Does price per kilobyte equal price per kilo? Normal rules of distribution and cost of raw materials don’t apply in the land of ones and zeros which means only one thing – pricing of digital goods needs a proper shake up.
Long time ago in a not so faraway land people didn’t sell or buy stuff but relied on simple trade. I’ll give you sack of wheat, you give me three chicken. Boom! Valuation was made.
Value would probably wary quite much from day to day depending on supply and demand. To make trade more universal we added money into the equation as a “middleman” that made it possible to store value for later use.
Bear with me here…
One day one clever person had an epiphany: “It would be so much simpler if I charged the same amount for the stuff every time someone wanted to buy it. No more haggling!”
So he put up a price sign and fixed price was born. And large portion of the world today is using fixed prices. Yes, there are countries where it’s possible to negotiate prices and some countries where seller even expects you to haggle as it’s part of the culture but in most modern world there are fixed prices.
Mass production has certainly helped and for all practical purposes we seem to have figured out the perfect way to price physical goods.
Digital goods are… digital
Digital goods are something that can be made / copied without additional cost indefinitely. Creating 2 isn’t cheaper or more expensive than creating 200, 2000 or 2 million.
Use torrent to spread whatever you’ve made (be it music, ebook, video, software…) and your distribution cost is a big fat zero so that scales indefinitely as well.
What happens if you sell digital goods as if they were physical goods and put a fixed prize on it? Depending on your belief system (and assuming whatever you offer has value to people) you either get filthy rich or you create a setup that does not follow normal laws of value.
|Physical goods||Digital goods|
|Scarcity||The less the pricier||Can be copied indefinitely, can’t be scarce|
|Demand||Higher demand, higher prices||As distribution scaled indefinitely demand doesn’t affect price|
|Raw materials||More materials, more exotic materials drive cost up||Bytes don’t cost anything|
|Production cost||Time, manpower, machinery, producing more costs more||Additional copy has 0 cost|
If none of the normal rules apply then how do you value digital goods, how do you put a price tag on them?
Answer is simple: You don’t because it’s not possible!
That is why Flattr is a big supporter of pay-what-you-want (or for some it’s pay-what-you-can-afford) approach and why we think more sellers of digital goods should adopt it. Enough success stories exist that prove it’s not utopian hippie dream but a solid approach to “selling” stuff online.
I’ll stop here and next week will look into why fixed price is still the most common way to pay for digital goods.
Disclaimer: Yes, I left the cost of research and initial creation out of this train of thought, that was intentional. I’ll come back to this in one of the future posts.