Last week we were asked to give a presentation at the ‘Ilovebusinessmodels‘ conference on the subject of Open Content in Utrecht- The Netherlands. A good overview of the day, including the presentation of Alex â€˜Dr Businessmodelâ€™ Osterwalder can be found at FrankwatchingÂ (in Dutch). The audience consisted of specialists covering the complete spectrum of the media industry, varying from music publishers, magazine editors, filmproducers, even a good representation from the archive community. A decent crowd to test out some ideas we developed over the past couple of months.
Our pitch was that as the internet makes copying so easy and is close to becoming ubiquitous, the business model of the future should clearly not be focussed on the low added value of distribution, but on something else. So what else? Chris Anderson has already provided some strong arguments that content, or for that matter anything for which the variable costs of distribution is close to zero, will available for free in the very near future. Free as in free lunch? No, Anderson argues, â€˜it doesnâ€™t mean itâ€™s being given away; just that someone else is picking up the tab.â€™ Which means that it will not be the end user who pays, but entities that have an interest in the behaviour of the end user, very often advertisers but increasingly also service providers that use open apiâ€™s. Not surprisingly, the advertiser model came up in several of the presentations that day. Someone in the audience rightfully remarked that it is hard to believe that a multi-billion dollar media industry can be saved solely by advertisement budgets! While it is true that these budgets still increase and that internet ads show a fairly sharp increase I fully agree with this remark. We have to look for the solution elsewhere as well.
First of all, content providers should deeply realise (again) that the media industry is very literally a â€˜mediumâ€™ between someone who creates and someone who consumes (also read Clay Shirky ) for more on this subject). Because we live in an imperfect world we need service providers to connect the two, gift-wrap it and make the delivery. In this context the internet should be recognized as an incredibly efficient distribution system providing a new problem, or opportunity as you like, of abundance. This abundance is exactly where we should look for our future business model.
To investigate this we mashed up the ideas put forward by Kevin Kelly in his remarkable blogpost â€˜Better than Freeâ€™ with the business model canvas developed by Dr Alexander Osterwalder (check out his blog). Kelly argues that when copies are free, you need to sell what cannot be copied. He provides 9 â€˜generativesâ€™, psychological drivers, that if applied well will make people pay for something that is also available for free. We put this theory to the test using Osterwalders businessmodel canvas and looked at example like Hulu, Big Champaign, Radiohead and others to see if the theory would hold out against reality.
The bottom line here was that certain generatives like â€˜authenticityâ€™ and â€˜immediacyâ€™ are perhaps still too ambiguous and certain drivers like â€˜convenienceâ€™ should probably be added, there is certainly enough here to continue our investigation. And thatâ€™s exactly what we are going to do. Because Open Content business models are the key to an environment where social, cultural and economic value can happily co-exist.
With the introduction of internet the traditional business model for spreading information has been challenged. Whereas before the largest part of the efforts and the investments where spent on the distribution side (printing, storing, selling and fulfillment) the internet (aka The Large Copying Machine) has facilitated easy and cheap distribution. Scientific publishers, who traditionally operated in a closed environment where they sold packages of journals and books through an annual license to libraries, are now (often forced by the community) turning their business model upside down. In this model authors are paying for the publication service in exchange for posting in so-called ‘open access‘ journals, where access is free at the point of use (also read Jan Velterop’s blog The Parachute). In this particular case it looks like a suitable business model has been found, as this model takes advantage of the power of the internet and leads to a greater return on investment for authors (visibility) while securing revenues for the service providers (publishers).
The music and film industry are facing similar issues but have yet to find a grip on the situation; the content is more often than not available for free through peer to peer networks therefore a large part of the incentive to go to a shop and buy a cd or film has vanished. As we are digitizing vast amounts of audio-visual cultural heritage we are facing the same questions: what models can be developed that fulfill the need for broad accessibility for the public while securing a solid return on investment for owners of the material (authors, producers, directors, etc).
Some, like Chris Anderson in his soon to be released new bookâ€™ Freeâ€™ build an entire economic theory based on the notion that freeâ€™ will be the leading model for media due to the vanishing marginal costs of distribution via the internet. The new model that rises from the ashes will be a model where the content or service is free, at least for the user. Google of course is a great example of a company that has turned â€˜freeâ€™ to itâ€™s advantage; the service is free to users while advertisers are the paying customers. At the core a beautiful system as the more you use the service the more revenue it generates for the service provider. Keeping the attention of the viewer is key in the â€˜economy of abundanceâ€™, so you better make sure the service you develop is so appealing that users get hooked on it. In fact, if this becomes the case, there may be an opportunity to upsell them from freeloaders to paying customers by adding a an additional layer of services or privileges. This freemium model (term coined by venture capitalist Fred Wilson) has quickly become the leading model for web 2.0 companies like Flicrk and Linkedin. Interesting fact is that the rule of thumb is that the 1% of paying users supports the rest.
The crux of developing business models in this economy of abundance, where content is free, seems to be to tap into values that people are willing to pay for. And those values may not be the same as in the old days where content was king. Kevin Kelly calls them â€˜generativesâ€™:
â€˜â€™A generative value is a quality or attribute that must be generated, grown, cultivated, nurtured. A generative thing can not be copied, cloned, faked, replicated, counterfeited, or reproduced. It is generated uniquely, in place, over time. In the digital arena, generative qualities add value to free copies, and therefore are something that can be sold.” Think â€˜trustâ€™ or â€˜personalisationâ€™. In his blog â€˜Better than freeâ€™ Kevin distiguishes eight of them.
So how does this translate to our audiovisual digitization adventure? Will the specific characteristics of cultural heritage lend itself to open content models like advertisements (google just released a beta service of video advertisements: Adsense for Video ), Freemium services or even community supported businessmodels?
We are hosting a workshop on this topic during the Economies of the Commons conference on saturday April 12 2008 in Amsterdam to investigate the options.