Reversible business models
August 13th, 2008
In China, some doctors are paid monthly when you are healthy. If you are sick, it’s their fault, so you don’t have to pay that month. It’s their goal to get you healthy and keep you healthy so they can get paid.
Shai Agassi of Better Place designed a business model for electric cars where the car is given away for free because the company makes its profit on the electricity and battery maintenance.
Services like Rhapsody aim to let you listen to any song ever recorded, any time you want, on any device anywhere in the world, for free - as long as you pay their small monthly subscription fee. This challenges the whole assumption that we need to own copies of recordings at all!
FreeConferenceCall gets their income from the phone companies instead of their customers, because they know which phone company each person is using to call them. So they negotiated an affiliate payment for generating more long-distance calls for each phone company.
In the 70s, IBM let Microsoft make the operating system for their computers because software was just the free stuff that came on the expensive hardware. In the 90s, it looked like the hardware was going to become free because all the money was in the expensive (Windows, Office, Photoshop) software. Now Google makes it seem like the software will be free, too, just to get you into their advertising network.
Professor Dan Ariely told his class that he would be doing a reading of poetry, but didn’t know what it should cost. He handed out a price survey to all students, but secretly half of the surveys asked if they’d be willing to pay $10 to hear him read, and the other half asked if they’d be willing to hear him read if he paid them $10!
Those who got the question about paying him were willing to pay. They offered to pay, on average, $1, $2, $3 for short, medium, long readings.
Those who got the question about being paid demanded payment. They wanted to be paid, on average, $1.30, $2.70, $4.80 for short, medium, long readings.
An entire business model flipped upside down just by starting with an opposite assumption. I love it.
What assumptions are you running on?
Are there things you assume you have to pay for, that might instead be willing to pay you?
What current business models might as well be flipped around, or get their income from a different source?
Did you know printer ink is more expensive per ounce than the priciest champagne, while the machine costs less than $100? Same principle, I suppose.
This goes right into what I’ve been trying to talk to a team i work with about…let’s not adopt all the “old school” business methods we’ve tried before. The web requires a different mindset.
Thanks - very nice post,
tom
[...] I read the post from Derek Sivers today called “Reversable Business Models” it just reminded me so much of what we are trying to do with this team: In China, some [...]
Excellent article. Indeed, the most widely successful businesses seem to have reinvented their market’s business model.
I’ve often wondered how the music landscape would be different if artists paid radio DJs rather than the other way around. Of course, when this happens in secret we call it payola, but if it were disclosed and/or rates standardized, it would significantly reduce advertiser control (radio stations would no longer need advertisers). I’ve never met any musicians who make any money off of radio plays anyway, except indirectly, through its advertising effects. So we might as well call it what it already is: an advertising service for musicians.
If nothing else, it might be a model for internet radio going forward.
As technology becomes more readily available and people become more accostomed to using these technologies, businesses will have to adjust. There is also always going to be the guys who think outside the box and make their revenue by providing a better service at little or no cost to the users in exchange for revenue on the backend.
The Chinese doctor theory is very exciting to hear, although I do not think the U.S. would ever go for it. Too many egos.
In trying to come up with an answer for “how does a musician make money today?” I keep running into a wall. The market is flooded with recorded music. Naturally, the product becomes undervalued in a free economy. So thinking in terms of data output doesn’t seem to hold much water.
Looking at the current state of things, I hold the following statements to be generally true:
1. Recording music cheaply has never been more assessable for so many.
2. The sheer amount of recorded music has never been so widely available to so many.
3. The number of people producing music for a mass audience has never been so large.
4. The playing field for distribution of said material has been leveled out (i.e. the internet).
So where does that leave us? I’d say it leaves us at the very beginning. It’s time to start throwing stuff on the wall to see what sticks. It’s also time to truly evaluate what your objectives as an artist are. What is sucess? Who is your audience? What are you trying to communicate?
Mr Sivers has written about the success of artists who fill a specific niche. Maybe its time to start carving out niches. Genre’s don’t mean much anymore. Get VERY specific.
Also, with the rise of the digital age, I believe people are longing more than ever for a sense of community. In music, we used to call it a scene. I don’t hear that term used very much anymore. A “scene” can now be multinational.
