How to compete with FREE, learning from others

In a presentation that is very relevant to the business of selling photography, Michael D. Smith, introduced by Hal Varian uncovers if and how it is possible to compete with free. He uses examples of industries that have gone through this change already and had to adapt their thinking:

The availability of digital channels for media distribution has raised several important questions for marketers, notably whether digital distribution channels will cannibalize physical sales and whether legitimate digital distribution channels will dissuade consumers from using (illegitimate) digital piracy channels. We examine these two questions using a series of “natural experiments” involving changes in the distribution of media on digital channels. Our results suggest that (1) online “free” distribution can complement legitimate purchases of media goods, (2) legitimate digital distribution channels can reduce the demand for piracy, and (3) that digital distribution is unlikely to cannibalize sales in physical channels in the short-term.

This debate is increasingly important for a photography industry that appears to be going more and more in the direction of protection, barriers and other defensive behaviour in response to external threats driven by changes in technology and attitudes.

• File sharing does not appear to hurt DVD sales
• Internet was considered almost perfect market in 1998. Information is instantaneous, fierce price competition, limited differentiation and no vanishing brand loyalty. Not all of this held up
• Differences in opinion on the role of piracy in the current digital media market: ‘You’ll never stop piracy, what you do is compete with it’ ; Steve Jobs, CEO Apple. Others disagree and think you can not compete with free.
•  Speaker believes competing with free is possible and reduces piracy
• Did music sharing service Napster become popular just because it was free or also because it was just so ‘damn easy to use’ compare to going to a shop

The presenter then goes into a number of case studies comparing increased piracy with changes in sales of the same product. It gets a bit (well…very, formulas and all) detailed here but it’s Friday and almost week-end so you may find the time. The usefulness of the video is in shaping thinking about piracy based on qualified research.

It’s an interesting talk with lots of great data. Some introduction points:

• You absolutely can compete with free.
• If you offer a convenient and reasonable offering, eve people who were getting content in an unauthorized manner, will often buy (i.e., it’s possible to turn “pirates” into buyers). That is, it’s not the “free” part that’s the driving aspect of much of their behavior, but the convenience factor.