Friday, March 5, 2010

Why Ira Glass and Rupert Murdoch agree

Recently, Ira Glass encouraged membership to public radio stations by asking existing members to "out" friends who listen to public radio but are not members.  After identifying these free-riders, Ira called them on-air to ask them to pledge.  Of course, the "out-ed" non-member quickly signed up.  After all, who wants to be publicly chastised by Ira Glass on the radio?

After talking to one such victim who was a graduate student, Ira reported that the person told him off-air that, "as a member of the YouTube generation, I just don't expect to have to pay."   Ira commented that things like public radio take considerable sums of money to operate, and therefore, people should not expect such a good thing to be free.

I was struck by this sentiment - "I just don't expect to have to pay".  After nearly a decade and a half of online businesses that give away products for free, a whole generation of online users simply don't think about having to pay for things that they use.  Of course, the business argument is that advertising dollars will pay for the "free" usage of the service.  However, as I described previously, most businesses do not generate enough advertising revenue to cover their operating cost.  Advertisers want massive collections of targeted people.  They don't care about your 500,000 monthly unique users who generate 5 million page views per month.  (Because at a $1 CPM, your 5M page views is $5,000 - which is not enough to warrant any discussion within a $20M ad budget.)  But I don't want to beat a dead horse. 

What really struck me in Ira Glass' piece was the clear concise expression of a general feeling that permeates so many people.  Thanks to the VC-fueled, pie-in-the-sky businesses of the past decade, we now have a whole generation of users who not only do not pay for things online, they don't expect to pay.  It's as if the business community purposefully trained consumers to do the exact wrong thing (not pay).  Moreover, they were so successful that people now don't even consider that that behavior (not paying) is completely antithetical to long term sustainable business (for the majority of businesses).

In fact, some luminaries like Chris Anderson even trumpet not paying as the future of business.  I definitely think that there are many benefits to the model that Anderson proposes.  Freemium is a great way to attract users and build a business.  But, I think that there's an fundamental challenge that is not being addressed in that concept. 

When the potential user base expects to never pay for the service, how can you create sustainability?  Anderson's argument is that people will pay for things that bring them value.  So, businesses need to provide a "free taste" for consumers in order to allow consumers to decide if they really like it.  Kind of like a test drive.  But, how are businesses to respond when users expect that the test drive isn't just a "test"?  In fact, the YouTube generation expects that the "test" just keeps going on and on.  There's no point at which you must pay for the service or product.

Rupert Murdoch, the gregarious owner of various media outlets, has been complaining for a while that people are not willing to pay for news online.  Even last year, he was agitating to find new ways to monetize his online news empire.  To my knowledge, he has not yet been successful in actually charging for his content, but he's working on it.  Just like many public radio listeners, most online news consumers expect that the online news is free.  Who needs to pay when you can get the Reuters or AP article at no charge from Google, or NY Times, or some local newspaper online?  But if no one pays, then how can those reporters continue to draw salary?  Just Ira Glass' public radio challenge, Rupert bemoans the problem of expectations of free service.

What I find amazing is that so few people are publicly talking about this problem.  As someone who works online, I think we have a serious long-term problem to tackle.  We need to educate the YouTube generation that valuable products and services cost money.  Occasionally, that cost will be defrayed by advertisers, but more often than not, the consumer needs to pay.  It took a decade to create this expectation of everything for free.  It might take a decade or more to reverse it.  But, the more people talk about it, the faster it will happen.  And the more times disparate voices like Ira Glass and Rupert Murdoch agree (on anything), the more carefully we should consider how to run our businesses and how we should behave as online consumers.

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