Can 'Pay What You Want' Work Outside Of The Music Industry?

from the who's-next dept

Thu, Oct 9th 2008 12:32am — Kevin Donovan

Last year, Radiohead garnered incredible attention by offering its album for free and asking fans to pay what they want. Contrary to the guffaws of many, the experiment turned out to be a smart decision which was quickly copied by other musicians. Now, we're starting to see other industries try the "pay what you want" model.

First, Good Magazine began allowing their subscribers to pay any value more than a dollar. Now, the Free Culture 2008 conference, headlined by Stanford's Larry Lessig, John Lilly of Mozilla and Pam Samuelson of Berkeley Law, is using the model. The organizers have implemented a "pay what you want" model for registration and, contrary to the myths of traditional economics, people aren't choosing to pay $0.00. In fact, with more than 200 registered attendees, the average price paid has been more than $20. As more and more examples of this style pop up, it becomes more and more obvious that new, hybrid business models will become widespread and sustainable.

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Filed Under: conferences, magazines, name your own price, pay what you want, radiohead

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Anonymous Coward, 9 Oct 2008 @ 12:55am

2 cents
Here in Singapore, there's an Indian charity that runs a takeaway called Annalakshmi, whose slogan is "Eat What You Want, Pay What You Can." Invariably no one walks away paying 0.00. Actually I end up paying a little more than what I would normally pay at a similar takeaway. Just my 2 cents, not that this would work for everyone.
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Suzi Orman, 9 Oct 2008 @ 1:19am

business
The organizers have implemented a "pay what you want" model for registration and, contrary to the myths of traditional economics, people aren't choosing to pay $0.00. In fact, with more than 200 registered attendees, the average price paid has been more than $20. As more and more examples of this style pop up, it becomes more and more obvious that new, hybrid business models will become widespread and sustainable.
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C., 9 Oct 2008 @ 1:37am

Not new to us.
16 years ago we had a yard sale in the spring to reduce the family's 30 yr plus collection of invaluable stuff. Appox. 25% sold and brought in about $160.00. With 3/4 left the option was landfill or ?. In the fall we had another one but this time I put up a deposit box on the wall and a sign reading "If you see something you want, put what you think it's worth in the box. If you need change, blow your horn. Thank you.". End result? More than 80% was gone and $455.23 in the box. We could see most of the people as they looked around and made the following observations. 1. People we knew that had been there in the spring, took things we know they passed on or ignored before. We knew some of them well and why now they took what they did is a mystery. 2. Children were in heaven, grabbing armfuls of ? and were going to put a dime in the box until the parents stepped in with " you know son, the metal in this thing is worth a buck so if you really want it you better pay what its worth ... " etc ( several examples of this behavior).
3. Nearly everyone bought something.
Three people did blow their horn. One wanted change, the other two didn't grasp the "economic model" involved.
We tried doing this with other items and services at work and all were profitable. Mostly however with excess items and services during off peak times to generate more revenue.
(also not a new model) But it was always the human aspect of this that made it fascinating. Watching people decide what to pay. What they took. Parents teaching values. The look on their faces and the comments when they read the sign.
Never did develop any more applications for this. Retired now but maybe I'll have another yard sale. Oh yes..
One thing is absolutely certain. No one went away unhappy.
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Phil, 9 Oct 2008 @ 3:03am

Here in Germany, there is special offer from Toyota.
You make an offer for a car and then its up to the car dealer to try to make you happy. I would think, that making a complete "Pay What You Want" offer is too risky for them.
For those of you who understand German:
http://www.toyota.de/finance/aktionen/qualitaet.aspx?WT.ac=q4_wunschpreis_key
For the rest:
http://translate.google.com/translate?u=http%3A%2F%2Fwww.toyota.de%2Ffinance%2Faktionen%2Fqua litaet.aspx%3FWT.ac%3Dq4_wunschpreis_key&hl=en&ie=UTF-8&sl=de&tl=en
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Twinrova, 9 Oct 2008 @ 4:06am

The concept would work, but only briefly.
Initial "Pay what you want" deals are going to captivate the consumer because it's a new way to pay for something. MOST consumers would pay about the same price for the goods if they felt the goods were worth the price.

