The Swiss town of Montreux is beautiful in January. Hugging the shores of Lake Geneva, the town nestles between the icy waters of the lake and the soaring peaks of the Alps. It has a sleepy feel, with visitors sipping sunset cocktails as the last rays disappear across the lake. It’s a place where James Bond would feel very much at home.*
In 2013 I was in Montreux as the guest of MPI, the trade association for everyone involved in the events industry. Their annual peripatetic conference for European members had settled in Switzerland, and I was there to talk about how the Curve will affect their industry. I was introduced to the audience by an announcer who had the kind of voice usually associated with the movie trailer for a Hollywood blockbuster or perhaps introducing acts on The X Factor. A blast of jingle, a starburst of brightly coloured lights and I was on.
I wasn’t sure what to expect. The Curve is about what happens to things that can be shared digitally when it becomes incredibly cheap to do that sharing. If there is one thing that is true about events, it is that they are not digital in nature. Watching a live stream of a conference is not the same as sitting in the auditorium. Chatting to someone in the live chat alongside the live stream is not the same as standing in the queue for ropy coffee† or lukewarm tea.‡ Exchanging a handshake and a business card cements you in someone’s mind more firmly than an email or, worse, a cold-call LinkedIn request. Events ought to be insulated from the pressures that make harnessing the Curve so urgent for people who used to sell access to content for a living. In fact, shouldn’t events be beneficiaries of this transition? As people get used to having information for free, then they should value even more the new scarcities, such as one-to-one time with leaders in their field.
The problem, as always, lies in the laws of economics. The events industry is not insulated from the changes because its competitors are not insulated. Magazine publishers, desperate for new sources of revenue, see events as something which not even the most determined digital pirate can copy.* Content publishers who understand the Curve are busy trying to create events that will replace the revenue streams that are disappearing as digital dimes replace physical dollars in advertising and as the competitive environment erodes margins and the customer’s willingness to pay for basic access to content. The events industry doesn’t need to fear digital transition directly, but it does need to fear the competition that will move into its heartland in search of ways to make money from connecting with fans.
In a fifteen-minute ‘flashpoint’ and a sixty-minute ‘masterclass’, I took several hundred event professionals through the key concepts of the Curve. I introduced them to Robert Wadlow, Chandra Dangi and the tyranny of the physical. I showed them how everything changes - particularly the average – when you move into the digital realm. I told them about Trent Reznor’s success with high value physical artefacts and how NimbleBit created a game where players were happy to spend $30 or more to make their virtual frogs grow up faster. I introduced them to the handicap principle, the bowerbird and the variable demand curve and I explained why a million South Koreans were prepared to pay a dollar for a Santa hat in a racing game. I told them that they needed to make it possible for people who love what they do to spend lots of money on things they truly value. I showed them that ‘free’ is a marketing opportunity while the top end of the Curve is a revenue opportunity. Then I asked them to spend ten minutes thinking of all the ways they could harness the Curve to improve their business.
Their top answer? Charge delegates to their events extra money to sit at a lunch table with keynote speakers. The issue with this suggestion is that it only addresses one end of the Curve – the expensive end – without tackling the issues of how to work with free and how to move customers along the demand curve over time.
It was fantastic to have an engaged, intelligent audience run through the issues with the Curve and as a result of that session, and many other discussions with a wide range of smart people, I have concluded that harnessing the Curve involves three distinct areas:
Free: How do you get customers to know about, care about and engage with what you do?
Expensive: How do you make it possible for people who love what you do to spend lots of money on things they truly value?
Everything in between: What products, services, skills and technology do you need to move people from one end of the Curve to the other?
To many readers of the book, understanding the free end of the Curve might seem like a no-brainer. Free is the enemy of your existing way of doing things, taking things that customers in their millions used to be happy to pay for and making them now expect to get things of the same quality without paying for them. It seems like it is the enemy of books and music and movies and games. The key question seems to be not ‘How do I create something that I can give away for free?’ but instead ‘How can I stop giving away stuff that is expensive to create and instead charge for it?’ For many others, though, free is difficult. If you run events, or sell software-as-a-service, or make tractors, how does free help you?
The important answer to that question is that free is not an objective in its own right. It is about creating something that has value to your customers so that they start a dialogue with you. From that dialogue can come a relationship. Having a relationship is critical to moving people along the demand curve. A current buzzword that reflects this thinking is ‘content marketing’, a phrase that, alongside ‘big data’ and ‘responsive design’, is becoming rapidly overused. Content marketing is best understood and used as part of the process of harnessing the Curve, rather than as a technique in isolation. To anyone thinking about improving their business using the Curve, whether their business is a content business or not, understanding content marketing is important. It is also getting harder.
Five years ago, marketing agencies wanting to add a bit of spice to a client campaign might suggest making a free ‘advergame’. Advergames were typically programmed in Flash, played in a web browser like Internet Explorer or Firefox and cost little to make. They were rarely any good. They weren’t bad because the digital agencies who were commissioned to make them didn’t understand games – although many didn’t – but because the budget and timescales they had to work to made it impossible to make a good game. That was all right, though, because the game was free, while most other games that people could play – on consoles, as casual downloads or on their phones – were expensive, typically costing anywhere from $5 to $50. As you now know, that changed as games on Facebook, smartphones and browsers became high-quality, free experiences that allowed users to spend at all points on the demand curve from zero to bucketloads. Those games are reaching very high levels of quality, as seen by titles like farming simulator Hay Day, strategy game Clash of Clans or endless runner Temple Run. Not only are these games free to download, but their creators pay enormous sums of money to persuade users to install them. Marketing services company Fiksu estimates that the cost of acquiring a loyal user, defined as someone who opens an app three times or more, reached $1.67 in December 2012, and remained above one dollar for the whole year.1
With rivals paying out substantial sums to acquire customers for their free titles, and recouping that money from those users who stick around to become loyal, spending fans, what hope do advertisers have in making cheap, disposable advergames whose primary selling point is that they are free?