What about EVENTS via your internet portal to the world? What would draw you to a website? What kind of interactivity is possible?
Sorry for the ramble… just thinking out loud…
It is probably a good idea to differentiate between business models that are reversible from those that are reversed due to regulation or other forms of rent-seeking behavior. FreeConferenceCalls takes advantage of a loophole in telecom regulation that was established to promote small rural telephone companies and printer ink itself is not expensive unless you are forced to buy the ink from the printer manufacturer.
Oh yeah, if you are going to talk about upending the market by reversing the business model you have to start with the original master: King Gillette.
I’m not sure paying DJ’s legally would work. In principle I like the idea but It’s still a money situation. There would have to be some kind of control to keep it fair. I’d probably pay for some kind of guaranteed radio exposure to the right audience but I couldn’t possibly compete with labels and artists who have a lot of money.
And as the post mentions Google ads I worry that this kind of model might end up with a world of content who’s sole purpose is to draw you in for targeted advertising.
I do have radio and internet radio outlets for my music now, but its the same as its always been. How do you drive the listeners to find you? How do you stand out from the crowd? No matter your business model you still have to answer those questions.
In our spiritual teaching work, we give away the product (spiritual knowledge, counseling, music, community, etc.) How do we get by? The product is so good, especially compared with the rest of the market, our students are so grateful and satisfied that they volunteer to donate enough to support our teaching activities.
Oh, sometimes it’s all so confusing. But out of confusion, new directions open up.
Still, there is a balance between giving and taking. What can I contribute, what have I to give? And what is it worth to others?
Shure, there is more music than ever. But this is only statistical. It says nothing about a certain piece of music or an artist.
It helps to trust oneself, being playful and in the moment.
There is not one key, maybe there never has been one.
Would you be willing tolerate extra advertisements on every website or desktop in exchange for free internet service, or maybe something similar for a cell phone, as they become more and more capable of displaying such things? I think a lot of “new” business models are going to be similar to Google’s, free or cheap products/services for advertising being inserted into everywhere it can possibly be fit.
Here’s a “reverse business model” for you…
Clubs in Los Angeles actually CHARGING bands to play there, instead of PAYING them…
It cuts both ways!
Doctor example is interesting. If people would actually do what doctors say, such as eat a low-fat diet and exercise, maybe that would work. But they don’t… So why should a doctor not be paid when the reason for failure is (most of the time) due to what his clients are doing?
With that said, this is why I agree with pay-for-play deals. SOMEBODY has to pay the rent on the place. Too often, bands expect show promotion to be somebody elses job…and it never gets done.
Things always work better when you have a dog in the fight. If CD Baby didn’t charge people to setup a CD, you’d have a warehouse full of crap from musicians just waiting to see if it magically sold.
Wow! You really keep us on our toes, Derek.
This reminds me: I just heard that some dog (or maybe the dog’s owner) was getting paid to wear a collar that says “John Deer” as in the tractor people. I think that brings in 10 bucks a month. In the west village that would buy a coffee and a dog biscuit. Anyway, I argued that it would be effective advertising because people get all warm & fuzzy about dogs, so they’ll associate that with Deer’s brand too.
P.S. I’m adoring & appreciating your free pdf book “how to call attention to your music” Everyone read that.
Kathena Bryant (the hippy nuts)
“1. Recording music cheaply has never been more assessable for so many.
2. The sheer amount of recorded music has never been so widely available to so many.
3. The number of people producing music for a mass audience has never been so large.
4. The playing field for distribution of said material has been leveled out (i.e. the internet).”
I jokingly say to my wife that all music consumers (the ones that actually bother to pay for music anymore) can now select their own personal musician or band to ’support’. It’s almost a one-to-one now. Half-jokingly. Sort of.
Food for thought as always Derek. I’m really glad a friend based in America (Zoe Lewis) told me about you all those years ago.
I’ve been involved in the live jazz scene most of my musical life (30 years) and i love the way old ways become the new way.
When i was a teenager we fixed things because it would be too expensive to buy something new when it broke. Now recycling is back because of the cost to the planet. Same but different if you see my point.
So what would i do?
