Free is for Users, not Publishers

by Krishna on July 8, 2009

There has been much debate recently about what free means (see Anderson, Gladwell, Godin, Cuban, ShafeenYglesias, etc.) and the meaning of GPL vis-a-vis WordPress (Mullenweg, Jalkut, King, etc.) The primary question is, does a business benefit by allowing consumers to use its products (software or information) for free and, in the case of GPL, allow its products to be re-published under a free license?

My answer is: In terms of direct business benefit, generally “No” and sometimes “Yes”. The main beneficiaries of “Free” are consumers. Instead of paying for something, they get it for free now, the cost being subsidized by advertisers or other products of the vendor. In some cases, the cost is written off by the investors. “Free” only means no cost to one party in the transaction, it doesn’t mean that there are no costs per se. Somebody is incurring them and is either profiting via other means or losing money.

So, the question is, if you are a producer, how do you profit by giving away your product for free? At the moment you stop charging, you lose the revenue from product sales. So you only benefit by making more money via other means than you have lost by forgoing direct sales. GPL introduces a different complexity — you can still continue to charge for your products, but there is nothing stopping anyone from making unlimited copies of your software and re-distributing them for free or for a fee, perhaps not sporting, but legal under the GPL. Once again, can you make up for the reduction in revenues?

It is possible. The idea is that by making your content free, you reduce friction for your consumers and buyers. There will be more consumers of your content if it is not hidden behind a subscription wall. A GPL-based product is more attractive to users who can modify it for their needs without depending on you. You will gain more publicity and can drive traffic to sell other products that are not free.

But what if everyone does the same? What if all news were free? What if every software product was under the GPL? Suddenly, there is no special advantage being free. “Free” is therefore only a marketing tactic. And other free competition can erode that advantage.

The other rules of the marketplace also apply in “free”. “Free” removes the problem of cost from consumer consideration, but it does not solve time constraints, inertia, network effects, etc. For example, we often hear about the GPL success stories of Linux and mySQL. But there are other GPL operating systems and database applications. Why are they not successful? The reason is that the success of Linux has ensured that other free operating systems do not find the same success.

Take a look at WordPress. It has been extremely successful under the GPL. But no other blogging engine licensed under the GPL can replicate WordPress’s success. WordPress has built a huge eco-system (themes, plugins, etc.) around it that no other GPL blogging product can replicate. This is not to trash WordPress in any way (it is a great product).

Essentially, what this means is that the products in any space that benefit from a GPL license will drive out other GPL products in the same space. Similarly, the websites that benefit from giving away their products/information for free will drive out other such free sites. “Free” can allow you to gain a competitive advantage only for so long, because it can be imitated, so you must drive home your advantage while you can.

In some industries (such as news), there is no alternative to free. But it doesn’t mean that every news outlet which becomes free will be successful. Likewise, giving away your products for free or open-sourcing your product doesn’t guarantee success. It is generally beneficial to consumers, but not necessarily the producers.

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