The simple answer is that they have none, but many of them have not realized that yet. In the context of the Curve, content marketing makes most sense as the start of the journey. It is the beginning point of building a relationship with customers that will over time mature into a paying relationship. It is no longer good enough to put something out there and expect customers to flock to it just because it is free. There is more free content out there than any of us could possibly consume. You need to create something that resonates with your intended audience and build from there.
At the other end of the Curve, you need to have something that you can sell to people who love what you do. Something that speaks to more than just its marginal cost (particularly when it is digital, with a marginal cost close to zero). You need to have products or services that are differentiated by how they make your users feel. How they work with the handicap principle. How they allow users to show their discernment or taste or wealth or knowledge or expertise. You need to give the people who love what you do the most the opportunity to spend money on something that is exclusive or braggable, or that they would want all their friends to know about.
In between, though, is the difficult part. In between you need to change the way that you think. The process of adapting to the Curve is the process of embracing new skills, new technologies and new ways of working. It is both scary and exciting at the same time. It is also crucial that you do it.
The exact technology that you need to embrace will change. It always does. What is important is that you shift the mindset from product to service, from ‘How many did I sell?’ to ‘What is my average revenue per user?’ From ‘I’ve finished that launch, what’s next?’ to ‘How can I take this customer who has just discovered what we do and take them on a journey to becoming a superfan?’
It will involve understanding how your product resonates emotionally with your users, how you can harness that emotion, how to offer what you can for free while reserving that which superfans will value highly at the expensive end of the Curve. It will mean changing how you view your relationships with suppliers and retailers who are now part of your entire ecosystem that exists to serve your freeloaders and your superfans and everyone between, not just the beginning and end of your business process.
How can you do that? I don’t know. I can give you a bunch of examples and ideas, and I am about to do just that. But there is no fixed prescription. There is no rule book that will work for every business or organization or creator. Everything is changing.
This is a time for experimentation and adaptation. It is a time to learn how to listen to your audience, how to incorporate rapid feedback into your business thinking and to figure out how to run cost-effective experiments that will help you create things that your audience will still value and pay for.
I can help you understand the principles. I can help you understand what to test and how to do it. I can show how others have done it successfully, and why I believe their experiments worked. I can show how other people’s experiments failed too, and what we can learn from that. But you need to be the ones thinking about your customers, your fans, your superfans. They’re not mine, they’re yours, and you know them best.
Go and give them what they want.
*
Let’s start with some basic thoughts on how to harness the Curve. What are you going to give away for free? How do you use your existing retail and other distribution partnerships in this new world? What will your high-end products look like, and how will you sell them?
If your product can easily be shared digitally, you already know what will be at the free end of your Curve: your product. If you make music or write books or produce moving images or games, it is a given that your product will be available for free somewhere in the world, legally or illegally. When it is so trivially cheap to distribute content using peer-to-peer networks, it will happen, and there is nothing that you can do about that.
Sometimes that isn’t an issue. There is no one-to-one relationship between downloads of your product and lost sales. To give just one example: clients of mine have decided to promote their paid-for game on iPhone by making it free for a day and using a promotional service such as Free App A Day to spread the word. There has been the expected spike in downloads, often tens or hundreds of times more than the game was selling before the promotion. Not all those users become players. Somewhere between half and three-quarters of those game installs have never even been opened. Those users saw that the game was free for a day, downloaded it and forgot about it. To say that each of those downloads represents a lost sale would be wrong: the app is sitting on the devices or in the iTunes accounts, entirely legally, of thousands of people who can’t even be bothered to open it. They would have been unlikely to buy it.
I anticipate being asked often why this book is not available as a free ebook. I expect that at some point it will be, either as a promotional offer or because that has become the de facto standard for ebooks. As it stands, the price of an ebook in the UK seems to vary somewhere between 20p and £20 (in the US, $1 and $15), and I expect that is where the Curve will be priced. I am in no hurry to accelerate the race to free until a) I have to and b) I have a decent business model in place to benefit from the free spread of my ideas. For now, I anticipate my website* being the free part of my Curve, while this book is part of the journey my readers will undertake as some of them move from being freeloaders to being superfans. There may be consultancy or masterclasses or speaking opportunities. There might be an online training programme or a video series or a membership club. I will experiment, learn and adapt.
The same is true for music. Music can also be easily distributed for almost no cost and many users would prefer to get all their music for free, yet Alex Day, the independent musician who is also a YouTube star, makes most of his money from selling single tracks on iTunes. He gives his music away where it is appropriate (YouTube), and charges for it where there is still a market (iTunes). Why will people still buy a product on iTunes when it is available for free on a filesharing site? There are many possible reasons. Some people don’t know how to use peer-to-peer networks.† Some people like the convenience of iTunes, storing all of their music in one place across multiple devices. Some people are scared that if they download from a place they don’t trust, they will become infected with viruses or Trojans or other assorted malware. Others want to pay for music because they realize that musicians need to get paid in order to keep making it, or because they are just used to paying for music and haven’t lost the habit.
Some of those reasons will be with us for ever. Others are legacy benefits of the traditional system, when distribution brands were trusted (as distinct from artist brands), when it was difficult to get a high-quality copy for free and when the places that you did get them were untrustworthy. Times are changing.
Meanwhile, even if musicians are not all embracing the Curve, Apple assuredly is. As are Amazon and Steam and many other leading technology companies. This is not because they are evil or manipulative, it is because they are sound businesses which understand the Curve. iTunes has its own superfans, its own whales who spend hundreds or maybe thousands of dollars buying music on its service. iTunes lets you download a lot of stuff for free (podcasts, free tracks and so on). It allows you to spend a lot of money on many different artists, which means that its monthly average revenue per user is not capped. It has the technology to understand who its heavy users are, to communicate with them via email and the front page of their iTunes account, to move them along the Curve. Apple has embraced the Curve.
