Wednesday, May 18, 2011

The Economics Of Free

One of the guiding principles of the new economy of Music 3.0 is what's known as "the economics of free." This means that, contrary to what you might think, the more you give away, the more you sell. The concept was perfectly illustrated by Radiohead's In Rainbows album a few years ago, where the band let their fans determine the price.

Here's an excerpt from the Music 3.0 Internet Music guidebook that describes it in detail.

By allowing the customer to set the price, Radiohead exercised a new business theory called “The Economics of Free” (or EoF).  In M30, EoF encourages content owners to give some of their products away for free because, if done correctly, you can increase your market size greatly, as seen in the case of In Rainbows. Both Franz Ferdinand and Arctic Monkeys are rumored to have unofficially leaked their initial releases for just the same reason, with great results.

You can’t just start giving away your precious content without thought though. It has to be the center of a larger marketing plan.  In terms of M30, an EoF campaign means the following:

You, the artist, have two types of products: infinite products and scarce products. Infinite products would be your music, especially in digital form. Physical products like CDs don’t fit in here because it actually costs you money to produce them (the CDs, not the music on them). Digital music is easy to copy and steal, and just as easy to give away.

Your scarce products are tickets to live shows, access to musicians, signed merchandise, backstage passes, private concerts, custom CDs, CD box sets, time spent with you, writing a song for a fan willing to pay for it, and anything else that has a limited supply.

So to take advantage of the Economics of Free, the artist would:
1. Set the infinite products (or just some of them) free. Put it on your website, Facebook, Youtube and anywhere you can. The more you get it out there, the great publicity and wider the visibility.  This makes the scarce products more valuable.

2. Because of the free infinite products, you can now charge more for the scarce products. Before #1 is implemented, access to the artist or backstage passes might not be worth anything, but now they are. Before #1, maybe no one wanted your CDs, but now they’re valuable as a collectors item as are the box sets. 
Setting the infinite products free (your music) expands your tribe. As your tribe expands, the demand for your scarce products grow. In Music 3.0, an artist that sticks to the ways of Music 1.0 through 2.5 will be relegated to a small audience forever.

You can read additional excerpts from Music 3.0 at
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