Oct 6

Tim O'Reilly

Tim O'Reilly

Setting User Expectations on Price

Great comment from Michael Powell at the Web 2.0 Conference (paraphrase): 'My son says 99 cent songs on iTunes suck! He thinks music should be free. But his ringtone bill last month was $40! To me, a ringtone is just a bad sample of a song, but to him, it's worth $2.99. It's all about setting expectations."

Boy is he right. This is one of the big challenges of every economic transition -- figuring out how to set user expectations for pricing. (Incidentally, this has been one of our challenges with Safari. For our publishing business to survive, we have to set expectations for the price of an electronic book service that will support the costs of producing the content -- and thus our business. If we don't set reasonable expectations, we die. Some of the early eBook services sold publishers on the idea that this stuff was just ancillary revenue, and so they could price it really low, as gravy. But we thought that online access would one day be primary, and we'd have to live on the revenue that it provides. So we needed to set the pricing expectations much higher. And note that I said "reasonable" -- enough to create a willing buyer and a willing seller. If we try to charge too much, we die too.)

Makes me think of George Soros' comment about "reflexive knowledge" - that many of the most interesting things are neither true nor false, but become true or false depending on what people believe.

tags: web 2.0  | comments: 9   | Sphere It

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Comments: 9

  Aaron Suggs [10.06.05 05:49 PM]

Saying that users will pay more or less for a product based on how the producer sets up expecatations is really the same as saying that products that are advertised well command a premium.

Ringtones and iTunes downloads are drastically different products. Ringtones are about conspicuous consumption, since all your peers notice that you have trendy or eclectic tastes whenever your phone rings. iTunes downloads, on the other hand, are usually consumed alone.

An analogy may be clothing that people wear when they go out partying and clubbing, versus the clothes they wear when they're laying around the house. People pay more money for high-fashion clothes to wear when they're out being conspicuous, despite the fact that they're less comfortable and warm (just like ringtones have poor sound quality). Pajamas, t-shirts, etc, that people where when they're laying around are much less expensive, but are much more warm and comfortable.

You expect others to judge you by your ringtones and party clothes, and thus they are more expensive.

  claudio [10.07.05 05:47 AM]

Setting the price is always difficult. Especially in the music industry where everyone wants a part of the cake.

But to me iTunes looks like a perfect platform for independent price setting, not by the music industry, not by the platform, but by the perfomers themselves.

Place your songs on such a platform and set your own price (minus the expenses for the platform) as low or as high as you want, has to lead to more profit.

And price settings always fluctuate. Doesn't your daily bread get more expensive every year?

  csven [10.07.05 07:21 AM]

I love the ability to cut 'n paste. I posted a comment on another site back in May and think this excerpt gets to my concern that expectations being learned now may seep into areas where they shouldn't:

"The realist perspective, or at least mine, is that people will generally take what they can without regard for long-term consequences. Every "want" is a "need", and every need has to be satisfied now. And the issue I see is simple: the casual attitude towards piracy is going to continue swinging through a whole host of technological advances - some of which I'm betting will need to be regarded with much more seriousness (just wait til someone "pirates" genetic code and clones someone of interest; after all DNA is nothing but information).

As for the worst case effects, that's perhaps a little trickier to answer. In a world where the only thing easily pirated is music and movies, it certainly doesn't sound so bad. But in a world - today - where companies pirate whole cars either through reverse engineering using new technological tools, or steal the 3D data outright (an increasingly alarmingly issue for American companies doing business overseas and a huge issue for independent designers trying to develop products outside of the corporate world) the issue is much more complex. At that point it becomes not only a tangible product, but has an impact all the way down to a person's job. Will they understand that ripple effect then? Maybe... when it's too late. Or maybe only when they see an unauthorized clone of JFK or Reagan running for office (or starring in some S&M pron flick). And still maybe not then."

My sister and I have had words on my nephew's extensive piracy habit. Not because I care about the music or movie industry in particular, but because I see how that kind of attitude can affect his future. Three weeks ago my nephew, now a 5th year engineering student, came to me with what he hoped would be a patentable idea and expressed concern over how best to protect it. Go figure.

