"Diffusion Lines" and the Freemium Marketplace

I'm trying to remember how long ago it was that Cory Doctorow wrote, "Giving my stuff away is selling the hell out of it" or words to that effect. (Actually, I don't have to remember because the Internet remembers it for me.) The notion that giving people something for free would entice them to pay more is as old as coinage, I believe.

For a long time the notion of giving your stuff away was buried from mainstream sight. Buried first under the glare of celebrity/blockbuster/mega-hit productions in which corporations made stars of people and shows and books and things for which people paid ever-increasing prices. Then it got re-buried under an avalanche of FUD about piracy and sharing.

But of late the notion of free is making an important comeback. In gaming, there's an entire genre of "free to play games" in which you get the game for free and pay for things you want related to the game: cosmetic items, power-ups, unlocks of special features, more capabilities, etc. Authors and musicians and other creators have recognized the power of giving their things away to connect with audiences, build loyal fan bases, and maybe put up a tip jar so people can pay if they think it's worthwhile.

This week, under the title "How to get people excited about education", Felix Salmon posted about what I would call the economics of some of these freedom-driven models. In particular, he talks about the spectrum of education experience that ranges from massive open online courses (MOOCs) to individualized, in-class direct education. His argument is these are complementary, not competitive products. Giving away your lectures via YouTube isn't going to cut into your enrollment, he argues. It's going to build your brand and name and value and while it filters out those who don't have the drive or money or time to sit through intense graduate-level education courses, it's also going to select for the people who do have those things, and bring them to you.

He points out that the same model of increasing yields as you increase costs can be made to work in other areas - his second example is about the Metropolitan Opera and he concludes that,

...the more you give such things away, the more demand there is for the very expensive live product

Yes, exactly. Salmon calls these different offerings "diffusion lines" as in different ways you get ideas and content out to people. And he argues that this kind of thinking can be the basis for what I would see as a broadly economically sustainable set of marketing and business models.