Perhaps then the goal is to have a mutable pricing structure that responds to market pressure. If it really doesn't cost anything to produce 1 additional electronic copy, something like this might work.
At launch date / first to market, there is a high price tag for the digital good (whether it be music, game, movie, etc). This is so that the vendor/author can make sure that they can sell at a high price to those "first movers" that actually want to pay $1000 to be the first person on the planet to have that special ring tone, ahead of everyone else in the market, for example.
As time passes, and as more people buy the "product" (which is done via a download or a file transfer) - the price of the product goes down - because the as demand rises, the cost of production actually doesn't change - and the author already made some money, so there's no point being greedy, because then people would go and pirate it.
Once this price goes down, it goes down for EVERY SINGLE customer, including those who bought it during the high initial price. I mean, the vendor does have the customer's credit card numbers. Do a residual, scaled, periodic refund for every single customer, based on the differences between the current discounted price and the original price at which the customer bought the good.
As the # of units sold increases, the price of the product decreases - of course the relative rates can be tweaked so that the vendor is still making more money than they are discounting, because as an electronic/digital good, there are no factories or warehouses - it's easier to make money at mass scales when it comes to digital goods (vs physical goods like bicycles).
Existing customers feel validated - the more people they recommend to buy the product, the more money they get back.
New customers don't feel like they're getting ripped off - the prices are falling all the time, and you "buy into" a whole discounting structure.
The original vendor/producer can finely tune the ratio at which the prices fall in order to control profitability, popularity, and sales rate as a factor in promotion and marketing.
Again, if you take advantage of the fact that if you sell 10 copies, the cost for building the software/digital good is no different from when you sell 100,000 copies, then you can exploit that "efficiency gap" if you can call it that between the existing pricing structures and a variable pricing structure that I describe.
At some point, you will reach a "price floor" at which the producer is comfortable reaching their target cumulative total profit. Since altering the price changes the price for every single customer since the beginning of the lifetime of sales for the product, you can actually say - I want x million for this product in 3 years time - and actually be able to hit that target by planning out the way the price changes. OR if you believe in the long tail, go ahead and have a constantly decreasing price - as you reach the hundreds of millions of people in the long tail, you can charge 1 cent - and you would get hundreds of millions for a product you made - providing usefulness for all those people at a great price - AND being able to protect your livelihood during those critical first few sales.
Of course, this requires every single sale to every single customer to have its own merit, its own tracking system, its own values. BUT personalized sales is exactly what we are looking forward to in the future.
And I think technically, it's not super hard - I mean we have nonstop systems and mainframes and clusters of all kinds - that analyses the trillions of collisions in the LHC - what makes us think that we can't track six or seven billion consumers who are alive on this planet, who might be making 5 or 6 million transactions a year? It's not that bad when you consider the scale that google / national science foundation / CERN operates at.
> Once this price goes down, it goes down for EVERY SINGLE customer
Alternatively, what if the price went down for previous customers—retroactively, as you've said–but not for new customers? Then, customer N - 1 gets paid back a bit of money when customers N and greater purchase your product. There is a name for customer N - 1 in this case: an investor.
I've had the hypothesis for a while that the future of artistic economics is microinvestment: your fans purchase, through a completely streamlined process (e.g. iTMS), tiny amounts of the right to steer your career around—and the actual digital goods come for free with those investments. The "collector edition" becomes the "investor edition." Polls on your fan-site—in est a virtual shareholder meeting—hold real legal sway over your publisher/studio/firm. Etc.
ah yes that's an interesting idea to ponder - exactly the things that I like to think about.
Why do things have to be the way they are? I mean we are the future generation. The current generation who run the banks will vanish sooner or later, why can't we imagine a space where pricing and inventory and investments and money are completely different concepts?
I've often thought that it would be interesting to offer customers an option to commit to their own price, where they may be called on (say) a month in the future to pay that price or less, with the understanding that every person that purchases the product that month will pay the same price, ultimately chosen by me (presumably to optimize my profits). And then repeat each month, setting each month's settling price plus some premium (a couple percent or so, to make sure the price does not go to zero too quickly) as the "immediate purchase" price for the next month.
You, the customer, obviously wouldn't name a price higher than you were willing to pay (the product is not worth that much to you), but you also wouldn't have an incentive to undercut too badly - if you do so, I'll simply pick a higher cutoff than your price, and you won't get the product. There's really no gaming this system, if I'm not happy to sell at a price, I don't sell to you; if you bid fairly high, though, you'll never get screwed by me, all purchasers will be "filled" at the same price every month.
Chargebacks are the main problem with this - you'd have to make sure that you could retroactively adjust prices in order to avoid possible gaming of the system via fraudulent charges, and I have no idea how that would square with the CC companies.