Meanwhile, the musicians whose products Apple sells to monetize the Curve have none of the advantages. They are not getting users into their own personal ecosystem. They have no idea how much money someone is spending on their music. If they have ten tracks on sale on iTunes, and they sell one copy of each in a day, they have no idea if one person bought all ten or if ten people bought a different track each. They have no understanding of their customers, or how to move them along the Curve into superfandom.
I’m not picking specifically on Apple. The same is true for Amazon, Steam and any business which owns the customer relationship. Publishers and creators have, in their desperation to bring their products to market, sleepwalked into letting distribution partners have the one-to-one relationships to their customers. Worse than that, iTunes or Amazon or Steam have no loyalty to any product. They don’t care if a customer who bought an Alex Day track or an Amanda Hocking book or a game from NimbleBit buys another product from those creators: they only care whether they buy another product, full stop.
There is a solution. It is to treat these distribution partners as part of your marketing funnel. As James Woollam of F+W suggests, be very focused on audience development. Free products are a starting point at the top of your content funnel, but so are paid ones. Every customer who buys something of yours from Amazon or Barnes & Noble or Steam or iTunes or a supermarket or anywhere else is a potential superfan. You just need to build ways to nurture that relationship, to make it direct, to build one-to-one connections with those fans so that, in the future, it is you recommending what other products someone who likes your stuff might like, not a faceless algorithm that doesn’t give a damn whether you, particularly you, can afford to make new stuff. Don’t hate Amazon and Apple and Steam for doing what they do so well, but understand what they are doing, and use it to your advantage.
Spotify is a different beast. I love Spotify as a consumer, but as an analyst I am more concerned. In the era of the Curve, subscriptions are a difficult business model. At the low end, subscriptions are an emotional barrier to entry, stopping people from trying out a service because they are aware that at some point a paywall will come crashing down (although to be fair, Spotify’s free service is entirely free, just interrupted frequently by ads). At the high end, though, is where the real danger lies. There is no mechanism for the people who love what you do to spend lots of money on things they truly value. As a Spotify subscriber, I can’t imagine why I would ever pay more than my monthly £9.99 ($9.99 in the US), and I do sometimes wonder why I pay as much as that for something which is so trivially cheap to share.
That is why I believe that people who criticize Spotify for the low payouts are missing the point. Lady Gaga’s $167 for a million plays of her song is not necessarily a bad deal in the era of the Curve. The Trichordist, a website focused on the Ethical Internet and the protection of Artists Rights in a Digital Age (their capitals), tried to estimate how much revenue would accrue to rights holders from a massively successful Spotify.
If Spotify can capture what most believe is an optimistic amount of paid subscribers in the USA (30 million) that would only generate $2.5 billion in revenue for rights holders. The revenues of the record industry collapsed between 1999 when it was $14.6 billion through 2009 when it had plummeted to $6.3 billion leaving a loss of $8.3 billion since that time. Maybe we’re missing something. If streaming is the future how does $2.5 billion in revenue from a massively successful Spotify replace the loss of $8.3 billion in annual earnings?2
My answer is that it can’t and it won’t. Those revenues have gone away for ever. The trivially cheap cost of distributing recorded music over the web and the disappearance of the album as the primary music product, together with a challenging competitive environment and a set of consumers who have grown up rarely expecting to have to pay for music, means that the sales of recorded music will never reach the $14.6 billion reported in 1999. It’s gone away. For every major record label and artist bemoaning how much easier it was in the old days, there are new artists coming along looking for new ways to give away their music, connect with fans, charge for some things and not others and make it possible for those who love what they do to spend lots of money on things they truly value.
Spotify’s weakness as a business is, to my mind, that it is a volume game. Price is fixed and the only measure of success is volume. In an era when one-to-one communications and granular price discrimination have become easy, a one-price-fits-all model seems archaic. That is not to say that Spotify won’t succeed, but simply that it is leaving lots of money on the table while also having to compete with free. It is popular with the record labels not because it is the best way to deal with the challenges of the digital era, but because it is the easiest to understand. It is easy because it doesn’t move away from the fixed-price, increase-revenue-by-increasing-volume model that is familiar and comforting.
Artists should take the advice of cellist Zoe Keating, who said, ‘Spotify is awesome as a listening platform. Artists should view it as a discovery service rather than as a source of income.’3 If it can be both, so much the better.
*
If the basic prescription of how to harness the Curve is simple – have something free (preferably) or very cheap to start your relationship with customers, use technology to deepen that relationship, to understand your customers and to communicate with them on a one-to-one basis, and then offer those who become superfans the opportunity to spend lots of money on things they truly value – the detail is more tricky. Every industry is different and every product or service within that industry will have a different emotional relationship with its customers. In the remainder of this chapter, I will try to set out some ways in which you can harness the Curve for a variety of businesses.
If you want insight and ideas at the expensive end of the Curve, you could profitably spend some time researching and backing some Kickstarter, Indiegogo or other crowdfunding sites. Crowdfunding is not the be-all and end-all, and it doesn’t start with free (unless you count the entertainment value of watching projects fund or fail to fund), but it does include using technology to build direct relationships with fans and it is chock-full of inventive, extraordinary high-end rewards for the superfans.
Remember that anything can be made more valuable in a number of ways. Live is better than recorded. Limited editions are more valuable than the standard edition. Something signed is more valuable than something unsigned.