In London there’s a real appetite for live gigs from musicians and audiences but a big shortage of gig spaces. I’ve wanted to create a house circuit -literally. Jazz musicians would play a series of gigs ‘tour’ in peoples front rooms but broadcast to the web.
Not new in that jazz was originally a ‘house’ scene but the technology makes a wide audience possible and the music (jazz or maybe many more acoustic styles) suits an intimate situation. I could get 30 people crammed in my front room, I’ve got a piano and amps etc etc I can def. see it. How could we pay the musicians????
If anyone out there thinks this is a good idea or has done it or can see the problems please let me know. I need some help/ideas with this. My friends don’t yet ‘get it’
Oh let’s not forget Reverse Graffiti, where artists find very dirty places (especially tunnels blackened by years of grime) and clean them in a pattern to make graffiti that can only be removed by cleaning the whole area. Brilliant!
Excellent post. I see some reverse business plans as being brilliant. Some open up a new market. Ink jet printers under $100 with the ink cartridges is a new market I believe, people that that don’t want to pay a lot. The existing ink jet market people go forward with their existing printers. The two markets can co-exist because they don’t clash.
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I mean, as it relates to my musical life, I think that what we need to understand is that music is more than the product.
So much of my music as I went through high school et cetera was passed along as a copy of a copy. Someone gave me Jeff Buckley on a dirty old CD-R that I still have, and I’ll tell you what, yes I still have that and I never paid a dime for it, but the sheer gratitude I had for his music made me consume everything he ever recorded in the long run.
I remember hearing an Electrelane song in a bar in Portland OR, in fact, the bartender played the whole album and I’m pretty sure they didn’t get royalties… I heard that for free as can be and yet it has led me to a die-hard *connection* to those artists.
I mean, I’m surprised too that people talk about quantity so much more than quality! I’m amazed that in the context of the level playing field and the sheer number of musicians, there is so little focus on the reality that (naively here.. follow me if you dare) real artistry and a commitment to the craft and purpose of good music will always be what people *really* want. What does this have to do with the reverse business model? Well, I suppose that if you are pretty confident that your music is good, like, really amazing, you’ll pay with your time and your life and gamble on your future by sleeping in smelly vans on side streets of strange towns. And you’ll pass up the retirement plan and house savings for a few more years if not forever to be able to have the time to give your music that you feel it deserves. And the reason you might do this is not because (hopefully) you are an idiot, it’s because you sincerely believe that if your music had a shot to be heard side by side with most of the music coming out, that people would return to yours again and again.
And slowly, because you put yourself out there, it makes a long long 97 point turn and the cruise ship parked in a manhattan sleep that has been your music career is being dragged out to sea. The people who literally 8 years ago came to a show and who you gave a free copy of your (decidedly dated) CD somehow remember you! And they live in San Diego now and came out to see you and brought some friends!
The residual, the printer ink of music, is to me, that fulfillment that music gave me in times when I needed it most. Staring at my bedroom ceilings, the perfume of the perfect anthem is something I would pay for again and again. And no-one can take that away from me, and no-one can tell me whether it is good or not. And I believe that those artists understood that when they made it. That they actually *cared* enough to write music that *means something* and is *thoughtful* and is *done with quality*.
Whoa, total rant. If this resonates, keep this rollin’… otherwise I’m gonna can it!
Thanks for the thoughts, thanks for the inspiration and for gettin’ me all fired up!
Put the tunes out under a creative commons BY license that allows commercial use.
http://creativecommons.org/licenses/by/2.5/au/legalcode
As rights organizations issue blanket licenses, no holes in warm blanket and publishers don’t want to get cold.
Artists not based in the US can join transfer to ASCAP.
keep in mind:
all artists not based in the US are not able to license what they create for free. So free business models for music are only rellivant to the US market.
Even CDbaby technically best be paying for the use of all music that it streams via artists not based in the US, that are not members of ASCAP.
Consider how the music world works outside the US, when thinking about free-music.
Good stuff! Thanks for keeping us thinking about this from different angles!
