This document discusses the benefits of freemium business models for digital goods like music. It argues that with digital goods, the marginal cost of additional users is zero, so the maximum reach can be achieved by offering the goods for free. It also notes that information wants to be free on the internet, so free copies will exist regardless, and companies need to focus on converting free users to paying customers. The document provides examples of how musicians can use different tiers of both free and paid content and services to build their brands and fan bases while still generating revenue.

1. Free and Freemium
Stefan Peter Roos
twitter.com/spr2

2. Stefan Peter Roos
twitter.com/spr2
economist, web strategist, online business
consultant, proud music, entrepreneur,
speaker, music publisher, brainfood
specialist...whatever

3. Please note: These slides were used in my
talk at All2gether Now conference, Berlin
2010 as outline, so the explanation/context
is unfortunately missing, if you did not
attend!
www.a-2-n.de

4. Why Freemium?
Why giving away
your product
FOR FREE?

5. Digital Goods:
Only First Copy Cost
Marginal Cost=0
No Rivalry in consumption
Exclusion of free riders difficult

6. From
Scarcity Economy
to
Abundance Economy

7. Attention Economy:
Wealth of Information
=
Poverty of Attention
(and a need to allocate that attention)

8. Attention Economy:
Money follows
Attention

9. Digital Goods:
Value determined
AFTER consumption!

10. Assumption 1:
You can only sell to
people who see your
value!

11. Assumption 2:
more new content than ever
The largest back catalogue
in history
Just one click away!
(illegally&legally)

12. This is a permanent
change!
I'm sorry ;)

13. Well,
not really sorry!

14. Still true:
Lowest possible
price
=
Marginal Cost of an
additional unit

15. Free
=
Maximum Reach

16. Assumption 3:
If something can be
provided for free
someone will do it!

17. Information wants to
be free
=> there will be free
copies anyway

18. Music Industry was
the Canary in the
coal mine
=> video, news,
books etc. will be
next

19. This is not a
problem,
if you sell something,
that cannot be
copied!

20. Simple Model:
x*C*S=Revenue
x=Reach/Attention
C=Conversion Rate
S=Average Revenue/Fan

21. x*C*S=Revenue
Attention

you generate (paid)

through sharing (free)

Social Recommendation (free)

Derived (fan) Content (free)

22. x*C*S=Revenue
Conversion Rate

Brand

Emotion

Loyalty

Artist History

...

23. x*C*S=Revenue
Average Revenue/Fan

Direct Relationship

1000 Fan Model

Product Diversity

Recurring Payments

Royalties through Fan Activity

24. Mike Masnick:
Connect with Fans
+ Reason to Buy
= Artist Revenue

25. What are the
building blocks
for a business
model?

26. Sunscreen Song...
(Baz Luhrmann)
If I could offer you only one tip for the future,
freemium would be it. The long term benefits of freemium
have been proved by scientists, whereas the rest of my
advice has no basis more reliable than my own meandering
Experience…
I will dispense this advice now.

27. Use many different
blocks to a well-
balanced mix!

28. Free is giving you
reach!

29. Being a Brand
gives you
Monopolistic
Competition

30. Stop thinking
Files/Units!
Stop thinking
Records!

31. Become an IT
company!
Access to Music is a
software service

32. Be the center of a
Community!
Let fans interact
through your service!

33. Embrace Read/Write
Culture!
Everything will be
Read/Write
from now on!

34. Create positive
Attention & Viral
Loops!

35. Create frequent
Touch Points for
Fans
(not just a release)

36. Learn to connect
with your fans!
Practise!

37. Have a product on
every price level!

38. casual flattr
Live events
NIN-Boxsets
Fan-Meet&Greet-
Weekends
Crowd Funding

39. Be damn good at
what you do!
Stand up to the plethora of
world class entertainment
one click away!

40. Music itself is hard
to innovate
nowadays

41. Better innovate in
Image, Show,
Packaging, Intimacy,
Channel

42. Recorded Music is
just the beginning,
not the end

43. Get used to new thinking:
Audio Only might
(eventually) die.
Fotos may die too!

44. Keep the mystery!
Do not twitter like your
buddy next door!

45. Be better than free!
(Kevin Kelly):
1. Immediacy 5. Accessibility
2. Personalization 6. Embodiment
3. Interpretation 7. Patronage
4. Authenticity 8. Findability

46. Sell something that
cannot be copied

47. Uniqueness – or
Keep fan switch cost
in mind

48. Everything atomizes
=> Forget Album
=> Track
=> Elements

49. Most want access,
hardcore fans might
want to own sth. of
emotional value

50. Different levels of
involvedness: It's
about emotion

51. More Music Business
– less Music Industry

52. The Time is now –
Music for the People,
not Records!

53. Markets are
Conversions!
Read the Cluetrain Manifesto
(again)!

54. What to take
home?

55. Most ideas have
been tried out before
but:

56. without easy
payment

57. with strings
attached
(DRM)

58. without instant
mobile access

59. not yet in a lean-
back situation

60. without bandwith
for HD Video &
great sound

61. without social
recommendation /
sharing culture

62. without the
internet usage /
number of pot.
Fans of today

63. The original Napster may have been the
greatest music loving community
- remember browsing everyones harddrive
- nice instant illegal access
- pure music, no strings attached
- state of bliss
=> let's try again, but this
time legally, with payment
for artists involved

64. Thank you!
Get in touch:
www.proudmusiclibrary.com www.proudsourcing.de
Stefan Peter Roos
twitter.com/spr2