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Why There Really is No Free Lunch in Media or Marketing

2012 September 26

There is something intuitively immoral about free stuff. After all, we were raised to respect a good days work for a good day’s pay, so there is something about the concept of not paying for things that’s a bit unsettling.

On the other hand, we all like to be a little naughty, so when we hear that we can get something for nothing, our ears prick up.  Not surprisingly, Wired editor Chris Anderson’s book, Free, which advocated a no-fee business model, became an instant bestseller.

Yet upon closer inspection, we find that nothing is really free.  Somebody always pays. Even Anderson’s book never suggested that people wouldn’t pay, but merely observed that the onward march of technology creates a shift in value and that, in turn, transforms business models.  In fact, “free” just means that there are more ways to get paid.

Free Content

I’ve been pretty vocal about my views concerning free vs. paid content.  Basically, I think that for all of the hoopla and handwringing, it is a non issue for three reasons.

First, in most countries (i.e. ones where TV has less than 50% share of the ad market) print media don’t earn profits from distribution (magazines subsidize up to 90% of copy sales).  Why whine about money you never had?

The second is what I call media’s golden rule: advertisers will pay more for consumers than consumers will pay for content.

The third reason, which in truth was Anderson’s underlying thesis of the free business model, is that when marginal costs fall to zero you can expect prices to follow.

Some like to point out the apparent success of The New York Times paywall, but I am unimpressed.  While it’s unsurprising that a stellar brand like the NY Times can sell a lot of subscriptions, that accomplishment isn’t helping to grow their business.  In fact, digital ad sales are falling, so the subscription revenue gained achieves nothing.

So, in the end, free content isn’t really free.  There are real revenues on the table and the really interesting opportunity is that there are increasingly clever ways to earn them, from affiliate programs to branded content to a bunch of stuff we don’t even know about yet.

Social Media Marketing

Another “free” red herring is social media marketing.  While social is indeed quickly becoming an integral part of every serious marketing effort and has played an important role in identifying the importance of advocacy, it is far from free.

As I’ve pointed out before, social media takes an enormous amount of time and effort. Not only is it extremely labor intensive, but even a successful effort takes years to gather steam. Moreover, there is little evidence that it works on its own.  Notably, the most highly successful social media brands maintain heavy TV spending.

Further, successful social media requires the development of new capabilities.   Beyond community management proficiency, publishing skills need to be greatly improved and progress in this area has been almost nonexistent.  Without compelling content, any social media effort is bound to fall flat.

Creating these new competencies requires significant investment.  Social media marketing, for all of its charms, is far from free.

Crowdsourced Content

Ever since Doritos crowdsourced it’s Super Bowl ad, marketers have been over the moon about being able to procure high quality content for free.  Why pay high priced creative agencies when you can get the general public to do it for nothing?

Since then, a new breed of agency has emerged.  Companies like Victors and Spoils and Poptent that specialize in creating crowdsourced ads as well as longer form content are disrupting traditional ad agencies.  But look a little closer and it becomes clear that what they are offering isn’t free either.

First of all, the crowdsourcing firms are paid for their involvement and they, in turn, hire professionals to do the creative work.  Secondly, the cost savings come not from getting anonymous people to work for free, but by leveraging digital technology to eliminate organizational and overhead costs.

That’s a crucial point.  Top-level ad executives cost hundreds of dollars an hour.  Put a bunch of them in a room together and they can argue and pontificate all day, billing thousands of dollars in the process.  So while crowdsourcing isn’t free, it can help eliminate a lot of money wasted on useless meetings.

Arbitrage Opportunities

One exception to the “no free lunch” rule is arbitrage.  When new opportunities arise, the market routinely misprices them.

For example, in developing markets TV is often much cheaper than it should be, allowing smart marketers (like me) to build brand equity for pennies on the dollar.  Eventually the imbalances disappear, but in the early stages a little arbitrage can be enormously profitable.  Similar situations occur when technology enables new practices.

In the past, marketers often complained that they would prefer to pay only for results (i.e. cost-per-action or CPA) rather than for audience (i.e. cost per thousand or CPM).  Once publishers started offering CPA campaigns, the gap quickly closed and now marketers with aggressive big data programs find they can buy more efficiently through CPM.

However, affiliate programs, which are roughly equivalent to cost per action campaigns, cost up to 25 times less than either.  While we can expect this gap to narrow in the years to come, it’s there now and it’s very real.

Changing the Basis of Competition

So while there is truly no free lunch in marketing, there is a substantial shift in marketing paradigms and that does create valuable opportunities.  Technology does not simply increase capabilities; it creates value in some places even as it diminishes value in others.

It used to be that to watch entertainment in video, you’d have to go to a movie theater.  TV changed that and devalued ticket takers, but pushed the salaries of Hollywood stars into the stratosphere, put the ad industry into high gear and helped create the consumer culture.

If history is any guide, value will continue to shift.  The past few years we have seen media become more social, local and mobile, in the next few years a new digital battlefield will emerge both at home and in-store, the major difference being that these changes will happen faster and be more far reaching than those that came before.

So, despite what some people may tell you, there is no free lunch.  What’s emerging is an entirely new buffet.

– Greg

8 Responses
  1. September 26, 2012

    My first start-up was a real business. My current company is a real business. One that people will want to pay a little for. Some of those Web site Toys passing themselves off as start-ups are merely VCs trying to make money and dump their 1 out of ten “hits” onto the little old ladies, aka Wall Street.

    Greg Reply:

    Good luck with disrupting the broadcast industry Robin!

    – Greg

    Robin Solis Reply:

    Haha, thanks, Someone has to do it…Now!

    Robin Solis Reply:

    Hey Greg! We’re doing it. But, it’s not really “disrupting” (I’ve learned this from my readings from smart people like you) but rather, we offer a strategy and implement sustaining innovation to the broadcast industry and enabling greater productivity, connectivity, transparency. These comments were made during our Alpha year when we had only one client. Now, 3 years after our official launch, we now deliver direct to air >315,000 radio spots and 57,000 hours of programming per month (October 2016). Steady progress is enough for any industry can handle.

  2. October 1, 2012

    Most of us were brought up expecting presents – from Santa and the tooth fairy in the first few years.

    If it doesn’t have a “price” then many will think what they receive is free

    Greg Reply:

    or possibly priceless?

    🙂

    – Greg

  3. October 2, 2012

    Greg, even in the time of (Anderson’s) free, nothing was free. “Free” was a calculated strategy to undercut and disrupt the legacy businesses and to take over their markets. Same with “social” – a strategy to take over mass audiences and then start to monetize them.

    In a couple years nothing will be free again. But there will be a host of new corporations (some of them are already there: Google, Facebook, Twitter…) making billions by charging their users for access and/or visibility on the Net — users and market they captured using the strategy of free.

    Greg Reply:

    Time will tell:-)

    – Greg

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