Fantastic article in Wired by Chris Anderson titled The Long Tail. You MUST read it. Physical distribution limits the number of titles of books, music, DVDs that can be stocked. He explains that online sales show that the market size of stuff below the break even threshold for physical distribution is often larger than the market for the "hits" that make it into stores. He calls this "The Long Tail". We can essentially double the market for most content by figuring out ways to help people find the stuff they are looking for in the long tail and deliver it online.

He also makes another important point about pricing. The iTunes 99 cents is too expensive. It's based on a calculation to protect CD distribution. He suggests that the price should be based on how much your time is worth. In other words, at what price is it not worth your time to find, download and tag a track from a file sharing network. He thinks that maybe this number is around 20 cents for a college student.

I absolutely agree with his analysis and it's great that he's got so many figures and facts to support the argument.

UPDATE: POP STARS? NEIN DANKE! -
In the future everyone will be famous for fifteen people...
written by Momus in 1991 is very relevant to this discussion. Thanks Boris.

8 Comments

I'm not sure that you are right about 99 cents being too high a price. I'm distributing many of my old articles throught Lightning Source and selling them through Amazon, Powells.com, Elibron, Ficitonwise and affliated online retail websites. Even when you already own the material, the costs of registration and preparation are there and you give up 55% of the price for distribution costs.
In addition, Amazon never says so, but they simply won't handle any kind of e-document priced at less than $1.95 US. (I found this out the hard way). Since they are the big international distributor, a small publisher has little choice but to go along and no one is allergic to making money. So you end up with 88 cents net per article or more. Given that Lexis-Nexis, Factiva, Dialog et al charge anywhere from $2.95 to $22.00 plus for an individual text article in the corporate intranet market, $1.95 is a bargain. In fact pricing that low may hurt the marketability of the product.
Bottom line, it is worth what someone is willing to pay for it. Certainly text does not produce the high volume of sales that music does. The classic supply and demand equation is not really relevant here. A digital product, once on the server, has an infinite supply and can meet all demands. If it is unique, then the principle of Hobson's choice applies. The seller owns it and determines the price and those who don't wish to meet the price must do without. Unless they are thieves and simply steal it.
In an effort to determine the most desirable price I am experimenting with small collections or "thematic bundling" of between two and a dozen articles on a single topic. It will be some time before sales will tell us which path produces the most sales. It is very hard to tell which article will sell. So far, the best sellers I have are my 1970 interview in Frankfurt with Frank Zappa and the two article collection on Precision Farming and Agricultural Intelligence Gathering. Quite a range and probably not the same market.
But it's early days yet. I expect a big upsurge for most of our titles when term papers are due and students looks for fresh resources and data.

Francis:
"Bottom line, it is worth what someone is willing to pay for it."
Not sure about this anymore. That's true if it's something 'real' (you can pick it up), but in the digital domain worth is very transient.

As for the 99 cent thing, I think it was just iTunes prices (music tracks) that was being discussed at that point. Worse still, they're 99p in the UK which is about $1.20 or so - not fair!!

---

Great article Joi, thanks for pointing it out.

Wah - thanks Ito. This comes timely. I am just preparing a presentation about customer segmentation strategies (title given by organiser) and new ways to engage the customer (my insertion) and the defragmentation of markets - this article fits just nicely into my section about my piece about the power of Word of Mouth and Amazon's tremendous customer orientation.

Keep up the great work - I love your blog

Joi, I tried to iChat you about this article the other night.

I agree with both points in this post. Having worked in retail for several years, I've often thought the market could be changed dynamically if the number of choices available could overcome the size of the stores available to hold them. Amazon is one way to level the playing field; any others who come along will add fuel to the fire.

As for 99 cents per song on iTunes, while it's still cheaper than a CD single, it would still average out to $12 per album, give or take... When albums physically cost pennies to mass produce (and less to transfer online), and the standard album only has three or four songs worth purchasing outright, that still adds up to a hefty profit per 99 cent song downloaded... Probably too hefty... A quarter per song, or five for a buck, would be much more accurate...

Legit music downloading is at the same stage of thinking and price point that email was when all you could get was X400 mail over an X.25 network, and the telcos charged you EUR 20 or so per megabyte. The systems weren't geared up for doing it any cheaper, and the commercial environment meant that they didn't have to bother.

One of the drivers of high costs is the cost per transaction. At the moment, it seems like it costs at minimum 10c-20c to process any online transaction involving money (excluding credit card percentage). This is far too high. A lot of the cost seems to come from software and hardware development, licensing and maintenance costs.

I am pretty certain that the cost/transaction could be driven down below one cent if you had volumes of a few tens of millions of transactions per day. The problem is obviously getting to that point ...

As someone who produces a creative product in relative obscurity with hopes that people will eventually see fit to open their wallets for it ... I found this piece rather uplifting.

;-)

Setting the price point for online music is an interesting question - I speculated back in the heyday of Napster that my consumption of online music would stay the same if the tunes were priced at a nickel apiece - any more than that and it would inhibit the rate at which I was willing to explore new music. And indeed that's turned out to be the case - I do purchase a fair amount of online music, but not nearly as much as I'd like to listen to.

Having just relased my jazz trio's latest recordings, we ended up putting high quality mp3 files up for free consumption online, and we'll send folks a CD for three bucks if they'd rather have the physical media. We figure that's about right, and, like most musicians, we'd rather get our stuff heard than make money at it. ( http://www.whisperingj.addr.com if you're interested).

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