content) or they will figure out how to charge (no free).