The music industry can definitely get away with this price scheme (especially having screwed us over for decades now) because it allows the consumer to place value on the song, not the industry.

But don't expect the recording industry to adopt this model because of the potential millions it will lose. One of the gripes people have about CDs is having to pay all that money for 1 or 2 good songs.

This is important in the model, because if consumers don't like it, the repercussions will inevitably cause price increases for goods not on the model, forcing a consumer backlash.

There is one fantastic outcome of this model, even if it should fail and that is it can generate the actual price base consumers are willing to buy an item at if that item is good. Since most consumers really don't have much of a baseline to compare to, they'll often pay around the same price, give or take 10%.

But don't let this honesty in the consumer give you reason to adopt this model, as there are consumers out there who are like me, who will most definitely not pay the current base price, but will take many factors into consideration such as "you've screwed me before, so here's what I'm paying" or "It's not worth that much when it costs $x to produce".

This, in time, will overtake those who don't truly understand the "Pay what you like" model but will quickly adapt when consumers like myself begin showing them you don't have to pay the market.

Granted, this would be unfair as we'll be taking our frustrations out on the model despite not having anything against the goods maker.

Think about this: Imagine if Metallica took up this model.

As you can see, it fuels the imagination with speculation and analytical design, but ultimately will fail once the consumer realizes they really don't have to pay all that much.

It's a nice idea and I would love to see it adopted as I'd get some good stuff for $.01, but that's just me. Eventually I would come around to increase my offering, but not while I can get it for less.

Video games, DVDs, music, books, dish soap, paper towels, milk, cookies, tuna... oh my. Yes, let the plan take effect.

It's dreaming on my part to see this become a reality in the real world because I can almost guarantee the model will come with strings, such as minimum amounts.

This would destroy the concept given you can bet that minimum amount covers costs the goods manufacturer can't afford to lose.

Just my two cents.
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Matt, 9 Oct 2008 @ 4:51am

free market in a true form
That's what this is. The real intended form of "free market" where people really do "vote with their dollar", as they say.

The reason companies will fight this tooth and nail: they don't have a product that actually has value, so they wouldn't succeed in such a situation. Such as music cds, or software, where EA would be selling millions of copies of spore at a dollar.

Is this is a good thing? Absolutely. Would it work for intangible goods? Absolutely. Would companies such as insurance companies take big hits (because we know many people are, in essence, paying for nothing)? Absolutely.Would companies still make profits even if minimal (if their product is crap?) absolutely.
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KJ, 9 Oct 2008 @ 4:51am

Re: The concept would work, but only briefly.
2 cents?....that was about a hundred dollars worth of labor...but I got to the end of your comment and felt screwed because you hadn't really said anything...so you're right...your comment was worth about 2 cents.

-------------------------------

A couple of comments on your cynicism...

1) While there are lots of albums that have only a couple of good songs, spending some time with a few songs that aren't exactly what you want to hear or that sound like everything else you've heard might broaden your horizons.

2) Why are you so bitter?
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J.Locke, 9 Oct 2008 @ 5:08am

Pay what you want = bankruptcy
Ask anyone at Wachovia.
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Ken Deakman, 9 Oct 2008 @ 6:01am

Applying Payment To Perceived Value
Thanks for a short article that generates more, "how could this apply?..." questions for my company. We provide an Internet-based service in support of teacher performance evaluation. The value of the service turns out to be directly related to how much importance schools and districts place on teacher performance assessment. In theory all schools should value this goal. Others pay lip service.

