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Tim Pastoor

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What business models are outdated and what are the alternatives?

One example to begin with:

"SOPA & PIPA are not about copyright. It is about protecting a dying business model. (...)
This isn't about stealing for the movie industry bigwigs and their high priced lobbyists. It's about desperately trying to maintain the old familiar business model that afforded them a lifestyle of Armani suits, lunch at Nobu and limos. It didn't work for music and its not going to work for movies."

- David Meerman Scott

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  • Jan 27 2012: I'm not an economist, but it seems to me the business model for success in the Internet age has already been well established. You give a little away for free in hopes that either a) users will want more and be willing to pay for it, or b) you will get enough users to attract advertising dollars. That's how every Youtube partner made it, how every special interest message board and social networking site pays for itself. Yes, this means you initially have to lay out money without knowing whether you'll get any back, but that's true when starting any business.

    If I were a record company or movie studio, I would design my own website. I would offer samples of my content and an easy way of buying it. I would include other things to attract users - the blogs of some of the artists on my label, perhaps a discussion board or a game. Hollywood had (and still has) the opportunity to get in the game themselves - they're just too technophobic to use it.
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      Jan 28 2012: I would add crowdsourcing to the 'freemium' and 'platform' models. Indeed, crowdsourcing/crowdfunding is starting to disrupt some industries, including the showbiz: Wikipedia which is causing troubles to encyclopedias, one can easily substitute manuals by googling fora and the likes, soon we will be able to learn languages while helping translate the Internet (http://www.ted.com/talks/lang/en/luis_von_ahn_massive_scale_online_collaboration.html), crowdfunding could modify (at least a little bit) capital markets, Youtube offers so much entertainment (free from copyright) etc.
      Freemium, platorms and crowdsourcing essentially concern intangibles. Still, I wonder whether these three business models (which exists thanks to, and on, the Internet) will have an impact on the economics of hard goods. Some clues are already there: ebay and Amazon enable the 'long tails' of manufacturers and consumers to meet and 3d printers will do much more.
      Probably the showbiz is just the first industry trying to resist the disruptions caused by the Internet.
  • Jan 25 2012: If a business model is truly outdated, it will collapse under the weight of its own incompetency and new ways of doing business will take their place. The only thing that really changes is who's wearing the Armani suits and how they're paying for them. Since everyone could not have Michelangelo paint their ceiling, should society have insisted that he pass on the Sistine Chapel? Scarcity is intrinsically rationed by the fact of its scarcity. I'm fine with replacing money as the means of determining distribution, but every other measure is just as arbitrary and demonstrably less productive and I say this as someone who's part of the 1% at the bottom of the scale. One might want to look at one's envy of Armani suits and being driven to Nobu in a limousine. If those truly are not how you measure the quality of your life, then why would you care if someone else has them? There is no straight line path that runs from Armani deprivation to feeding starving children. If wish that there were. It would greatly simplify the choices we make.
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      Jan 26 2012: Nice analysis David, and I agree with you on this one. The way 'the system' works nowadays is build upon the events that came out of human nature. People shouldn't do anything just to acquire an Armani suit in the first place. If you don't do whatever you do out of passion, you'll never fully enjoy what you're doing. And no, I don't believe in pursuing a life goal of getting that Armani.
      I believe in business models which pursue a social return on investment, instead of a financial one. Out of this, one can truly become successful and create a business model for the long term. I see new business models around me which are becoming successful, thanks to this concept. I hope the world will see many more, and that many more people will get inspired to create one of their own (especially with other people in a multi-talented formation).
      • Jan 27 2012: Why would one want/need an Armani suit in the first place? it is nothing more then a status symbol and has nothing to do with the cost and quality of the suit, and as such a totally inefficient way of distribution scarce resources.
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          Jan 29 2012: I still maintain that the remuneration of creative effort has to be directed to the effort - not the result. We used the model of gaining that remuneration at the point of transaction only because it was a practical way to do it that way, not because there was any underlying functional principle mandating the method. With digital media, the test of practicallity evaporates. It is now plain that the underlying functional principle is creative activity - not creative result. It is the activity that must be remunerated. What method matches that functional principle?
          If you have ever worked for a company, you will see that your terms of employment also include granting exclusive right of the result to the company - you are remunerated for your activity, the company enjoys the result exclusively - you have no control over it. Most are happy to operate under those rules.
          Of course, the company then goes on to re-market your intellectual results in order to pay you and gain a profit.
          Perhaps the corporate employment/IP model can be used, but that the corporation is taken from the process and the customer pays the worker directly for his activity. Paying for activity is a problem because most expect a product at the time of transaction.
          So if we then replace the company with a management collective that garners funds for the creatives within the collective, the results can then be released for free copy by the customers. Problem there is that not all customers have paid. Then we are back to the jelousy thing .. is that a real problem - the objective is to pay for creative activity - not to become rich?
          Assuming such a model could work, then what methods are available to attract funds?
          There is patonage and subscription .. is there any other way?
          It is in these methods that the real progress will be made.