I run a small non-profit organization (in addition to my solo life)called Acts Of Kindness Cabaret. The website is http://www.aokcabaret.org. Our business model was considered ridiculous by almost everyone when we first started, but we are growing and thriving. Basically, we offer cabaret performances, largely free of charge, as fundraising events for other non-profit organizations. The audiences at these events are made up primarily of people who support the organization we’re benefiting, not necessarily people who are cabaret fans. In this way, we get to introduce people to, and educate them about, this little-known, often-misunderstood art form. They experience it first-hand, and many become enduring fans. We, as individual artists, also get exposure to audiences who would never even have had us (or our art) on their radar before. This leads to paying gigs, CD sales, and referals. Plus, we’ve taken an art form that often loses money for the artist into one that makes money for others. We are, essentially, an arts organization that donates all its ticket sale proceeds to other neeful organizations. So, we look lousy on paper in terms of getting grants. But our kindness has come back to us in spades, as we have been able to survive and grow solely on private donations. I even now draw a small salary for running AOK Cabaret. So I say, turn all the business models on their heads. I say leap… you’ll find your wings on the way down. =)
[...] that every artist/musician should read. One of his articles in particular was about ‘reversible business models‘. By now you nerds are wondering where the hell the connection is. Well here it [...]
[...] “reversible business models” for more examples of thinking [...]
Don’t have a clue how this all shakes out, but am having a blast playing.
We seem to make the most profit when we create our own new gigs and venues rather than competing for the established gigs that are out there.
This business model has been going on for a while now. You have to be very creative to survive as a full time musician/artist now. Marketing online now is way more important building a local following.
Derek,
Marketing has become the biggest challenge for musicians these days.
Thanks for your help in breaking down many of the old precepts.
Kam
Falkreations Music (BMI)
http://www.nativetongue.com
Great Article, This subject I have been trying to teach our Students. Thanks for the motivation, it so great to have a mentor that helps put us into drive again.
Hey Derek,
Thanks for the information and the opportunity to get involoved in some great ideas….there has got to be a better way for struggling, less affluent, but creative artists….to get a break in their careers.
Too many artist’s/people’s livelihoods and future’s are in the hands of too few……
phantastic, Derek,
you are becoming a market revolutionary institution, sharing these things.
As medical doctor I love this model - though there must be “control mechanisms” if patients DO what the doctor says.
As pianist I have had vast street-music experience all across the USA
http://ccc.docwebs.com/pressenr32.htm
and
http://ccc.docwebs.com/pressenr31.htm
and I see that the LIVE transmissions of music events are not as established in the internet community as it could be.
So let us make performances with live transmission in the internet and install an easy mechanism for people to makd donations while they listen.
Since I understood from street music that there is NO BETTER WAY TO LEARN IMMEDIATE COMMUNICATION WITH THE AUDIENCE the cash flow back to the artists is their immediate feed-back about their musical and artistic quality - or not?
On Printers ink ,Just put a peice of tape over brass end and you will get twice the amount of time on the cartrage. It tricks the printer. Also: People going online to buy music and using payPal this will be a thing of the past here shortly and computer chips on top of your hand will have all information on credit cards and direct bank cards. This is being used by the special forces now and
qtr masters are buying things at the store and swiping the upc codes etc.
The article didn’t talk about business models, but about assumptions. Amiestreet, for example, clearly lays out their cost benefit structure– and it comes the closest I’ve seen to everyone wins.
Cdbaby, and others, charging, doesn’t keep crap music out, but it does limit junk submissions. A good rating system + enough submissions limits damage, but there is a cost to the admin of a system with lots of junk — storage, etc. The net progressions will be in digital land, your music didn’t get played in 30,60,90 days, we drop it off… and only keep the popular stuff up in front.
That you have 5million or 250 millions tracks doesn’t impress me. That you have x, y, z, and I can hear them anytime I want… vs. Pandora, etc. limited plays… that will be the model to beat, and from the IT/business side, only songs that sell will get pushed.
For the vendor as well, the customers that pay for placement in the store, as well as online, will go to the top with the banner ad, etc.
For touring/smaller musicians, face to face concerts will always be the winner, because it cannot be replaced.
However, playing the venue, which charges the band to come and play… depends on hopes and dreams, which the cost in gas, time, and ticket price will prove to be interesting.
