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Free: The Business Model of Paul Coelho and the Grateful Dead

grateful-dead-poster-free-concert

A reader from Sydney, Ian van Niekerk, sent me a great article featured in February’s Fortune Magazine. The article discusses how Brazilian author Paulo Coelho has been an apostle of the economics of free Internet distribution for years.

In 1999, best-selling author Paulo Coelho, who wrote “The Alchemist,” was failing in Russia. That year he sold only about 1,000 books, and his Russian publisher dropped him. But after he found another, Coelho took a radical step. On his own Web site, launched in 1996, he posted a digital Russian copy of “The Alchemist.”

With no additional promotion, print sales picked up immediately. Within a year he sold 10,000 copies; the next year around 100,000. By 2002 he was selling a total of a million copies of multiple titles. Today, Coelho’s sales in Russian are over 10 million and growing. “I’m convinced it was putting it up for free on the Internet that made the difference,” he said in an interview at this year’s World Economic Forum in Davos.

Coelho explained why he thinks giving books away online leads to selling more copies in print: “It’s very difficult to read a book on your computer. People start printing out their own copies. But if they like the book, after reading 30-40 pages they just go out and buy it.”

On Friday, Paul Krugman of the New York Times discussed the very principles advanced by Coelho — and even earlier by Esther Dyson in Bits, Bands and Books.

In 1994, one of those gurus, Esther Dyson, made a striking prediction: that the ease with which digital content can be copied and disseminated would eventually force businesses to sell the results of creative activity cheaply, or even give it away…her most compelling illustration of how you can make money by giving stuff away was that of the Grateful Dead, who encouraged people to tape live performances because “enough of the people who copy and listen to Grateful Dead tapes end up paying for hats, T-shirts and performance tickets. In the new era, the ancillary market is the market.�

Bit by bit, everything that can be digitized will be digitized, making intellectual property ever easier to copy and ever harder to sell for more than a nominal price. And we’ll have to find business and economic models that take this reality into account.

It continually amazes me how even with technology, history has a way of repeating itself. Esther’s Grateful Dead example is just one of many overlaps between the hippie movement and the modern web 2.0 movement. Ultimiately the things people really value will never change, even if the models or mechanisms for delivery do. The relationship between price, intellectual property, and distribution is surely something to watch closely for years to come.

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