When science-fiction writer Cory Doctorow set out to find a way to make the limited edition of his short-story collection With a Little Help stand out as a special edition, not only did he go for high-quality printing and binding, he wrapped every copy in a burlap sack that had previously been used to transport coffee beans from Java. Every one of the purchasers of the $275 limited edition would get the aroma of fresh coffee bursting out of the packaging as they unwrapped the parcel that the postman delivered. That sort of thought is not always that expensive, but it makes the experience much more special in the eyes of the superfan. (Doctorow self-published With a Little Help and documented the process in detail online.4 As at 28 March 2012, he had generated income of $45,182.65, expenses of $26,882.02 and a profit of $18,300.62. Not a huge amount of money but not bad for a short-story collection that no publisher would touch.)
The heart of my advice is that there is no fixed blueprint. Follow the basic rules but use your understanding of your audience and your creativity to give them something they will really value. Be flexible. Be creative. Be remarkable. Make people want to show the limited editions to their friends, to share and brag and boast about the things that they choose to spend lots of money on.
Make them happy to be superfans.
Give your music away for free. Build a community relationship with customers using your website, YouTube, Twitter, Facebook and any other channel that gives you access to your customers. Encourage your fans to share your music legally by making it available on YouTube, Spotify and other online services. Make it possible to buy your music legally in as much of the world as you can. Create bespoke physical artefacts (albums, T-shirts, hand-crafted this and artisan that) that discerning fans will value as an expression of who they are. Use events (Kickstarter campaigns, music tours, releases of art books that inspired you, anything) to create a moment in time that your fans can get behind and support. Tour, by all means, but create the bespoke high-end elements that some people will pay for. If you want to get $10,000 out of a single person, be inventive. Amanda Palmer allowed Kickstarter pledgers to pay her $10,000 to paint them clothed or nude. No one knew if it would work, and Palmer made it a limited edition of just ten pledges, but managed to sell only two. But she would never have known if she hadn’t experimented, and her campaign would have been $20,000 poorer.
BOOKS
Books are an impossible category to simplify, because they encompass so many different ideas. If you write non-fiction aimed at business audiences, like The Curve or what Seth Godin does, have a website that gives away high-quality thoughts, ideas and content for free. Encourage people to sign up for your email lists with free ebooks or similar content. Offer books in physical form that people can pay for. Make the hardbacks an artefact so that people who own them will want to display them in their living room, not hide them away in a study. Manage the ebook pricing carefully as it trends to zero, but don’t be the last to become free if it means you no longer have a wide audience. Create other products and services that fans of your work can access – video courses, online seminars, physical seminars, consultancies, speaking gigs. Make sure that your time is (generally) expensive while that which can be shared at low marginal cost is easy to share so that you spread the word, build a bigger audience and make it easier to charge a premium for your high-end offerings.
Fiction is harder, particularly for first-time authors. In fact, I think it’s possible that self-publishing will be the route through which many, if not all, of the fiction writers of the future will be discovered. Their works will be available at little or no cost on Amazon and elsewhere. Instead of the gatekeeper being the literary agent and commissioning editor, it will be the hordes of readers and users on the open web. Good-quality content will catch the eye of someone – a community manager, a well-connected Twitterer, or even a traditional agent or editor – and the ebook will become a physical book. The publisher will no longer be at the heart of getting the product discovered, it will be about taking a product that is already discovered and making it more global, more professional, more profitable.
For established authors, the principles of ‘owning the shelf’ will apply. A successful fiction writer aspires to have an entire shelf of a bookstore devoted to them. It’s why the covers of books by Terry Pratchett, Tom Clancy or J. K. Rowling are so distinctive. You can tell at a glance that the books in the popular series from these authors are connected without reading the author’s name or the title of the book. The same happens with much genre fiction, with historical series and many more. This will only get worse. Publishers will give away books in the series in order to attract new readers, much like Michael Hicks and many other self-published authors do. The first book in the series might be permanently free to entice readers in. Other books might be offered for free on a regular basis, meaning a savvy reader might be able to get the entire oeuvre for nothing. At the same time, publishers will offer collector’s editions, signed editions, limited editions. There will be dinners with the author and annual get-togethers. Depending on the nature of the book, there might be tours and events. A crime writer specializing in Glasgow might have weekend ‘Discover Glasgow’ tours complete with sightseeing, a talk and dinner with the author. Publishers will need to be inventive to create new experiences and events which work with the content of the book, the nature of the author and the desires of the superfans.
To readers filled with dread, worrying that writing will be secondary to showmanship, that the author will become a mere entertainer, that fiction will be dumbed down by this focus on performance, I say, ‘Yes, that is a risk.’ But it is a risk that is worth taking, I believe, because there is no alternative. The idea that we can keep things as they are is a pipe dream that will fade under the twin pressures of economics and technology. We must adapt.
I also think that the form of the novel will change. In the model I outlined above, it might make more sense for the first ‘book’ to be 30,000 words, not 90,000. The traditional length of the novel might be abbreviated because there is no longer any pressing need for a book that is 250 or so pages long. The ebook will thrive and so will the hardback, but the paperback will come under pressure. It will neither be the cheapest version of the book nor the most desirable, trapped in the middle of the Curve. This development will pose a particular challenge for genre writers reliant on holiday reading, the disposable chick-lit, crime novel or thriller that is purchased, read on the beach and then discarded. Those are the authors who will need to focus on building a base of committed fans to protect them from the disappearance of the casual reader who will, if they read them at all, get them for free on their Kindle.
Children’s books provide yet another challenge. In many ways, they are the most insulated from the digital changes. The middle-class parents and grandparents who purchase the books obsess about minimizing screen time and are delighted when the child spends time with a physical book rather than an iPad, a television or a games console. They will continue to buy physical books to encourage reading, touching, learning and so on. At the same time, children will be embracing touch screens and the content they display. Touch screens are brilliant for children, particularly young ones, and I expect every primary-school child to have a touch screen device within my lifetime. Anyone who creates children’s books and the formats that will emerge from them will need to stop thinking about the books as individual products and instead to start thinking about the child as a reader and a fan. How do you help the reader discover all that your content world has to offer, and how do you make parents comfortable with spending money on your products?
