free-sharing

03 Aug How do you make money when everything is going free?

Every business faces a very real challenge, either now or within a few years. Everything is available for free. Digital files are easy to share. And people WILL share those files, even if they are protected by copyright. Digital files are easily reproduced with no extra cost. The music industry has already found this out in very painful ways.  They fought its customers and came out badly. In 1999 the annual revenue of the recorded music industry was over $14 billion. By 2009, it had fallen to $6 billion, a loss of over $8 billion in annual revenue.

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The game industry knows this, as does the book industry. Photographers, artists, copywriters, and anyone who uses creativity on their work is at risk. Free medical and legal advice abounds. Programs like Wix, Weebly, and SquareSpace allow you to create a website for free, so my business is certainly at risk. Free software and websites have already changed complete industries like travel agents. Service industries have been affected by DIY YouTube videos and online instruction.

Think you are immune because you make a physical product? As 3D printing and digital manufacturing become a reality, industries which thought they were immune will face the challenges of easy file sharing and casual piracy. This will affect even the basics of food, clothing, and shelter. Over time, entrepreneurs will figure out ways to lower the price and improve the quality to make all products and services easily accessible to the ordinary consumer. That movement is already in place and that day is coming.

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Free is everywhere, and this will only continue to expand. Why should anyone pay for professional services anymore? And what can you do about it in your business?

There is some good news – the same technology that enables files to be shared easily also offers unprecedented opportunities to build one-to-one relationships with your customers. The web enables businesses to share what they do at very low cost while building relationships with their customers, some of whom will spend large amounts of money with you. How you choose to respond to this opportunity will determine how you fare in the free economy. There are two approaches you can take:

  1. Denial is the approach favored by many. When you have a business that has made money over many years, accepting that the revenue streams you relied on are drying up is hard to accept. The natural response is to fight – often through litigation or lobbying. This not only becomes costly, but in the long run, technology will still win.
  2. The alternative is to embrace the changes and figure out how to take advantage of the opportunities provided to connect with the people who love what we do. Nicholas Lovell discusses this in his book, The Curve. In this he says that people think “I deserve to get paid for their work”. Yet he asserts that you don’t. You can’t make people start valuing your content again – it won’t happen.

Free does not have to mean no revenues. Here are some of the ways you can embrace these changes:

Use free to find an audience. In my book, Amazon’s Dirty Little Secrets, the second point in the POWER formula that I discuss is “Offer Something for Free”.  One of the things you must understand is that it can’t be a Crackerjack prize – it must be something of real value. And the reason is that your competitors are already doing this – free is becoming ubiquitous and in order to gain customers, you must compete in the free arena.

Forget the mass market. I attended a webinar recently that was all about how you should not sell information. While many people still try to do this, the Internet has made information free. Instead, you should adopt the information to create something unique (or at least as perceived as personal) to address the individual concerns of your customers. Think about Average Revenue Per User (ARPU) instead of units sold. With the free digital economy, you may have fewer customers, but each customer might be more valuable than in the past. Your most enthusiastic fans are likely to bring you the most revenue. Musicians who give away their music are finding that they can sell lots of paraphernalia such as t-shirts and posters to their super fans. Speakers often speak for free in exchange for selling products in the back of the room. Let those who love what you do spend lots of money on the things they truly value.

Leverage your free loaders through advertisements or by charging other businesses for access to your audience. If you gain a large enough audience, a few of them will become your customers. The other 98 percent may never give you any money, but if they like what you provide with your free digital content, you can use them by giving other businesses access to them. The old sage of “the money is in the list”, still applies.

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Finally, remember – you don’t have to be free. Just because something can be shared easily doesn’t mean you can’t charge. This is not a matter of piracy, but competition. Think creatively – how can you offer something of value that your free competitors cannot. What are you going to sell for 10x or 100x the previous average price?

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