THE BLOG
10/14/2013 12:46 pm ET Updated Jan 23, 2014

Afraid of Piracy? What the Online Community Willingly Pays For

Those who grew up with the internet were raised in an environment in which paying for intellectual property has almost always been an option, not a requirement. If you were tech savvy and didn't want to pay for music, software, games, TV shows, or movies, you didn't have to. This option has been present since the online community was in its most nascent stages, and whether ethical/legal or not, it will not disappear. For companies to thrive in the online community they need to do more than punish pirating, they need to identify what the online community is willing to pay for.

Ownership of intellectual property is not deemed by the online community to be a legitimate grounds for payment. The fact that your company spent money to develop the piece of content is more of a jumping off point for negotiations as to whether or not people should pay you for it (I am not arguing that this viewpoint is legitimate or illegitimate, only that it exists). Does this mean it is no longer an intelligent investment to create content for the online community? Under what circumstances will they actually pay for something?

Writing off the online community as a potential market segment may be feasible for some industries, but businesses that predominantly target young, tech-savvy males will find it very hard to take that loss. The crucial value of the online community can be seen starkly in the video game industry, their heavy reliance on young tech-savvy males means that the online communities opinion of products in this field can single handedly lead to their success or failure.

Increasing the level of piracy protection is not the answer. The online community is an interconnected echo chamber that will either come to love or hate a company based on its behavior (there is rarely a middle ground) and they hate piracy protection which disrupts their enjoyment of a product. Resounding disdain (or love) of your company can cause the online echo chamber to begin exporting its message to media through sites like Reddit. The echo-chamber effect of online chatter combined with media amplification manifested itself with the disastrous release of SimCity in 2013 hated largely due to strict anti-piracy measures, which ultimately led John Riccitiello, the CEO of Electronic Arts, to resign. A similar online community blowup took place in reaction to the anti-piracy measures that were to be included in the XBox One, which resulted in Mark Pincus being forced out of his position as running Microsoft's interactive entertainment business to run the Hindenburg of gaming companies, Zynga.

However, history has demonstrated that piracy can be lessened from the online community. Before the video game company Valve released its Steam storefront, computer game piracy was extremely commonplace. After the launch of Steam, the amount of piracy within the games through that online marketplace declined rapidly- primarily due to three major factors: convenience, customer loyalty, and free products and services. (A similar effect has been seen in online video through sites like Netflix, which drastically reduce piracy when they enter new markets.)

Businesses looking to make bank online would be wise to capitalize on convenience. When Steam was first implemented, it made it more convenient to buy a game than to steal it. The state of the video game industry had become so bad that in some cases, pirated copies of games would be better than legitimately-purchased versions because they were stripped of draconian anti-piracy measures that hampered smooth gameplay. Steam allows customers to do things like download a game before its release date, then gain access and be able to immediately play that game the moment it was released. Moreover, unlike similar online marketplaces for music (such as iTunes) games purchased through Steam can be deleted from your computer and reinstalled whenever you want.

Customer loyalty plays a pivotal role in online payment. Valve encourages people to pay for things they wouldn't pay for otherwise because it has styled itself as a company people want to reward. Whether you want to believe this or not, the online community gets to choose whether or not it pays your company. The best way to get them to pay you is through making them want to give money to your company.

Valve did two things in particular that really boosted customer loyalty. First, they put genuine effort into the creation of sequels to their popular games and tried to release products that would appeal to the fans of their previous games. This tactic naturally built up good will and lies in stark contrast to approaches taken by Electronic Arts, a company with a history of buying popular and well-made game franchises, then turning out half-assed sequels created for "a larger audience." Customer goodwill has also been maintained by Valve through effective price discrimination. Not only do games go on regular and steep (50 percent off) sales a few times a week, but a few days a year during the "Steam Summer Sale," a large portion of the marketplace's inventory is given incredible discounts (90 percent off) for a short period. As games frequently cost around $50 when they are first released, they are out of the price range of a good portion of the general public, which makes it far easier for them to justify piracy to themselves. The knowledge that a steep sale will come at least once a year is a good way to prevent individuals from acting on a sense of disillusionment.

Surprisingly, one of the best ways to convince the online community to pay you is to offer them your product for free. This tactic has been successful across a number of FTP MMOs (Free to Play Massive Multiplayer Online Games). An example of this can be seen with Riot Games, which produced the most-played game in the world, League of Legends. In their model, the user plays the game for free, but can give money to the company to customize their gaming experience in superficial ways (such as changing their character's clothing). It is absolutely crucial that these benefits be superficial and tangential to the game, otherwise the game will gain the label within the online community of a "pay to win" game. This label is used to describe a game in which the people who pay money to play have a gameplay advantage over those that don't.

The tactic of making a product free to ultimately drive sales isn't unique to the game market. In interviews with Gigaverse, bestselling author Hugh Howey and successful internet-based entrepreneurs Danny Iny and John Lee Dumas touted free book giveaways as a means of not only driving book sales, but sales of related products. It turns out that giving eBooks away for free can boost the number of favorable reviews received on Amazon (which can lead to a book being more prominently featured), enable those interested in print copies to try something before buying it, and effectively tout the value of other (non-free) books, products, and services individuals offer.

In addition to convenience, good behavior, and better/related/expanded versions of free products, the online community is willing to pay for customized IP and truly unique products. This willingness can be seen on sites like deviantART and Etsy, though customers commonly commission entirely unique products and works of art.

If there is one unifying theme behind online citizens' willingness to pay, it is a perception that payment is truly earned. Just because the online community can choose not to pay does not mean they will always withhold funds -- in most cases, people are happy to support brands they believe in. We have simply entered an era in which companies earn the right to be paid not only by creating great products, but by delivering them in a respectful manner. The more a company factors this consideration into their product development (and casts off legacy traditions and outdated legal paradigms), the more likely it is to thrive in the decades to come.