Puffin recently released seventeen book apps based on the adventures of Lynley Dodd’s Hairy Maclary (a troublesome mongrel and his canine friends).5 I think that their approach was a mistake. I would have released one app containing one or preferably several Hairy Maclary stories for free. Children and parents would get to know and love the stories in a high-quality app which they could enjoy together. Eventually parent or child (probably parent) would get bored with reading the same story over and over again and feel comfortable spending £2.99 ($4.50) on buying a single additional story as an upgrade. And then another one. And another. Puffin would have one app ranked very highly in the App Store, rather than seventeen apps spread throughout it. They would have better data on repeat visits, on usage, on whether they were selling all seventeen apps to a small number of people or some of the apps to lots more. They would be building a connection with the families, possibly even a community, instead of selling seventeen products.
Oxford University Press has gone partway down this road with their series Read with Biff, Chip and Kipper. This product has two price points in the App Store: free or £149.99 ($219.99). (My jaw did drop when I saw that figure.) The free version contains a few pages selected from different books designed to help readers of different ages and abilities learn how to read on their own. Once users have had a taste of the experience, they can upgrade within the app by buying some of the books at £3.99 ($5.99) or all of them at once for £149.99. However, OUP are failing at the free end because they don’t give users a good experience. They make it clear that they are getting just a taster of the full experience, partial stories that jump around. OUP has got over the hardest hurdle faced by the producer of any app: getting a user to download and use it. However, they then say to their customer, ‘Sorry, you can’t have the full version, because you are an evil freeloader. Until you pay up, you can only have this partial, poor experience.’ Some parents will pay because they are familiar with the brand from the physical books but others will conclude that they have not yet experienced the digital version sufficiently, they still don’t know if their children will like it, and besides, there are lots of great free apps available on the App Store.
The approaches taken by both OUP and Puffin are redolent of old-school thinking, when the aim was to sell products rather than attract users, and when you couldn’t give away something for free because then you wouldn’t have anything to sell. Both are taking steps in the right direction, but they are still trying to protect the best of the old world while failing to embrace the best of the new. I am delighted that Puffin and OUP are experimenting, because we all learn and improve from experimentation. My most fervent hope is that they learn from the experiment.
LAW AND ACCOUNTANCY
If ever there was an industry that was ripe for disruption, it is the business of law. Much of the bread-and-butter work of lawyers could be given away for free. Standard wills, employment contracts, nondisclosure agreements, freelance agreements and many more contracts could be offered for free simply for the price of registering. Companies such as Legal Zoom and Clerky already exist offering these services at rates that are much lower than a practising lawyer would charge. A law firm might start a relationship with potential clients through offering these contracts, with no legal advice as to their relevance to the client’s situation. Over time, that relationship could expand to include bespoke contracts, training, litigation and specific advice on difficult areas of law. Lawyers could choose to give up their fees for the same, dull, repetitive contracts which can easily be shared across the web and instead focus on the value-added end of being a lawyer, giving situation-specific advice on negotiation, legal alternatives and so on.
The same is true of accountancy. I already pay Free Agent, an online book-keeping service, about £300 ($450) a year, a fraction of the amount I would need to pay a book-keeper or accountant to run my accounts. Free Agent does not have an upsell path beyond the subscription, but it is not hard to imagine a professional accounting firm offering book-keeping services entirely for free over the web, and then applying a modest charge for preparing statutory accounts, dealing with tax affairs and helping the client save money in its financial dealings.
Of course, both law and to a lesser extent accountancy are amongst the last ‘guilds’ left in the commercial world, self-regulated and with a vested interest in protecting the status quo for the benefit of insiders, not users of the guild’s services. It will be fascinating to see how the legal and accounting industries respond to the challenges of the digital era and the Curve in the twenty-first century.
EVENTS
As discussed above, combine high-end, bespoke events with content marketing or magazine publishing. Use the power of free to keep and engage the community who are interested in your events during the long periods of time when your events are not happening. Use the communications ability of the web to allow delegates to pick and choose from a smorgasbord of offers by letting them, for example, pay extra to sit at the table of a high-profile speaker during the gala dinner.
MOVIES AND TELEVISION
The movie and television industries have an interesting challenge. On the one hand, they have more stars and free press coverage than almost any other field. On the other, the stars have their own strategies for success, which may or may not tie into the success of the movie or the television series being promoted. Production companies will have to strengthen the ties between the audience and the core brand, rather than between the audience and the stars.
Movies are either free (pirated DVDs and downloads) or have a middling price (the price of a cinema ticket or a legal DVD). Some executives think that the movie industry is already exploiting a Curve strategy through ‘windowing’, the process by which movies are released to movie theatres, to pay-per-view, to DVD, to pay television and eventually to free-to-air. By now, I hope you realize that is not a true Curve strategy because it is a volume game: the most committed fan is not spending a hundred times more than a casual viewer. Movies do, of course, exploit many ancillary rights: books, merchandise, and so on, particularly when they are franchise movies or aimed at children.
Longer term we will see movie makers experiment with more direct relationships with fans. The first wave of experimentation (which is already starting) will be independent filmmakers using crowdfunding sites like Kickstarter to get movies made. They will sell the right to be in the film, to attend the premiere, to affect the plot, to get a credit on IMDB and anything else they can think of. Hollywood will take longer to experiment, because they are still about the volume game, and the big are getting bigger. Perhaps Hollywood will never embrace the Curve, and the Curve will be a funding model for independent movies only, not blockbusters.
Television is changing rapidly too. Power is shifting from those who control the means of distribution (broadcasters) to those who control the means of production (production companies). I would be much happier being a production company like Shine, Endemol or Fremantle than I would being a terrestrial broadcaster which has only one geographic region to serve. (Most broadcasters are also production companies, which insulates them from some of this risk, but this shift of power remains a real threat.)
