If Your Content is Monetizable, You Might Have a Shot at the Free Model

There’s no such thing as Free. There is always a catch.

Malcolm Gladwell wrote a very provocative piece on The New Yorker about Wired’s Editor In Chief Chris Anderson’s book about the Free model:  ”Free: The Future of a Radical Price“.

In the article, Gladwell critizices Anderson’s ideas, specifically applied to YouTube’s case:

When you let people upload and download as many videos as they want, lots of them will take you up on the offer. That’s the magic of Free psychology: an estimated seventy-five billion videos will be served up by YouTube this year. Although the magic of Free technology means that the cost of serving up each video is “close enough to free to round down,” “close enough to free” multiplied by seventy-five billion is still a very large number.

In another section, Gladwell talks specifically about his world: journalism. Anderson writes on his book: “If so, leveraging the Free—paying people to get other people to write for non-monetary rewards—may not be the enemy of professional journalists. Instead, it may be their salvation”, to which Gladwell responds:

It is not entirely clear what distinction is being marked between “paying people to get other people to write” and paying people to write. If you can afford to pay someone to get other people to write, why can’t you pay people to write?

Anderson quickly replied to Gladwell on Wired’s blog with a provoking post: “Dear Malcolm: Why so threatened?“:

So that’s the difference between “paying people to write” and “paying people to get other people to write”. Somewhere down the chain, the incentives go from monetary to nonmonetary (attention, reputation, expression, etc).

Let me stop there and try to bring you a better level where we can start this conversation.

I was one of the many people who loved the web application “I Want Sandy“. I thought it was better than the other “Remember the Milk” free applications out there.

The problem was that “I Want Sandy” was completly free. It closed shop on December of last year. Rael Dornfest, the creator of the application, accepted a fulltime job with Twitter. So, it was clear after this that Mr. Dornfest had one thought in his mind when he created Sandy: he wanted to attract a buyer and didn’t care what happened with his creation. He made money from the free service by selling the application.

But what about the users? They were left with a sour taste in their mouth. Of course, we shouldn’t be complaining, we were getting it for free. It was probably losing money anyhow as it had no ads and no paid plan.

Sandy is what we could call a platform service.

Now let’s take a completely different case: YouTube. YouTube is also free. It isn’t being monetized because the only way to monetize it is to put ads against the videos. But no advertiser wants to put their ads next to an exploding frog. Not by a long shot.

But if you think Google snatched YouTube to make money out of it –at least at the beginning– you’re completely wrong. They got it because it was the leading video service and because it was a stock-only transaction, it was profitable immediately after they saw a sharp increase of its stock value after the purchase. So Google made money and users don’t pay a dime. Yet.

YouTube is what I call a content service.

As you can see from the above, even though both services are free, there was a business benefit for both parties (the developer in the first case, the buyer in the second).

Most web applications can be divided into one of these two types: content or platform services.

A blog or a newspaper is a content service. They are generally sustained by advertising and the likelihood of being sustained by subscription is directly related to the uniqueness and value of their content. The Wall Street Journal is an often cited example of people paying for content. Om Malik also has a premium blog with subscription fees.

Most of us bloggers, of course, don’t fall into the business side of things. Most of us have a paying job and we have a blog for different reasons. Some because of the visibility value it gives us in our professional fields. Others sell books or offer speaking engagements or consulting (I talk in depth about this in my post “7 Tips to Make your Blog Profitable“).

But a blog is far easier to maintain without any revenue when it doesn’t have other major costs like server infrastructure or bandwidth. The burn rate is something you have to have a clear eye on. The moment you start getting millions of pageviews and your hosting costs skyrocket, what are you going to do? You would lose a great opportunity if you closed the blog. You can try to put ads against it, but most of the times the advertising CPM’s are not that good.

Unless your content is monetizable.

I’ve been around the web for a bit and I have seen the eCPM rates of many companies. You wouldn’t believe the ad rates that content sites that have when they have product information as their main focus. People visiting these sites come usually after doing a search and are highly interested in purchasing, so the ads are clicked a lot and advertiser pay a lot of money for each click.

On the other side of the spectrum platform applications, like Facebook and Twitter, have very low opportunities to monetize the content, because the ad serving technology can’t make good matches between its content and its advertisers. Come to think about it, YouTube falls into this category as well (YouTube is, at heart, a video sharing social platform).

That is why a blog like Dooce can be very profitable. She gets about 5 -6 million page views, her content is monetizable (high-quality and mom-related) and her cost is just her writing time.

If your blog is about your love for video games, you can make money out of it if it does become succesful. If you write about your struggles in love, not so much.

Of course you should write about what you want. There are non-monetary benefits to blogging. But if you are looking towards making your blogging (or your platform app) a business income, it pays off to start with content that can be easily matched by advertising engines.

Going forward, it’s clear that YouTube must find a way to sustain its operations. Credit Suisse estimated that YouTube will lose close to half a billion dollars this year. Google can’t sustain a hole this big forever.

Facebook on the other hand knows where the future of its revenue streams will come from: User data. All that information about your interests and your relationships is going to be monetized by Facebook, as long as it walks the clear line between being Big-Brotherish and useful.

I believe when Anderson writes about “paying people to make other people write” he refers to application services like Facebook. But there’s no chance of doing any business out of that, if the content is not monetizable. Newspapers are content, but their content is more and more the same as many other content providers (including bloggers), so I think their only chance to survive is to reduce the footprint and keep only those writers who make their content unique. The rest will be swallowed by platform services like Yelp and other “Citizen Journalism” sites.

Photo by Brad Stabler

More info: Fred Wilson talks about freemium (make sure to read the comments on the post, they’re really good). Om Malik says “Free: a Tactic, not a Business Model“. Seth Godin also chimes in.