At some point I believe we need to rein in the corporate influence that has thrown the IP system out of whack and return it to it's original intent. And at the same time we need - imo - to start aligning expectations with long-term consequences.

  csven [10.07.05 07:27 AM]

In my comment above, 2nd and 3rd paragraphs are quoted. Not sure why the italics didn't bridge the paragraph. Sorry.

  cameldrv [10.08.05 03:55 AM]

If you expect Safari to be primary, you need to make the user interface much better. As it stands, you're reduced to viewing the book in tiny increments. It is infeasible to read your books as opposed to just using them as reference material since it requires so much extraneous hunting for small "next" buttons and scrolling after reading just a paragraph or two. I would really encourage you to eat your own dogfood here and make the appropriate changes to the interface.

  100%_Texan [10.08.05 04:11 PM]

Just wanted to chime in about paying for music online. I work in the tech industry so I have a high level of exposure to geek culture. Geek culture is into paying 99 cents a pop on iTunes. However, I live in the real mainstream world, and I don't see people in my peer group or younger willing to pay for music online... And I'm 34.

I'll buy the occasional CD, but if it's a popular tune I can download a 320bps rip free and fast. No pay service will ever be able to compete with the open P2P model, ever! I think the economics of abundance and convenience ensure that anyone charging for music online will never own a significant share of the total market. The vast share of the market is currently black, but hopefully that will change once society's de facto idea of fair use prevails and entertainers incomes revert back to a more historical norm. That said, I really enjoy your blog Tim and I like your definition of Web 2.0. However, it feels like 1995 again and even here in Texas I can see a froth beginning to bubble in Silicon Valley. I think the cart is already ahead of the horse and lots of Web 2.0 start-ups are already ignoring the lessons of Web 1.0. That includes business model and just plain practicality and usability of a lot of these new services. Seems like more of a rush to glom onto a lot of technology and buzz and geek uberculture. Sorry, that ain't the real world. Mainstream acceptance something as simple as RSS is still years away. I think some geeks might find this hard to swallow, but it's true. Another thing, I notice about a lot of these Web 2.0 companies is they are all still clinging to a social networking component. Apparently the fad isn't over. I agree with something you said a while back Tim. It was along the lines of social networking being embedded into the things we use for real social networking, i.e. email, instant messaging etc. Sorry for the rant. I could go on, I have a lot more beefs, but I'll spare you. At the end of the day, I still really like Web 2.0 and think it is a second revolution of sorts. Just wish people would take the lessons of 1.0 to heart. It's so recent, you would think it obvious. Alas, 'tis not.

  Jim Cushing [10.10.05 09:34 AM]

"In a world where the only thing easily pirated is music and movies, it certainly doesn't sound so bad...At that point [where things other than music and movies are pirated] it becomes not only a tangible product, but has an impact all the way down to a person's job."

Pirating music and movies also has an impact on people's jobs. Make no mistake about it.

  Glen Pepicelli [10.11.05 05:42 PM]

I have to agree with the previous comment about Safari's interface. Safari is a unique service that I'm glad to pay for. I can get technicial information when I need it-- which is usually right "now". However, I find it hard on the eyes after a while. I wich you could somehow change the font and even the color scheme. I find the default font (using IE for Windows) hard to read. And yes the section are too small sometimes. I still buy print books. Overall, I think I acutally spend more per year total (Safari+Books) than I did before Safari, but I also get a lot more in return.


  pentimento [10.12.05 10:44 AM]

Pricing in the Web 2.0 marketplace balances between theft and payment in my opinion. If you are stealing, who is getting stolen from? The Man? Or the creator?

The example above of the Nephew informs the notion of not wanting to have your own things stolen along with the items lifted from Corporate USA. Web 2.0 can help in this distinction. If you can "meet" the creator of work, even collaborate on the work, will you be less likely to take it for nothing? I think so.

The fact that the Nephew can steal music and want to preserve rights in his own work points toward this paradox of anonymity. Taking something from someone you can't identify or dislike is easy. Perhaps it's an issue of basic morality and the Nephew is a theif, fully aware that he is stealing and knowing that he is likely to be stolen from. But I think the problem is more complex. Knowing that the act is wrong is the basis for crafting a solution.

Web 2.0 compresses the world so creator and consumer (collaborator?) sit at the same table. Harder to steal when you're a fan in my opinion. Once over the hurdle of paying, the issue of pricing "fairly" looms. Again, the one price-fits-all approach may not apply at all. There is a personal decision to be made on the part of the consumer: first to pay or not, then how much.

It's always interesting to me that whenever we speak about our own work-product we speak in terms of what is "reasonable", and when we speak in terms of the other guy to conversation revolves around to them making their work "open". Maybe the Nephew isn't so bad after all.

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