As film critic Roger Lloyd said, television is becoming as much about self-expression as music is.6 I expect sales of boxed sets, particularly those that are high-end artefacts, to be valuable. I expect independent television makers to experiment with crowdfunding, with fans participating in production and with having live events involving stars from the show to make more money.
We are already seeing stage musicals springing up based on old movies such as The Bodyguard. This is a fascinating way of extracting $50 or more from an audience that would barely pay $5 for the DVD.
Movies and television will be slow to adapt. The advantages of the theatre experience for movies and the broadcaster oligopoly for television will mean that these industries will maintain their old ways of doing business for a long time.* I also expect them to spearhead the demands for legislative change to stem piracy. My hopes rest on independent film makers turning to the web as both a funding source and a distribution channel, to show us all how audiovisual entertainment can adapt to the twenty-first century.
THE PREMIER LEAGUE
Of all the industries that ought to benefit from the Curve, football should head the list. It has a social context, oodles of free marketing in the endless coverage it receives on television, in newspapers and on social media and it has fans prepared to spend lots of money on supporting the teams they love. Football has an offering at every stage of the Curve. Fans can watch the matches cheaply in a pub or at a friend’s house. They can subscribe to cable or satellite to access matches whenever they want. They can go to games and buy season tickets. Attending all nineteen away matches played by Manchester United in 2012/13 would have cost £840 ($1,300) in admission tickets alone. Fans can buy team strips and memorabilia. (I was surprised to learn that a unique scarf can be bought at every Premier League match, complete with fixture details and the date.) Tickets for the FA Cup Final sell at up to £10,000 ($15,000). Serious fans can expect to spend £100,000 on supporting their team over their lifetime.7
The ultimate status symbol is not to buy a season ticket or attend every match: it is to become a Premier League owner, with tycoons such as Roman Abramovich, Malcolm Glazer and Tony Fernandes, paying tens or hundreds of millions of pounds for the privilege.
Yet there is a problem, so far as the Curve is concerned. Despite the costs, Premier League football is as popular as it has ever been. BT and Sky paid £3 billion for the rights to broadcast matches over three years from 2013/14.8 Rights to the Premier League are so attractive to subscription broadcasters because for many fans they are must-have programming that helps keep subscription rates high and churn low. As the threat of piracy increases for these matches, a Curve strategy would suggest accepting the freeloaders while allowing the fans to spend lots of money on things they truly value. The challenge for football is that it may already have done all it can to let the fans spend lots of money. It is possible that if technological and legislative measures fail to halt the spread of piracy, football will be unable to grow its revenues by embracing its fans, simply because it has already done it so well.
Since the commercialization of football has largely enriched the players beyond all measure at the expense of their fans, perhaps that isn’t a bad thing after all.
CHARITY
Harnessing the Curve for charity presents an interesting challenge. On the one hand, charities already have a strategy for allowing people to donate anything from a few pence up to the large sums given by the most generous benefactors and patrons. A Curve strategy would focus on building an online presence that made a real connection with potential donors. A good starting point for a small charity would be to ask, ‘If someone were to land on our site, what question might they be asking?’ and make sure it is answered. They should then work to encourage visitors to sign up to something such that the charity could talk to them again, perhaps via Twitter, Facebook, YouTube or, ideally, email. (Note that offering the people the chance to sign up to your newsletter is often a turn off. Do you actually want to receive dozens of regular newsletters? Do you?) A better strategy is to offer something that a user might actually want there and then: some information on autism for an autism charity, an introduction to opera for an opera charity, insight into the challenges facing the environment for an ecological charity. It is all about building a long-term relationship with potential donors through giving them for free something that costs you nothing to duplicate after the initial effort of creation.
The greatest challenge concerning donations lies in managing the high end of the Curve. Some people want to be very open about the amount they donate to charity while others prefer to be discreet. As we saw in the Humble Bundle, where users are able to pay as much or as little as they like, it can be beneficial to show potential donors how much other people donate on average, to give them reasons to pay more than the average and to present an anchor price point to give people some guidance on how much to donate.
In many ways, harnessing the Curve for a charity is about taking what charities have always done – talked to supporters, asked for money – and doing it in a structured way.
MANUFACTURERS AND SERVICE PROVIDERS
Suppliers of services and physical goods should aim to be a repository of useful information for their target markets. Home Depot uses YouTube videos to draw customers into its physical shops and e-commerce site. King Arthur Flour offers free online recipes and advice to would-be bakers, which not only strengthens the brand value of their premium flour but also enables them to sell products and services such as baking masterclasses to their biggest fans. Marcus Sheridan of River Pools has become a leading and trusted source of information on the ups and downs of fibreglass swimming pools and as a result has generated significant revenue growth even during a prolonged recession. The key is to offer free content, information or experiences that resonate with your target market and turn them from being passers-by to people who are engaged with your brand for the long haul.
NEWSPAPERS
Finding a Curve strategy for the newspaper business is hard, but not impossible. An understanding of the Curve shows why a hard paywall strategy is so challenging: the Curve aims to have a large audience so that you can find those customers who love what you do enough to pay more. A hard paywall is more like a traditional, pre-digital business where you are either a customer or not, with little middle ground.
The industry is watching experiments like those of Andrew Sullivan with interest. Sullivan is a British journalist and blogger who now lives in the US and blogs about US politics, culture and society at The Dish, which was, until recently, commercially tied to the Daily Beast.