What if schools paid what it was worth to them? The value might increase over time as performance evaluations increased.
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Anonymous Coward, 9 Oct 2008 @ 6:26am

Haven't non-profit museums being using this "model" for years? Oh no, it isn't new. Quick come up with something else.
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Paul, 9 Oct 2008 @ 6:41am

Re:
Most non-profit things use this tactic. Look at open-source. How often do they mention the donations page? Or "click here to donate through pay-pal," etc. Though, there is still somewhat of a fundamental difference between "donations" and "pay what you want." Its that the customer doesn't feel as strong a connection to "making a trade" when they donate. They feel like the product is free, but its just them giving someone else money. The "pay what you want" is still linked to the trade notion. They feel like they should offer something of equal value. Though, thats just my opinion, I could be wrong.
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Twinrova, 9 Oct 2008 @ 7:17am

Re: Re: The concept would work, but only briefly.
2 cents?....that was about a hundred dollars worth of labor...but I got to the end of your comment and felt screwed because you hadn't really said anything...so you're right...your comment was worth about 2 cents.
:(
I'm a fast typist, so I generally just type my thoughts. Granted, I can be verbose and often jump points, but I'm trying to work on that.

While there are lots of albums that have only a couple of good songs, spending some time with a few songs that aren't exactly what you want to hear or that sound like everything else you've heard might broaden your horizons.
This isn't my opinion. It's the consumers who feel this way. I haven't bought a CD in almost a decade.

Why are you so bitter?
(get ready for some more verbose reading, but I'll try to stay on point.)

Simple answer: I'm tired of getting screwed by doing what I'm supposed to.

The long answer: "big business", who keeps changing the rules so much, no one seems to win. Here on Techdirt, we constantly read of all these "rule changes". Capping bandwidth, lawsuits (which inevitably costs the consumer), devious tactics, and a host of other unethical/unnecessary items which destroys the foundations of economy or worse, hurts the consumer.

Many of us pay our bills and try to save in our 401k, all the while fuel prices, health insurance, and the general cost of living increase.
People today are making less money despite growing salaries because the dollar doesn't carry as far as it used to.

Now this global economic crisis hits, hurting everyone. I watch as my 401k evaporates. I'm still trying to compensate for the growing prices of goods because fuel prices are off the chart.

Small business is hurting. Doors are closing. The economic "fix" isn't fixing anything, and most analysts agree this will cost consumers down the road.

And I shouldn't be bitter? The better question to ask is why you're not bitter.

My opinion is that a loaf of bread, the most abundant food source on the planet, costs more than $1. There's something wrong with this, and "economics" dictates it should be.

Should be? No, it shouldn't be this way. It's forced this way because people want more money. They want the big houses, expensive cars, hi-tech gadgetry, and other "wants".

The "needs" get punished for it, especially by those who can't afford the "wants".

Supply and demand shouldn't dictate a price structure, yet it does. If demand runs out, so be it. Find alternatives or do without.

I know, I'm being an idiot here because this isn't how the world works. I understand the principal, I just don't agree with it.

I'm not so much bitter as I am frustrated, especially when there's nothing I can do about it.
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RobG, 9 Oct 2008 @ 7:20am

William Shatner has been promoting the pay what you want model for years.
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Benji, 9 Oct 2008 @ 7:27am

Re: Re: Re: The concept would work, but only briefly.
I'd imagine you could say it in fewer words, but your closing thoughts are gold. The frustration is the thing that kills me.

I'd like to see this business model applied to cable. You've got commercials? Okay, then I'm not going to pay. Give me commercial free content, I'll pony up for that.
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Anonymous Coward, 9 Oct 2008 @ 7:29am

Re: Pay what you want = bankruptcy
Your statement intrigues me. What was it that Wachovia was offering under this business model?
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Greevar, 9 Oct 2008 @ 7:33am

Re: free market in a true form
"where EA would be selling millions of copies of spore at a dollar"

To be perfectly honest, I would buy a lot more games if the price was more on parity with what it was worth. $10-$20 for Spore would seem reasonable to me. The whole $50-$70 for major releases is just unrealistic. Just because they think it's worth that much, doesn't mean I want to pay that much for it. I feel that they should get something for it, but $60 for something I can't return is a bad bargain in my opinion.
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Twinrova, 9 Oct 2008 @ 7:40am

Re: Re: Re: Re: The concept would work, but only briefly.
I'd like to see this business model applied to cable. You've got commercials? Okay, then I'm not going to pay. Give me commercial free content, I'll pony up for that.
This made me laugh out loud, because I totally agree.

