Central Perk: Seth's Blog : The free-rider benefit

luni, 3 iunie 2013

Seth's Blog : The free-rider benefit

The free-rider benefit

You're probably familiar with the free-rider problem. That's what economists call a situation in which someone benefits from the entire community paying for something without contributing themselves. It becomes a problem when others feel like suckers and then similarly drop out.

Cheating on your taxes is a classic example. You get to ride on the roads and benefit from the civilization that others are paying for. One non-participant won't crash the system, but if it spreads...

Not vaccinating your kids is a similarly selfish act. In an affluent community, a few free-riders probably don't cause much damage because if most kids are vaccinated, the disease won't spread. But, as we've seen in the battle to eradicate polio, when more than a few people don't contribute (in this case, by being vaccinated), we all lose.

Media, though, feels different. In Grand Central there are tall metal cages at the exit from each rail car, designed to collect already read newspapers. It's actually against the law to remove a paper (if you could, the sides are too high) and read it.

I'm sure someone at a newspaper fought hard for this, figuring that everyone should buy their very own paper. The thing is, newspapers don't make much profit on the sale of the paper, they make money selling eyeballs to advertisers. If more and more people read each copy of the paper, the audience would go up, ad rates could rise and they'd actually come out ahead in the long run.

Or consider Wikipedia. Almost everyone who uses Wikipedia (hundreds of millions of people) fails to contribute cash to run it, and they also fail to edit or contribute to the content of the site. At first, this feels wrong. Here's the thing: one more reader costs Wikipedia virtually nothing, and the people who are donating and the people who are editing are doing it precisely because a lot of people read it. If the only people who read it were the people who were contributing, people would stop contributing.

This blog is read mostly by people who have not bought my books. That's generally okay with me because I don't write the blog to sell books, but it's also okay because it turns out that the fact that lots of people read the blog makes my ideas and books more attractive to those that do buy them. Readers know that a better understanding of my ideas might just help them be part of a larger conversation, so the investment and time and money seems a lot less risky.

Or consider the art museum that prohibits photography, ostensibly to keep unpaid guests from seeing what's inside. The thing is, for many people it's more fun to visit a museum filled with famous images, isn't it?

Take a second to reconsider the funnel mindset. A marketer who thinks about the funnel realizes that she needs 100 people in at the top to get ten in the middle to end up with just one paid customer at the bottom. A leaky funnel is a real problem, because it costs a lot of money to keep putting people in at the top. But what if instead of a funnel, we imagine a two-part market? One part is actively participating, supporting and partaking, all because the second part is busy free riding.

There are edge cases everywhere that make the free-rider benefit seem a lot less beneficial. Wholesale piracy, deliberate theft of services--many organizations and business models can't thrive in a world of anonymous taking. On the other hand, once you can get your head (and your heart) around the idea that ideas that spread, win, there are significant opportunities in a digital world where it's easier than ever to help people go for a free ride.