Piracy means failure in business models

A NYtimes article reports on how piracy is coming to books. The popularity of digital reading devices have inevitably created a demand for free ebooks, which in turn has spawn a market in illegal book scans. To counter this problem, publishers are now resorting to suing their users.

All these sound too familiar. We have seen it happening to music, films, games and now books. However, nobody in traditional media seems to learn anything despite the painful lessons that history is showing us.

Piracy implies latent demand. People want these goods but are unwilling to purchase them at the current price. This is a huge opportunity. It points to the need to radically reinvent our business models to fulfill these latent demand in a way that brings value to the entire ecosystem. It is not simply making money. It is about finding ways to make everyone better off.

In this age of abundance, piracy is actually not the worst problem facing the creatives. It is obscurity. With so many competing factors for our attention, it is getting increasing difficult for any new act to stand out. That is the most challenging problem creatives have to handle.

Currently, the most sensible model is to set your content free to win attention from fans. With sufficient fans, we can then talk about value capture which will increasingly be based on ancillary revenue streams. This NYtimes article describes how American Idol is learning from sports league to increase their revenue in times of falling ratings. There are many lessons in there that is worth noting.

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