Wednesday, May 4, 2011

How To Profit If Your Main Product Is Free

Connectivism has the answer.

Mike Masnick's TechDirt eloquently puts it in an elegant equation:

CwF + RtB = $$$


Connect with Fans and give them a Reason to Buy
This business model has proven to be viable in the past few years with Radiohead spearheading the informal, collective and revolutionary movement. Amidst the continued defensive thrashing of the old establishments (intellectual property, monopolies, scarcity), the band consistently proves that the "fan-driven economy" is viable. 

The Internet is teeming with examples and it's a matter of time for a new post-scarcity economic theory to be formalized. I submit that the new paradigm will be based on Connectivism, which essentially solves Matt Mason's Pirate's Dilemma. Here are a few favorite examples:

1. Free gurus (blog stars): Steve Pavlina, Art of Noncomformity
2. Free songs (YouTube stars): Kina Grannis, Gabe Bondoc
3. Free games (Casual Games portals): Kongregate, y3

Free Lunch
Some commentators observed that if you are not paying for a product, then you are the product. In some ways, that is true. But, the concept of products, producers and consumers are mostly applicable in the old paradigm. In the relationship era, consumers have become co-producers, producers have become aggregators, and products are, for all intents and purposes, free. Valuation now comes from the meaning perceived by the fans that is provided by the artist/blogger/website in the form of purchasable goods or services or Reasons to Buy. Examples are exclusive consumer products like t-shirts, premium services like consulting or speaking gigs, and meaningful content like donations, subscriptions or virtual products.

Value of Relationships
The free product has become the initial spark that creates the connection. The connection is nurtured within the context of the relationship. The relationship is strengthened in time with trust and meaningful interactions. Interactions become transactional when the perceived value is monetized in the form of a book, a song or a plea for donation. The strong connection becomes a long-term access point for the transaction without the overhead costs of the old mediators.

The Answer
A haunting line from the movie Field of Dreams comes to mind, "If you build it, they will come." I never really understood what it meant until now. In the pull economy, the fans will tell you what they will pay for. So, here's the 5-step process on How To Profit If Your Main Product Is Free:

1. Create your free product. 
2. Create points of interactions.
3. Create strong relationships with your followers.
4. Find out which interactions are valuable and meaningful.
5. Monetize those interactions by upgrading them into transactions.

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