Central Perk: Seth's Blog : The game theory of discovery and the birth of the free-gap

miercuri, 8 iunie 2011

Seth's Blog : The game theory of discovery and the birth of the free-gap

The game theory of discovery and the birth of the free-gap

It all started because of the discovery problem.

Too many things to choose from, more every day. No efficient way to alert the world about your service, your music, your book. How about giving it away to help the idea spread?

The simplest old school examples are radio (songs to hear for free, in in the hope that someone will buy them) and Oprah (give away all the secrets in your book in the hope that many will buy.)

There's a line out the door of people eager to spread their ideas, because in a crowded marketplace, being ignored is the same as failure.

Most people, most of the time, don't buy things if there's a free substitute available. A hundred million people hear a pop song on the radio and less than 1 percent will buy a copy. Millions will walk by a painting in a museum, but very few have prints, posters or even inexpensive original art in their homes. (In the former case, the purchased music is better--quality and convenience--than the free version, in the latter, the print is merely more accessible, but the math is the same--lots of visits, not a lot of conversion).

We don't hesitate to ask a consultant or doctor or writer for free advice, but often hesitate when it involves a payment. ("Oh, I'm not asking for consulting, I just wanted you to answer a question...") And yes, I'm told that some people cut their own hair instead of paying someone a few bucks to do it.

None of this is news. Two things have changed, though:

1. As more commercial activity involves digital goods (websites, ebooks, music, etc.), the temptation to spread the idea for free (to aid discovery) is actually economically possible--if you believe that the free spread will lead to more revenue in the long run. The cost of a single copy is zero, so you can choose to set the digital item loose without bankrupting yourself.

2. A culture of free digital consumption has evolved and is being adopted by a huge segment of the most coveted consumers (teenagers, the educated, the upper middle class).

The bet a creator makes, then, is that when she gives away something for free, it will be discovered, attract attention, spread and then, as we saw in radio in 1969, lead to some portion of the masses actually buying something.

What's easy to overlook is that a leap is necessary for the last step to occur. As we've made it easier for ideas to spread digitally, we've actually amplified the gap between free and paid. It turns out that there's a huge cohort that's just not going to pay for anything if they can possibly avoid it.

Radio thirty years ago was simple: everyone hears it for free and a few buy it.

For a time, one could use free to promote an idea and have leverage to turn that attention into paid sales of a similar item (either because free went away or because the similar item offered convenience or souvenir value).

I think that might be changing. As the free-only cohort grows, people start to feel foolish when they pay for something when the free substitute is easily available and perhaps more convenient.

Think about that--buying things now makes some people feel foolish. Few felt foolish buying a Creedence album in the 1970s. They felt good about it, not stupid.

This new default to free means that people with something to sell are going to have to push ever harder to invent things that can't possibly have a free substitute. Patronage, live events, membership, the benefits of connection--all of these things are outside the scope we used to associate with the creative business model, but that's changing, fast.

Lada Gaga's music is basically free. It's the concerts that cost money. McKinsey's consulting philosophy is free in the library, it's the bespoke work that costs money. Watching a movie on Netflix is free--once you pay to belong. Playing golf at the local public course is pretty cheap, it's membership in the fancy club that costs money...

There's a growing disconnect between making something worthwhile and getting paid for it. The digital artifact is heading toward free faster and faster, and the inevitable leap to a paid version of the same item is going to get more difficult.

Creators don't have to like it, but free culture is here and it's getting more pervasive. The brutal economics of discovery combined with no marginal cost create a relentless path toward free, which deepens the gap. Going forward, many things that can be free, will be.

[Worth a side note to talk about the 'shoulds'. Some commentators have argued quite forcibly that things shouldn't be free, that creators should always be paid, that 47% of our economy is based on intellectual property...

Of course, free has always been part of the equation. These commentators, the ones arguing in interviews or in blog posts, are already sharing their ideas for free. The bestselling book of all time has no copyright and has been shared freely for thousands of years. Musicians gladly show up to play for virtually free on American Bandstand or the Tonight Show.

Most ideas have never been something one could monetize. The inventor of the knock knock joke, for example, or the two college kids who coined Six Degrees of Kevin Bacon have put ideas into the ideastream, and they spread without much thought for cash compensation.

I'm certainly not arguing that content should be free, it's clear that the argument on the either side isn't absolute. My argument is that the line for using free as a discovery tool is shifting, and the best (and perhaps only) way to monetize in the future is for the idea to be encased in something that could never realistically be free. Prorducts and services with a marginal cost of more than zero, for example.

Should consumers be willing to pay for great content? You bet. In fact, paying for content is a great way to ensure that more of it gets made.

Does the game theory of the market make it likely that those in search of discovery will accelerate the use of free to get attention? Of course.

Creators have trained the most coveted, biggest spending and intelligent portion of the market to expect that many digital items will be free. Now it's up to us to wrap those items in such a way that they're worth paying for again.]