  • Jan 26 2012: I think part of the problem arises, in my opinion, from the different solutions on macro and micro levels. On the micro level, I agree that everyone is best served by following their passion and supporting their immediate community. On a macro level, I think profit is the primary solution to larger problems. Apply micro solutions to macro problems seems to create large amounts of unintended consequences. If we can find a way to monetize the elimination of poverty rather than the current system which monetizes the treatment of poverty, we might go a long way towards significantly raising living standards around the world.
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      Jan 27 2012: On a micro level, we're communicating and sharing information on a massive scale and on the fly nowadays, whereas on a macro-level we've got a monetary system which does the complete opposite when it comes to the social and humanitarian aspect.
      The way of how money is created is outdated. Therefor more and more people are starting to realize that we need some alternative(s) to this monetary system. To my opinion the problem already starts with governments who'll have to borrow money from private entities which can create said money out of thin air. It's totally bizarre once you start realizing how money creation works.
      Using this system as a basis for a healthy economy will probably never work. You'll never be able to totally control/balance the money circulating within your system and therefor inflation and deflation (read: purchasing power). Once countries take back the power to print money, from the aforementioned private institutions, and are able to print money debt- and interest-free, their economies will flourish like never before... Well, that's not totally true. Take Colonial Scrip, Hitler's (not that I'm a fan of the man) Labour Treasury Certificates, the English Tallysticks, the Swiss WIR Bank or the Wörgl Experiment for example.
      I don't believe that it's easy to implement this (Q: What about import/export for example? A: Barter..? Exchange markets..?) but do believe in other alternatives which are already being implemented worldwide noways, such as complementary currencies. I believe that these currencies could stabilize and balance the macro and economic markets and maybe, just maybe, could set an example for a new debt and interest free currency one day. I think that this would be the best solution to get rid of poverty and raise living standards at the same time, but it won't be an easy one.
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        Jan 28 2012: Yes I agree with that. You could google the affects of "fiat currencies" apparently they always collapse - recorded in gruesome detail in the histories of fall of Rome.
        But then, when you are presented with rare-token-pinned currencies (gold and silver) it is still subject to boom and bust. The reason for this is that the tokens are not tied to actual value. Consider a community silo - the silo master issues gold coins for sacks of grain as the people bring in the harvest - the coins are a token to redeam a sack of grain as the person requires it during the winter. The coins are gold - not because they have any real value, but because gold is durable and rare. It all works fine - the silo-master has to obtain gold and mint the tokens as needed to cover the incoming sacks, and at any given time there are as many coins in curculation as there are sacks of grain in the silo. But then .. what happens when rats have gotten into the silo and eaten the lot? What are your coins worth then? The link to value is broken.
        With the internet, we have no further need of coins - but these numbers we shovel around the network .. now they need to get pinned back to value. There is no longer any need for gold, and fiat currency becomes doubly useless. Now, for the first time in history, we have an opportunity to measure each person's contribution to the creation and increase of value as it is transformed from the Earth. But to avoid inflation from our own increase, the currency must be returned back to the Earth. Our waste must also be counted.
        THere is a big divide between physical increas (what can be used for physical needs) and intellectual increase (what can be used for tools and what can be used to enhance quality of life). The production of intellectual value still requires an input of physical value and effort, but is imortal whilever it can be copied and repeated. I argue that what is granted the creative should be counted just as our waste should be. SO how do you do that?
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        Jan 28 2012: AHA - I knew there was a fatal flaw in IP!!!
        If you attach a real monetary value to something that can be infinitely copied - in effect you have something that has the potential to generate infinite money!
        Of course, even in a "funny money" economy, the money is finite .. so the operation of IP is to syphon every bit of value from the economy!
        It's just kindergarten arithmetic.
        SO if economists and governments have done their arithmetic maybe they are doing something else .. but what? I suspect they just haven't done their sums.
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    Jan 25 2012: A business model that will gradually get obsolete is one that believes one can charge based on the cost of creating an Intellectual property. The benefit it gives and hence its usage value to customer will increasingly determine true value. In non linear terms this means business models that expect revenue from savings made for customer are sustainable. Finally in a Google age innovative business models will emerge when we start with the assumption that we will not be "directly paid" for our offering. NOW how to make profit? Those will be the innovative business models of the future.
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      Jan 26 2012: Like I've said in my previous reply (to David Grammer), I believe in successful models which derive from the ideology of social return on investment. While entering the 21st century, and as you call it 'the Google age' (I personally call the last decade 'the Google decade'), we're starting to notice that the customer is king once again.
      Just like the experience you would have had at bakery in the 1950's, businesses are becoming more transparent and accessible once again. At the same time hospitality is increasing and so is the quality of the advice they're giving their customers. More of the boundaries of formal handling are being taken away and at the same time the quality of support, maintenance and communications also increases. The internet is bringing really big change to the (business)world, and therefor I'm convinced that it's a real (economic and social) revolution that could be bigger than the Industrial Revolution.
    • Jan 27 2012: Perhaps you can clarify "A business model that will gradually get obsolete is one that believes one can charge based on the cost of creating an Intellectual property."