In early 2013, Sullivan announced that he was breaking from the Daily Beast. He wants to see whether he can fund the annual running cost of a news and analysis site from donations and subscriptions, but without advertisements. The business model is evolving rapidly as Sullivan learns more about his audience. Sullivan has tightened the ‘meter’. Users used to be able to read seven stories in full for free every thirty days. That has changed to five stories every sixty days, a porous paywall that is designed to showcase the best of Sullivan’s content to casual readers arriving from a social media link or search referral while making those who visit more often pay for access. He initially planned to charge $19.99 for access, but the night before he put the experiment live, he decided to leave the amount customers needed to pay blank but with a minimum of $19.99, so customers could pay more if they wished to. By March 2013, The Dish had made $660,000 from 25,000 subscribers. Leaving that box blank has earned The Dish $100,000, estimates Sullivan.9
Sullivan’s experiment is not yet a proven success. He hasn’t reached his target of $900,000 at the time of writing (May 2013) and even if he hits it, that figure is still only paying for a small team. However, with the exception of leaving the amount-to-pay box blank, it is not a Curve strategy. Sullivan’s paywall is all about limiting access. I think it would be helpful if he could experiment with different models to allow readers to fund him in different ways, while making sure that it is easy for fly-by readers to discover his work. Sullivan’s strategy is fascinating but may need to be adapted in two areas: making it easier for new readers to get access to his writing to start the process of becoming superfans, and giving superfans a clear opportunity to spend lots of money to support Sullivan in a way that they value.
Last year I was talking with the digital director of the New Statesman, a left-leaning British periodical with an illustrious history. Like many media businesses, it is wrestling with how to adapt to an online world. I proposed the following thought experiment as a potential business model:
‘Your audience doesn’t want just to read the news. They want the New Statesman to help change the world. How about we let them be part of it. Start an “upstanding journalism” scheme. Take a leaf out of the crowdfunding book. Make it possible for people to contribute to a fund that directly goes to fund investigative journalism. It might dig into the expenses of elected officials. It might seek out stories of whistleblowers who have been intimidated or cover-ups perpetrated by the powerful. It will live by William Randolph Hearst’s dictum that the news is what people don’t want you to print, and everything else is just advertising.
‘Your readers could contribute at different levels. For £20 they could be a supporter, with a badge alongside their comments on the website. For £100, they could be a concerned citizen, with exclusive access to premium content and a T-shirt showcasing their support. At high tiers, they might become patrons who fund individual salaries or instigators who can help identify areas to research. If you play this right, you might get high-profile individuals paying tens of thousands of pounds to support you.’
This thought experiment takes the idea that what some people would value is helping support the investigation of the rich, powerful or corrupt and turns it into something that people can pay for. It used to be that people subsidized this public good through buying a newspaper in order to read the sports results and television listings. That model is no longer working, and this seems to me to be a worthwhile experiment.
It is also a cheap experiment. You could test the viability of this experiment simply by building a web page explaining what you wanted to do and asking people to pay for you to do it. If no one pays, it turns out that this model is not going to work. You may have to adapt your business to become an events business, or even a dating business. (In the UK, both the Daily Telegraph and the Guardian have successful dating services.) As magazines are becoming more events driven, so I suspect will newspapers, offering wine tastings with their wine critics, evening audiences with foreign reporters and anything else they can think of.
What I do believe is that newspapers need to be accessible to a wide readership (which limits the effectiveness of paywalls) while also allowing those avid readers of news and supporters of journalism to pay more than the casual reader (which is also a limitation of paywalls). Newspapers need to solve that conundrum. A porous paywall is a good start, but the real success will come when they stop thinking of their customers as either subscribers or evil pirates and embrace a continuum from paying nothing to paying enormous sums.
Anyone who teaches anything can be a beneficiary of the Curve. Yoga teachers. Martial artists. People who offer classes in pottery or woodworking or speaking Mandarin or singing opera. Personal trainers. Nutritionists. Anyone who services clients with their particular needs. The basic strategy is to use a website to offer high-quality advice in your area of expertise. You might offer blog posts on relaxation techniques. You might post YouTube videos showing how to throw a pot or cut a dovetail joint. You might publish a healthy-eating menu for a whole week, complete with the shopping list containing every ingredient your customer would need to buy, or a plan for learning guitar chords in six weeks. You are obviously going to have some competition: if every single coach, trainer and instructor in the world had a website, there would be a lot of free content available. There will be more famous trainers than you in the world. Won’t everyone gravitate to the biggest and best? If, say, Eric Clapton put up a series of ‘Learn to Play the Guitar with Slowhand’, why would anyone watch yours?
The answer is that you are not competing with the biggest and most famous people on the planet. You can’t. You are offering something different – a local, personal, one-to-one service. You may have to use traditional marketing techniques to acquire customers in the first place. Advertisements in the local gym or community centre. Targeted campaigns with Google AdWords. Leaflets and flyers. The objective of those marketing campaigns is to drive people to your website. The objective of the website is to start the process of connecting with fans.
Your core product will remain what it always was: one-to-one teaching or classes teaching groups in your specialist area. You will now have a website as a way of building a direct connection with those people outside your classes, and of giving potential customers the confidence that you know what you are talking about. Over time you may develop a suite of products: free advice on the website; a cheap ebook; an expensive self-published physical book; an online course made up of videos, written materials and feedback sessions. These can range in price from the very cheap to the very expensive. The most expensive should be that which is most scarce: your time.
RESTAURANTS
Restaurants can follow the same pattern. Use the website to start building a relationship with customers. If you make Thai food, talk about it. If you care about provenance, talk about it and help people understand why it matters and help them source their own food better. A restaurant already benefits from the marketing value of its physical location, so an online presence is about building a relationship with those of your customers who have the potential to become regulars. You can set up regular events on the quieter parts of the week by offering themed nights or special events.
By using the direct relationship you have with customers through the web, you can determine what works and what doesn’t – without even running the event. For example, post on your website that if thirty people book for dinner at your restaurant on a Tuesday night, there will be a poetry reading. Belly dancing. A talk from a master cheesemonger. A demonstration on how to prepare a gurnard. If thirty people don’t book, don’t hold the event. You’ve lost nothing and learned something about your customers. At the high end you can offer customers gala evenings with a premium entrance price and exclusive dishes. For your very best customers, you could offer to send one of your chefs round to their house to cook dinner.