Coincidentally, and something everyone should pay attention to, Brighthouse (who I subscribe to) is in battle with LIN TV (broadcasters of CBS) due to LIN TV requesting payment to broadcast the signal. Brighthouse, who claims it's free to everyone so why pay, refuses to pay, even though they've recently increased our rates.

The result: consumers don't have CBS.

The implications of this is staggering when you think about the other stations who'll do this if LIN TV gets their way.

Ouch.
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J.Locke, 9 Oct 2008 @ 7:43am

Re: Re: Pay what you want = bankruptcy
"Your statement intrigues me. What was it that Wachovia was offering under this business model?"

Let me tell you the sad tale of Wachovia, a nicely run little regional bank whos CEO worried he was getting left behind in the "sub prime" market boom of 2004 – 2006 and all its wonderfully lucrative returns. Being a gung-ho CEO of his day he quickly sought to purchase a company that was raking it in from sub primes to keep Wachovia’s stock up (they were viewed as "missing the boat" on the sub prime market at the time). He lined up the purchase of Great West Financial an S&L that was pioneering a creative new financial model they called "pick a pay" mortgages, where the borrower could choose whatever payment they wanted to make (with the balance due being added back to the principle). This purchase of Great West and its cutting edge "pick a pay" mortgages is what eventually sank Wachovia (the CEO who made this deal was forced to resign).

While this type of system may be viable in some circumstances, I would argue there are also some where it clearly does not.
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Anonymous Coward, 9 Oct 2008 @ 8:25am

Re: Re: free market in a true form
"To be perfectly honest, I would buy a lot more games if the price was more on parity with what it was worth. $10-$20 for Spore would seem reasonable to me. The whole $50-$70 for major releases is just unrealistic. Just because they think it's worth that much, doesn't mean I want to pay that much for it. I feel that they should get something for it, but $60 for something I can't return is a bad bargain in my opinion."

I tend to agree, it was Microsoft who really pioneered the $60 retail SKU for video games having decided that the industry simply wasnt charging enough. Much like the piracy argument, I was always confused by this "undersale" argeument as well. How could the digital entertainment industry be one of the fastest growing (and most lucrative) business markets in the world, while simultaneously being ruined by piracy and chronic undersales? Anyway Microsoft forced the $60 SKU on 360 games (becuase they could) and it seems SONY willingly followed suit. This price tag only applies to console games though, PC game prices have stayed the same (many publishers blame piracy for thier inability to raise the price in the PC market . . . LOL).
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nasch, 9 Oct 2008 @ 8:32am

Re: Re: Re: The concept would work, but only briefly.
Supply and demand shouldn't dictate a price structure, yet it does.

Do you have an alternative plan?
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Twinrova, 9 Oct 2008 @ 9:15am

Re: Re: Re: Re: The concept would work, but only briefly.
Do you have an alternative plan?
What part of "if it runs out, so be it. Find alternatives or do without" didn't cover the answer?
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V, 9 Oct 2008 @ 9:25am

Games
When I go out to dinner with my wife and her parents it is usually $75-$200 for the four of us. A round of golf is usually $25-50. A 2 hour movie is about $10. A game of bowling is about $4.00.

Consider what you pay per hour for these activities. Golf and bowling is about $10/hr. A movie is about $5/hr. Dinner with the parents can be as much as $50/hr (coincedentally the least fun activity). I would guesstimate that the average game has at least 12 hours of content (I have games that I still play a few hours a month that I got two years ago). Using the 12hr number you are looking at about $5 an hour, and as playtime increases price decreases.

It's funny, some of my cheapest activities (aside from the free ones) are also the ones where people think the pricing is the most unfair. If you don't enjoy gaming enough to pay $5 an hour maybe you should find another activity where you feel like you are getting your moneys worth?
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Anonymous Coward, 9 Oct 2008 @ 10:22am

"It's funny, some of my cheapest activities (aside from the free ones) are also the ones where people think the pricing is the most unfair. If you don't enjoy gaming enough to pay $5 an hour maybe you should find another activity where you feel like you are getting your moneys worth?"

I agree that gaming is a cheap hobby. My problem is that far too little of what is created anymore interests me.
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