      Do you mean that - Intellectual property has no value? Or anyone who invests in creation of anykind in the future should expect a loss?

      If that's true and that's what you mean, that's why I ask you to clarify, then I wonder if the only people that can afford that price are the megacorperations of today.

      Doesn't it also imply there is no hope for individuality and the sole creator.
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    Jan 24 2012: Any business model that depends on control of markets and customers.
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      Jan 26 2012: I agree. It should be the other way around. At least, in that segment I find most of the existing 'healthy' business models as an example.
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      Jan 29 2012: Uday, the only method I can think for indirect remuneration is a benevolent fund.
      The benevolent fund is financed by those who recognise the value of creative activity. THis could be individual benefactors, companies or governments.
      The creative would be able to claim on the benevolent fund based on the time spent realising an idea and on the subscription (the number of copies made). Obviously, there is an entry barrier to the creative, because he/she has expended the effort - what sustained him/her during that time?
      I can see such a model working for matters currently covered by copyright (intellectual products that do not lead to actual food/shelter/water/security)
      But for intellectual products that lead to toolmaking (technology), the remuneration model might have to assess the potential value of the tool (things like methods, techiques and actual tool design).
      The conduct of such a fund would have to be absolutely open to scrutiny - with an open method for setting remuneration metrics against true value - keeping in mind that no one can eat a song .. and yet the singer must eat .. real physical items are consumed by artists now, there must be enough abundance to allow that .. it is already demonstrated.
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    Jan 31 2012: I'd say there is a trend according to which companies that solely rely on themselves encounter huge difficulties.
    And the companies who manage to do well are the ones that find a way to harness the creative power of the masses (crowdonomy).
    Proprietary models debates set aside here, look at Apple's app store as an example: the apps sold are not created by Apple employees but by thousands of companies or individuals. By doing this, Apple offers great value for less.
    "Great value", because you virtually can find anything you need
    "For less", because the price of "software" has dramatically decreased.

    Put that in perspective and look at Adobe's model: Photoshop is a very good product but suffers from alternatives like photo apps. I've used Photoshop for a long time but now use Snapseed to edit my pictures, because the features offered are the only ones I ever needed.
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    Jan 31 2012: A very good way!! but Non linear models are those that do not assume 'direct payment for services". As an example we see online search making a lot of money but not from "the customer". Google takes money from a THIRD PARTY who is keen to talk and sell to their non paying customer. growing examples.
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    Jan 29 2012: I only know of one viable business model: Reliably provide a product or service that is valued.

    The rest is all regulatory or management models.