For myself, I don’t tour, so my expectations of success are limited–but I’ve had huge play times, over 500 in some cases within a day or two of a release, and without much marketing, because I’ve looked at the websites that are following win-win business models, and have low or no entry costs. (www.clousfamily.com)
Most of the people I’ve listened to on CDbaby do it a far better way
They’ve got bucket loads more talent than I do 
Have a great day ya’ll
Extraordinarily thought provoking. I have watched the “industry” turn it around to the point where the artists pay to play or pay their agents upfront, BEFORE a gig (as opposed to the buyer paying the agent AFTER). So it obviously works. So NOW let’s take it back!! Must meditate on the endless possibilities…
If I could come up with any other models than the ones that are already in progress: “pay to play” and “get paid to play” (as it used to be in the old days), I would let you know. But no matter how hard I think, I can´t come up with anything else than what´s already been said below.
Io penso che per fare business con la musica servono soldi e questi dovrebbero ritornare all’artista per permettergli di fare altra musica.Se questo non succede l’artista non può continuare a fare musica.Altri dovrebbero avere il compito di vendere la musica l’artista può solo farla.
Derek,
I make music because it’s therapy for me. When I gave up drugs and alcohol almost 20 years ago.. I was a DJ. I had gigs as a DJ to lean on and being on stage and entertaining people was always a joy for me, so i could substitute that while changing my life and withdrawing from the drug scene.
Today, I create music as an outlet for anger, sadness, happiness, pleasure, confusion, and a bunch of other emotions felt when going through life on a day to day basis.
I have a day job, but it’s very limited and I usually only work between six and twelve hours a week. Of course, I live like a college student and pay very little for expenses to afford all of this time off.
I look at my music as a business, always trying new ideas and always hoping for new rewards. A few dollars for my efforts are greatly appreciated, but I would do it anyway, because it’s my therapy.
I am lucky to be able to do a day job that I love, teaching people beneficial trade oriented work and then come home to create music, hang out with friends and make music whenever I want.
Evidentally someone besides me thinks my music is good, because I do make an income from licensing and CD Baby. I am grateful for all that is good in my life and if I were to boil it down to one phrase, I guess I’d say: Never give up! Never give up on your dream and live to learn everything you can to make your situation better.
I have no idea what I’m doing on the business side… lol, but at the same time I know that my efforts have paid off, financially.. so I am grateful! and will continue to invest in my favorite artist.. me.. until I win or lose.. and I do feel that I am winning!
Thanks for all of the wonderful insight and information! You have been a great influence in my creative direction for my music and my thinking!
I have done better with getting paid to have people listen to my music on websites and live than I have making CDs and tryilng to sell them, so I give them out for free for a loss in hope that people will want to pay me to play and gain the attention of more lucrative music opportunities from the marketing generanted from demand and a name brand.
My photography model started with doing photos for free, galleries for free, and then people started handing me more money to do their portraits and parties despite my willingness to work for free or low cost. I get paid to learn photography! Once I develop enough clients, get better at my craft, and obtain better equipment, I will raise the price slightly each time. My prices are so low that people feel like they are robbing me, so I must be doing well.
PS: I have been in photography for a year since I started my CD project and wanted to save money on a photographer by buying my own camera.
Sometimes I think people are more excited for my photography than my music and I don’t have to spend so much money to get a return on my investment.
http://www.flickr.com/jamminjamesgeo
This is an interesting topic to me, about three months ago I was talking with a doctor, he asked me if I had to pay to sell my music on the internet, he said I should be cautious in paying to put my music out there, but maybe if they were paying me it would be different, this got me thinking, maybe I could get opportunities to get paid for my music.
Does this get you thinking? Can you relate?
Hi Derek,
I don’t guess that their is any kind of magic formula out there for musicians, but the opportunities are a lot better today because of people like your self than they were years back, thank you again for all your hard work keeping us informed.
Well Derek,
You are traveling all over the world and still have time to write all this stuff. That I find amazing.I can hardly keep up with my two partime jobs, running my kids to and from school, going to football games, finding quality time with both my boys who have very different enterests, and trying to set up a group of great players and a studio to finish my CD production. Things just must come easy for you Derek! :}
The first thing to spring to mind for me is the ridiculous pattern (as one other poster mentioned) of charging bands to play at a venue. For all the reasons the venues have to do this, it still stings my music-supporting heart, knowing that there are bands who will dish out the cash to these venues just to have a place to play their music. While other venues will happily pay the band, offer them food and drinks, and be gratefull to have them play. I encourage everyone I know to search out these former venues - go where you’re appriciated, they do exist.