The joy of the web is that you can test many of your ideas on a website without having to put them into practice if the demand is not there. Be inventive and be courageous.
ART
Artists create artefacts that naturally sit at the high end of the Curve. They are bespoke, personal, scarce and have a value that is anchored in how much someone is prepared to pay more than in the amount it cost to make.
An artist, whether that be a painter, a photographer, a sculptor or any of the myriad forms of art maker, needs to achieve three things through a Curve strategy. They need to sell their creations, they need to allow people to buy something at prices ranging from low to high, and they need to build awareness of their work both to drive sales but also to push up the prices of their top-end artefacts.
So an artist should have a website. It should not only be a sales website. It should be the starting point for a user to move from someone who has only just discovered an artist to a true fan. Perhaps there is a mailing list that offers occasional small pieces of art to brighten someone’s day. Or by signing up, users get a wallpaper background for their PC desktop or mobile screen that captures some of the artist’s talent or spirit. There might be cheap products – postcards, Christmas cards, thank-you cards – and medium products like prints or small originals.
More value might be added by the tricks that artists are already familiar with: Numbered editions. Original signatures. Dedications. Personal elements.
An artist might then use the website to take on commissions or, more scalably, to sell the works already created. A Curve strategy would allow an artist to make more money from visitors who are still on their journey towards superfandom while also potentially increasing the amount an artist can charge for high-end products through increased awareness, reputation and a closer connection with their biggest fans.
TRANSPORT
Budget airlines are already harnessing the Curve. Airlines such as Ryanair, easyJet, Jet Blue and SouthWest offer flights for a very low price, sometimes even for free.* They charge extra for each bag you check into the hold. They charge extra to check in at the airport rather than online. They charge extra to board first, to pick your seat before other passengers or for more legroom. They charge for inflight meals, for inflight drinks, and threaten, probably for the publicity, to charge for access to the inflight toilets. Customers who are very price sensitive can get very cheap flights. For those who want to travel on that route but are not price sensitive, the upgrades for extra legroom, speedy boarding, airport check-in and a cup of airline coffee are worth it. The airline uses the promise of cheap flights to attract customers but now has sophisticated ways of satisfying the differing demands of different customers.
RETAIL
Retailers ought to start with an advantage. They already have customers. They have CRM systems to help them know more about their customers. They can satisfy high spenders simply by letting them buy lots of things from them. Yet in my experience most retailers are focused on selling products, not satisfying users. Their databases and analyses rest on whether products are shifting and how many units they have sold. The Curve suggests thinking of their audience in a different way. In an online world with unlimited shelf space and alternative retailers just a search away, retailers need to focus on relationships.
Naked Wines is an online wine merchant that champions independent winesellers. Of course, you can just buy wine from them. The website also offers a community and discussion groups for novices and experts alike. More committed wine buyers can become a Naked Angel, committing to giving Naked Wines at least £20 ($30) every month which accumulates until they choose to spend it. This commitment gives Naked Wines the financial security to, for example, buy the entire output of a vineyard, helping secure a great price for everyone. They offer tastings and T-shirts and other events. A superfan of Naked Wines can spend hundreds of pounds a year and feel like they belong to a community that is, at its heart, a business that sells wine.
Retailers that will thrive in the digital world will be more than just a place where a transaction happens. They will understand their customers. They will work out how to offer them things that they want. Like the budget airlines, they will offer low prices to those who are price sensitive but for those who are prepared to pay for the exclusive, for the premium, for the personalized or for an experience, the option will be there.
FASHION
Fashion might be like art, or it might be like retail. The more bespoke the product, the more the Curve strategy of a fashion business might resemble the strategy of an artist. Otherwise, it will probably look more like a retailer. The challenge for fashion businesses, making clothes that can be purchased on the high street, in department stores or via their own website, is when to be happy making revenue because another retailer closes the sale with the buyer and when to fight tooth and nail to build a one-to-one relationship with that person.
Let’s try a thought experiment. Imagine that the key performance indicator (KPI) at a fashion house was not ‘How many frocks did I sell?’ but ‘What is my average revenue per user?’
I could imagine a strategy where high street retailers are a sales outlet but also a customer acquisition outlet. The fashion house aims to build one-to-one relationships with the best customers, say 10 per cent of them. Those are the ones who love the brand, not just an occasional frock. They will be receptive to email marketing, to offers, to buying something every month or something several times. Some will buy everything in the new collection each time.
Venture capitalist Nic Brisbourne says that for top fashion boutiques, online or offline, 10 per cent of their customers make up the majority of their revenues.10 That suggests that fashion boutiques are already businesses that manage a user journey from casual purchaser to superfan. By finding a way to offer something at the free end of the Curve, and getting better at using technology to help users make that journey, fashion businesses will be able to thrive by building meaningful relationships with the customers who love what they do.
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For every business or creator, the three questions are the same: What can I give away for free that I can make once and give away as many times as I like for no extra cost? How do I make sure that when people like my free stuff, I can talk to them again? How can I offer those people a range of different products or services at a range of different price points, so that those who only want to spend a little with me can do so, as well as those who want to spend an enormous amount?
If you can answer all three of those questions, you have cracked the Curve.
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The challenges facing businesses in the twenty-first century are legion. The solution is not to use the lobbying power of the incumbents to persuade governments to prop up ailing business models. It is to adapt to the changes through a process of structured experimentation and learning. It is to embrace free as an opportunity while building dialogues and relationships with end users that resonate on an emotional level.
It is a scary time to be in business, and a wonderful one. There has never been a better time to be in the business of delighting your customers.