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Providers and customers in a world of free beers

18 December 2006 by Ch. Tronche | Filed under Economics.

Like it or not, the economy of the “free stuff” is growing, and this is only the beginning. People (like the music and movie industries) are in to jump from their old economic models to the next one. Others, like the daily newspapers, are standing up on their surf boards already, riding the wave of the 21st century economy. The difference may be what both camps call a “provider” or a “customer”…

Producing a daily newspaper is a damned costly operation. You must buy news material from the news agencies, like AFP or AP. You need a, generally paid, team to at least fill the electronic page templates, may be a few people to add some text of your own, and a lot of fancy graphics (people love fancy graphics). And you must do it every day.

And these are only the fixed costs, but printing every page of paper has a cost too, so every page the people in the street will read, you, the newspaper maker, have to pay at some point. And there are the usual costs: distribution (paper weight much), a bit of advertising, and the administrative costs, because at that point you need an accountant to keep track of all these silly bills.

Last but not least, you must do it every single day. If one day you’re out of material, or someone on your team is sick, or the damned internet connection to the news agencies is down, you can’t pull off last year’s issue from the drawer. There’s no “back catalog” in the news world. News have to be new.

In contrast, music edition (digitally distributed) is heaven: you still have huge fixed costs to find new artists and produce news records, but distribution costs nothing, digital delivery is paid for by ISPs. If you’re one week late, it’s not the end of the world, and if all these shouting long-hair post-hippie egomaniac bands suck this year, you still can have a new edition of this real artist from your early years. Boy, there was music at this time.
So the newspaper business looks rather scary, doesn’t it ? How do you get money for your expenses ?

In the past, that was quite easy: the people reading the newspaper paid for it. They were the customers, asking for news every day, willing to pay for it. You were buying from the news agencies, the printer, etc… They were your providers.

At some point, so many people are reading your newspaper that you’ve built a privileged place. Advertisers are ready to pay to get to it, and what you get is a new source of revenues.

Now, free newspapers are flourishing at the point the paid newspapers are on the decline. What happened ?

In the “free” (not reader-paid) newspaper world, the ones who are willing to give you money in exchange of something you can provide are the advertisers. They’re your customers. The people in the streets reading your newspaper are a necessary mean of your business. Without them reading your stuff in vast numbers, no advertiser would agree to buy pages from you. To secure these people readership, you have to pay them. Not with money, but with a free, good-quality newspaper. You need something from your readers, and you’re willing to spend money to get it, thus they’re your providers.

This is what the economy of the “free” is about. The customer / provider relation is turned upside-down, and you’ve to understand that what you used to call your customer you must now consider your provider. And people in the street have clearly told their preferences with their feet: they go to the free stuff, not the paid one, so the scheme is very likely to be replicated with other goods.

When your former customers aren’t willing to pay any more for your goods or services, and thus are no more your customers, there’s only one question left for you: who’s my next customer ?


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