Challenging notions of “free”

February 11, 2009

Overview

• Why revisit “free”?• Approach• What we found• What next?

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“Free” is not “new” …

• A long and successful history• Galleys, ARCs, blads, sample chapters• Digital sampling on the rise• … but only a small set of experiments using

fully “free” content

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Why look at this now?

• Growing sophistication of ebook readers• Proliferation of digital content• Ongoing debate about the true impact of free• Perceptions of a piracy threat

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Why O’Reilly and Random House?O’Reilly Media Pioneered discussion of the distribution of free content

Active in promoting widespread access to its content

Perceived as vulnerable to a piracy threat

Random House Largest U.S. publisher

A wide range of book types reaching a variety of audiences

Engaged in a number of experiments with “free”

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Book marketing: growing content discovery and access

High Discovery

High Access

Low Discovery

Low Access

Appearance on Oprah

Coop Marketing

Corporate Web Site

Museum Stores

Amazon Promotion

Catalog & BEA

Over time, in

crease both discovery and access

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Options to focus marketing

Build or extend an individual

brand

Market cost-effectively across a content niche

Cultivate relationships to drive sales

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Our approach

• Document and assess prior work• Address data quality• Analyze and share results• Assess implications• Develop and propose next steps

The research is data-driven, open (without compromising publisher data) and structured to share knowledge.

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Overall findings

• Not binary• Measures must evolve• Does not appear to parallel other media• P2P “threat” may be overstated– Low incidence– Significant lag– Technical skills are not commonly held

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Proposing a more nuanced model

“White” market

“Gray” market

“Back channel”

• Print sales

• DRM-protected digital sales

• “Trialware”

• Unprotected digital sales

• Galleys, ARCs

• “Free” promotions

• Unauthorized duplication

• Pirated content

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Overall findings

• Not binary• Measures must evolve• Does not appear to parallel other media• P2P “threat” may be overstated– Low incidence– Significant lag– Technical skills are not commonly held

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There is value in structured testing

• Track a robust set of variables• Provide appropriate segmentation• Capture content characteristics• Test hypotheses (validated or refined)

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The sample matrix (illustrated)

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An initial look at sales impactTesting free (Random House)

8 titles, 12 formats tested in the first half of 2008

Sales up 19.1% during promotional period

Sales up 6.5% during promotional and post-promotional periods

Ranged from 155% up to 74% down

Monitoring P2P (O’Reilly)

8 titles that were posted O’Reilly front list in 4Q 2008

Average post-seed sales were 6.5% higher in the four weeks after

Ranged from 18.2% up to 33.1% down

Low seed and leech volume

Average first seeds appeared 20 weeks after publication date

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We tested the results in a few ways

• Did pre-sale volume matter (i.e., would sales lift be greater for a previously popular book)?

• Is there a relation between immediate (during promotion) and post-promotion lift?

• To create comparability, we used “average sales” for each period (pre-, during and post-)

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Promotion and post-promotion sales not correlated with prior sales volume

Correlation coefficient = 0.03

Promotional sales also not strongly correlated to prior sales volume

Correlation coefficient = 0.1217

What does this tell us about “free”?

• Average results in a small sample were “up”• A range of possible outcomes exist• No correlation with prior sales, even when

isolating print sales as a channel• Important to collect more results and grow

the sample size

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We took a similar approach to testing the data collected on pirated O’Reilly titles…

It’s not clear if prior sales volume changes the impact of pirated content

Correlation coefficient = 0.67 (-0.30 if outlier is excluded)19

The number of seeds is correlated with growth in print sales

Correlation coefficient = 0.35 (0.74 if outlier is excluded)20

The number of seeds peaks quickly

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The number of leeches peaks immediately and quickly declines

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Lag time before seeding varies

Average = 20 weeks

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Some research surprises…

• Number and range of “under the radar” free experiments available for analysis

• Strong interest among trade publishers• Some strongly positive correlations• Low volume of P2P incidence• Lag time on P2P seeding

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The work will continue …

• Matrix offers 20 possible options (and even more permutations)

• 16 covered in this first pass, but several with only a limited set of data points

• More promising opportunities to test– Young adult– Backlist, especially for series– Trade nonfiction

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Three useful cautions

• Correlation isn’t causality• Larger samples may uncover an existing skew• What works today may not work as well at

some future date

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Next steps

• Additional Random House tests queued• Continued P2P monitoring• More publishers can help fill in the test matrix• Gathering feedback• Refining the analysis

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For more information

• “Rough Cut” research paper coming soon– Includes research covered here– Also provides background on free and P2P

• brian.oleary@magellanmediapartners.com• mac@oreilly.com

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