Pay What You Want, or the Trust Economy

Rise and fall of the marketamancer

It is long gone, the production economy of yore. It was a time of tuberculosis and blackened landscapes, but at least, some things were simpler. When anything you bought had a price that was based on this simple formula:

price = production cost + margins

Very long gone indeed. Transition into a service-based economy axed that concept very neatly. Nowadays the price of something is determined by a marketamancer that uses all sorts of arcane marketing magic to predict the sweet spot between the price most expected by people and the price that will generate the most return. Either by being lower than expected and inducing more sales, or higher than expected and scoring more profit per sale. Can't be too low or people will assume it's crap. Or too high lest no one can afford it.

This makes business so much more complicated! Now, before you even consider making something, you have to first check if the marketamancers will predict a price point that is higher than production cost + margins. If they get it wrong, disaster ensues.

Marketamancers indeed yield tremendous power.

Some sectors have decided to outsource the decision on what the price of something should be to the real expert on what the public wants: the public itself.

Pay-what-you-want has been around for a long time

One unexpected example is the restaurant (/café /bar). The restaurant sells you a bundle of two products: yummies and a friendly person to bring it to you. In many cultures, the two items are paid for separately. The food has a fixed price and the service is up to you. It sort of makes sense because the food has a production cost associated with it and not the service. But it doesn't make so much sense because most of the "production cost" is actually the service of having a chef prepare it for you. But it matters little, what amount of sense it really makes. What matters is that it makes sense to the customer. And, so far so good, this practice has been working at making a living for waiters and chefs alike for many decades.

That model of allowing the customer to set the price has been picked up a lot. In Germany, vegan vokü meals are very often pay-what-you-want, even zero is fine. It's made possible by the fact that

  1. German people aren't spooked by vegan food, and
  2. vegan food has a really low production cost.

There's no fixed price, and you tip both the service and the chef. Even some higher-class restaurants get away with it. Like the famous Weinerei wine bar in Berlin.

But the concept is also applied more and more in many other, very unrelated sectors. We've all heard of the Radiohead album that went for sale on their website and you could purchase for as low as $1. It was a resounding success. Even more profitable than selling CDs with a fixed price. And it wasn't a one-time thing that only worked because of the novelty either. Radiohead is only the tip of the iceberg. Lots of bands are doing it now.

If you play video games, you have to know about the Humble Bundle. They sold millions worth of games with a pay-what-you-what model, with a portion of the profits going to charity. (OMG! The current bundle includes Street Fighter IV!)

Ubuntu also offers you the opportunity to tip them every time you download a copy of their operating system. (You should wait till next week to download though, because a big update is coming up soon.)

So you see, something is clearly happening to the service-based economy, and it is making this model more and more common. Would you like to know what it is? Here, I'll tell you: Abundance


Production of one digital copy of their new album costs the same to Radiohead than the production of a thousand infinities of them. How is that, for abundance?

When you reach numbers high enough, a single copy has a production cost that leans towards zero. Since people invented the software, marketamancers have been struggling to get a grasp on how much such a product should be priced. Maybe they were doomed to fail. Maybe the fair price for digital stuff varies so much from one person to another that there is no sweet spot. Pay-what-you-want is the obvious profit-maximizer.

Unless you do it wrong of course.

Doing it right

There are many ways you can implement pay-what-you-want. Many museums allow you to set the price. But you still need to get a ticket from an employee. So you get the pressure of being judged. Also, you pay before getting in. It makes your task much harder. I suppose the point of embarrassing the customer is that embarrassed people are likely to pay more. I would hardly call that doing it right. Yet, I have seen the model replicated in concert halls, night clubs... events in general.

That wine bar I told you about earlier has a very different approach: You pay after you're done eating and drinking. I suppose the point here is that a satisfied customer is likely to pay more than one that is hungry and thirsty. And you don't even need to face a cashier. You just throw the cash in a jar. Now, that's definitely doing it right.

Pay after. See. When you're selling a bundle of video games, it might not be very practical. Video games take a long time to finish, and a bundle of them multiplies that. How about a music album? Was Radiohead doing it right? My feelings are mixed over this one. Going for a pay-after-listening might be good for a band that produces instantly gratifying music. But some music albums you can still discover new beauties in after having listened to it for the millionth time... So pay-upfront might have been the right choice after all.

Introducing OpenBooks

There's a brand new book distribution platform that implemented Pay-what-you-want the right way.

This is a scheme I've been hoping to see for a long time. Pay-what-you-want after works best for books. While people can listen to music albums over and over, books are mostly read once. While music albums can be shuffled, books have a clear ending. That's where you catch the reader: "Hey. I hope you liked it. Remember this book is pay-what-you-want. Now is the time." It's just perfect. And the people at OpenBooks, they really seem to get it. Not only do they let you download the books for free, but they also encourage you to pass it to your friends. The very behavior that gives unwarranted sleepless nights to last century's legacy distributor that are unfortunately still in position of power, be it in literature, music, film, anything copyable. At OpenBooks, they don't worry. No DRMs, of course, and they don't even require you to register an account. They just trust you to come back. Just like the owner of the wine bar trusts that his patrons are decent human beings that aren't going to dine and dash.

How is it working out for authors? Well, the platform was just launched. So it's still gaining momentum. But, even in its embryonic form I'm getting some interesting results. I have put three books on it two weeks ago and I looked very closely at the numbers as the downloads started ticking in. So far I've seen a payment for every twelve downloads. You might not have enough ebook marketing background to make sense of that number so let me assist you: that's so high a conversion rate that I'm figuratively shitting my pants right now! When you factor in the inevitably high amount of people that have downloaded it because they liked the cover but haven't gotten to read it yet, and might never, and the people that are still working their way through it, and the people that did finish it, but didn't like it, and the people that finished it, liked it but won't pay because they're assholes... Wow. One out of twelve? Really? Oh, I forgot to mention: every single payment was spot on the suggested price.

The books on the shelves are, for now, only independent, self-published type authors. I've read a couple and I have encountered zero lack of professionalism. Some of the covers definitely look like the author did it themselves, but inside the books i've read, it's pretty flawless. I haven't found a book I love yet, but that's because I'm such a bitch with books.

EDIT: Turns out they were doing it wrong somehow, because they're out of business.

Similar stuff

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Of technology, music and freedom.

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