When Free Isn't Sustainable

Posted by Doug Davidoff

Apr 6, 2010 10:45:04 AM

There’s an interesting post on my friend Gini Dietrich’s blog, SPIN Sucks.  I found it and one of the comments both interesting and insightful.  It actually created a bit of a visceral response from me (you can read my comment here).

Writing about The New York Times’ plans to start charging for its digital subscriptions through Kindle (which it already does and plans on raising), and the iPad (which, apparently, it’s going to start to do); guest blogger, Nick Harrison, and a commenter put forth an idea that is commonly accepted, and inherently wrong.

The idea is that you cannot charge for information on the web.  Mr. Harrison, says, “My first reaction at the time was, if you are already losing subscriptions and advertising dollars, is actually charging for content the best strategy?”  My answer – Yes!

The commenter added: “This is an example of a company not understanding that they have to change with the times. The Internet has made nearly everything free, and people aren’t willing to go back from that.”  Outside of the fact that this isn’t true (The Wall Street Journal has been charging for content online since it started providing it), it doesn’t address the ability of a company to create a new experience worth charging for.

The reason I share this is because these thoughts are symptomatic of what is silently killing really good businesses – the idea that you cannot charge for what others are doing for free, or for less than you.

One of the first business lessons I learned (ironically from running a lemonade stand for a couple of days) was that if you charge less than it costs you to produce your products and services, you cannot make it up in volume.  If raising your prices means selling less volume, than so be it, because if you’re not making money – WHO CARES?!

The fundamental job of marketing is to create enough value so that people would be willing to pay more for something.  If all The New York Times does is charge for the same information and experience that other newspapers are giving away for free, then the author is right – it’s a bad strategy.

However, if you’ve had the opportunity to sample The New York Times’ iPad application (which I have) it will take you less than a second to realize that this is not the same experience as others.  Would I pay for it?  Yes I would.

Would everybody who reads The New York Times online pay for it?  Of course not, but who cares!  Would everybody pay for a phone that costs $600?  Hell no, but Apple made more than $1.5 billion doing it!

As I’ve been writing a lot lately, the newspaper or the information in the newspaper is the commodity.  The Internet has placed the value of that commodity (what I call the left side value) at zero. The Intelligence or Enterprise Value (what I call the right side value), however, is unlimited.

The New York Times was one of the first partners to jump in with Apple to develop meaningful applications for the new iPad, so much so that they were one of the few content providers highlighted in Steve Jobs’ announcement of the device.  I give The Times a tremendous amount of credit for their willingness to innovate and experiment.  I give them even more credit for asking people to pay for it.

Agree or disagree with The New York Times editorial slant, you cannot deny that they provide superior content and their new app provides a superior experience.  My only fear is that they won’t have the guts to stick with the plan.  Sure, maybe they’ll be smaller as a result, but I’d rather be smaller and profitable than larger and broke!

What’s the lesson for fast growth businesses?  Stop focusing on The Left Side (commodity) Value of your business and start building The Right Side Value.  If you don’t reinvent your business, some upstart in a garage will.

What do you think of The New York Times Strategy?

Topics: B2B Sales Strategy