This is very thought provoking! And I aggree with Savannah. Still can’t believe that you have to spend money to play at clubs here in LA. Gotto flip that around:)
We are so fortunate in this day and age that through the power of technology, the power has been returned to the individual. As a musician I feel that finally I am back in charge of my own destiny and it has to do with exactly this point of business model reversal.
We no longer really NEED to spend a great deal of time, money and energy collecting our rejections from the “industry” because we can now effectively market ourselves directly. And by doing so, certainly we generate much less gross income and maybe less net income than with a major label deal, but, the difference is that at least we CAN sell ourlselves. And our self produced project returns a much higher profit margin with a much lower production cost.
It was not so very long ago that a self produced record was truly nothing more than a Vanity Press.
And by learning from the “Google Method” of giving away something that everybody wants, let the crowd gather as the vendors hawk their wares on the sidelines for a pay per click fee. Pretty cheap and effective advertising for them, I get a nice free service and I can apply the same principle to my own endeavors.
For example, I upload my music to as many websites as possible and let them listen. More people get to know me and come to my shows. Most Indie artists sell most of their CDs at their live shows anyway. If the listeners want to download a tune or all of them they have the choice. And when they do I get paid. And the latest statistic I read says that 42% of all the Internet listeners and downloaders also buy a CD….a lovely arrangement.
And all of this is purported to be the “new” way of doing business but really it’s just a new twist on one of oldest advertising methods… the free sample. Or like the old days when the record shops all had either listening rooms or headsets so that potential customers could preview an album before they bought it.
Thanks Derek for all your hard labor in getting this information to us. It is very helpful indeed. May Jesus bless you.
I see a sea of self indulgence and say if we all want to do the same thing, none of us can possibly succeed. We can fit ourselves into the business models of our pioneering brethren and we can lull ourselves into a false sense of accomplishment by pasting our souls onto templates of success, but ultimately there’s only one real way to make it big, and that’s to have… “The In.” What is that? Well, it’s the thing that makes you unique. It’s the thing that makes others want to pay hard earned money to be a part of it in some small or large way. It’s an idea that spawns other ideas without deteriorating itself. Take your brain child for example. Cheap for the user; to be a part of it is an arguable must in the Independent Music world. Now take the paraphrased thoughts of some of the runner ups to American Idol. “We all have a track here or there, an album on iTunes, [etc.].. but we are none of us truly successful until the moment we define ourselves as separate from the rest.” I think this post had nothing to do with flipping anything, except my middle finger to the Man. But in hindsight, as you once equated the foot-in-the-door to being like a starting line or finish line to a race… I’d say that to flip ones self is definitely the way to go. Rather than pay a little to hope the engine runs, pay a little more, and offer your own engine to all those other racers out there that just don’t have what it takes to build engines. >.>; yeah.
Hilary’s comment about giving free concerts to generate income for non-profits is a brilliant idea, one which gets my gut twitching.
I am wondering how you built it up?
Voices of Eden music(http://www.voicesofeden.com) is also founded around the principle of bringing peace. It is medically researched and proven to lower blood pressure, and it is made by Jews and Arabs living and working together peacefully.
We are a living example of peace in the middle east. Over the last ten years of building this project, I have done lots of free concerts and giveaways. I have not gotten to the point of profit though. This is why I am so interested in Hilary’s model.
Look forward to learning more.
What you mentioned about Google seems wonderful until you look at what else they are doing: mainly, they are lobbying Congress not to pay copyright holders every time their songs are played on radio, TV, and other places of business. How can this company pretend to be the public’s “friend” when they try stuff like this? I’d be interested in a comment from you, Derek, on this matter. Independent artists have a hard enough time as it is without a big company like Google holding them back.
People seem to conveniently ignore the fact that artists/musicians/songwriters need the income to pay for their food, clothes and rent. No fan is offering to pay the cost of living for their favorite artist but they want his/her music for free.
GO TO MYSPACE.COM/thestreetprinceopal