Bonus points for somehow arranging things so that you can profit off of the interest on the committed-but-not-yet-spent money that people commit to spend on your product...
That sounds like the reverse of what http://amiestreet.com does with music - they start it at free and the price goes up to 99c based on demand.
If you buy it at the low price, you can "recommend" it (write a review) and then later after the price has risen, get the difference in price credited to your account. (The difference between the price at the time of the review and the current price.)
Unfortunately I think they're closing up shop in a month or two...
That's why you start high, and then go down. People actually want to pay you buckets of cash if you let them - all startups should keep that in mind.
As a consumer, I've also thought - hey this service/product is totally worth $50, and I would give them that money - but it's priced at $10 - so I'll just pay what they ask - 10 bux it is - it's a steal! - Great for me, not so great for the seller.
Have you ever felt like that as a consumer?
And if you're looking for consumers who can't afford more than $10 to spend on this theoretical product, maybe you're in the wrong industry segment, or you need to match the sale price with the production costs - ie you can't hire coders at $80,000/year just to make a $10/user product - until you hit that scale of # of customers.
McDonald's hires kids for their crew at perhaps $12,000/year, and sells burger meals for average, maybe $6 - $10.
And they're extremely profitable - even though they are selling physical goods with warehouses, processing plants, real estate, etc.
Unfortunately every single transaction in either direction incurs both fixed and variable fees, so issuing all those multiple refunds per customer would take a lot of money out of the producer/consumer system, handing it over to banks and payment processors.
A single statement from my merchant account includes 26 different types of credit card processing fees. And this is my third processor, the most transparent so far, which prices me only by a fixed percentage markup over the fees they're charged by Visa/MC.
Several independent game developers do this without the payback system. World of Goo and Machinarium are two examples of games available through all sorts of bundle packages and pay-what-you-like experiments.
They're also examples of developers who have declared 90%+ piracy, so I'm not sure that this anecdotal evidence has any value.
Once this price goes down, it goes down for EVERY SINGLE customer, including those who bought it during the high initial price. I mean, the vendor does have the customer's credit card numbers. Do a residual, scaled, periodic refund for every single customer, based on the differences between the current discounted price and the original price at which the customer bought the good.
At launch date / first to market, there is a high price tag for the digital good (whether it be music, game, movie, etc). This is so that the vendor/author can make sure that they can sell at a high price to those "first movers" that actually want to pay $1000 to be the first person on the planet to have that special ring tone, ahead of everyone else in the market, for example.
As time passes, and as more people buy the "product" (which is done via a download or a file transfer) - the price of the product goes down - because the as demand rises, the cost of production actually doesn't change - and the author already made some money, so there's no point being greedy, because then people would go and pirate it.
Once this price goes down, it goes down for EVERY SINGLE customer, including those who bought it during the high initial price. I mean, the vendor does have the customer's credit card numbers. Do a residual, scaled, periodic refund for every single customer, based on the differences between the current discounted price and the original price at which the customer bought the good.
As the # of units sold increases, the price of the product decreases - of course the relative rates can be tweaked so that the vendor is still making more money than they are discounting, because as an electronic/digital good, there are no factories or warehouses - it's easier to make money at mass scales when it comes to digital goods (vs physical goods like bicycles).
Existing customers feel validated - the more people they recommend to buy the product, the more money they get back.
New customers don't feel like they're getting ripped off - the prices are falling all the time, and you "buy into" a whole discounting structure.
The original vendor/producer can finely tune the ratio at which the prices fall in order to control profitability, popularity, and sales rate as a factor in promotion and marketing.
Again, if you take advantage of the fact that if you sell 10 copies, the cost for building the software/digital good is no different from when you sell 100,000 copies, then you can exploit that "efficiency gap" if you can call it that between the existing pricing structures and a variable pricing structure that I describe.
At some point, you will reach a "price floor" at which the producer is comfortable reaching their target cumulative total profit. Since altering the price changes the price for every single customer since the beginning of the lifetime of sales for the product, you can actually say - I want x million for this product in 3 years time - and actually be able to hit that target by planning out the way the price changes. OR if you believe in the long tail, go ahead and have a constantly decreasing price - as you reach the hundreds of millions of people in the long tail, you can charge 1 cent - and you would get hundreds of millions for a product you made - providing usefulness for all those people at a great price - AND being able to protect your livelihood during those critical first few sales.
Of course, this requires every single sale to every single customer to have its own merit, its own tracking system, its own values. BUT personalized sales is exactly what we are looking forward to in the future.
And I think technically, it's not super hard - I mean we have nonstop systems and mainframes and clusters of all kinds - that analyses the trillions of collisions in the LHC - what makes us think that we can't track six or seven billion consumers who are alive on this planet, who might be making 5 or 6 million transactions a year? It's not that bad when you consider the scale that google / national science foundation / CERN operates at.