Using Creative Fiction To Increase Value Of Trinkets On eBay

from the using-infinite-goods... dept

When we talk about understanding how to embrace the economics of infinite goods, one of the key points I've tried to make is that every product is a bundle of scarce and infinite goods. That's a point that some people have a lot of trouble with at times, insisting that some people who create infinite goods have no scarcities to sell... and, conversely, that those who make scarce goods, sometimes have no infinite goods to give away with them. While it may be a bit more complicated to separate out the scarce and infinite goods, it doesn't mean they don't exist.

Parker writes in to point out a fascinating example. Apparently a group of fiction writers are experimenting with selling physical goods on eBay with fictional stories given away "free" in the description. The project is called Significant Objects, and involves a bunch of fiction writers purchasing random trinkets, and then coming up with a neat story to go with them. The post at io9 notes that some stories seem better than others at increasing the auction bids, but points out that: "If Rosenfeld's success is any indication, these authors may actually get paid more for short fiction on eBay than they would at most publications."

Again, some will incorrectly claim that we're saying that fiction writers should start selling crap on eBay, but that's not it at all. This is just one (fun) example of many of content creators smartly using infinite goods (the stories) to make a scarce good (the trinket) more valuable, and putting in place a business model to profit from it. Once again, we learn that creativity knows no bounds, not just in creating content, but in playing around with new business models.

Filed Under: auctions, business models, fiction, infinite goods, scarce goods, significant objects, trinkets, writers
Companies: ebay

Turns Out There's Lottttttttssss Of Money To Be Made In T-Shirts

from the who-knew? dept

We've pointed out in the past that folks who don't want to understand the economics of scarce and infinite goods often falsely claim that the business model we suggest is all about selling lots of t-shirts. Or, more specifically, when they comment in a mocking fashion, it's usually something like "lotttttttttttttttttttttsssssssssssssssssss of t-shirts."

The truth is that the business models we've shown usually have little to nothing to do with t-shirts. There are tons of scarcities that have nothing to do with t-shirts, and often aren't even physical goods (another mistake people make is assuming that scarce means physical). Usually we're talking about things like access and attention as valuable scarce goods. However, perhaps we were being a bit too flip in ignoring t-shirts ourselves.

Clive Thompson has a short article over at Wired looking at "the t-shirt economy," noting that it's actually a pretty big business: on the order of $40 billion in branded or decorated apparel (by comparison, the worldwide market for recorded music was supposedly $31.8 billion in 2006), and some of that definitely comes from content providers who are providing content for free and making money selling t-shirts. I still don't think it's the greatest business model out there (despite what some of my critics like to claim I've said), but I have to admit I'm rather amused by the fact that the "t-shirt economy" is actually getting some attention.

Filed Under: economics, infinite goods, scarce goods, t-shirts

You Don't Have To Sell Software

from the seriously dept

Reader Philip writes in to ask about our thoughts on a commentary on News.com by Dave Rosenberg concerning Sun's open source strategy. Rosenberg seems very concerned that Sun has decided to forego trying to sell software directly:

Sun's approach--at least the way I'm reading it from Jonathan Schwartz's statements, is about making the software totally free and trying to sell support and hardware. This clearly diminishes the value of the products and doesn't offer a mechanism that encourages people to pay for software.

It's difficult to see what Rosenberg is worked up about here. Sun seems to be following pretty closely an economically sound approach to a market: using infinite goods (software) to make scarce goods (hardware and services) more valuable. That's a lot more reasonable than using infinite goods to try to get people to pay for more infinite goods. There's no reason why Sun needs to encourage people to pay for software, and there are many reasons why they should not try to make people pay for software.

Yet, for some reason, Rosenberg seems to think that this strategy is somehow damaging to the open source movement:

It also puts an unnecessary burden on the notion of open source--such that if Sun is wrong, everyone else will look wrong too.

Why? If, as Rosenberg notes elsewhere in the article, Sun's open source strategy is different than other companies', then such a failure should be seen as a failure of Sun's model, not a strategy of embracing open source. There are plenty of reasons why Sun may (or even is likely to) fail in this endeavor. The Sun brand name has been tarnished. People may not find the hardware or services Sun is selling as providing enough value compared to alternatives (even with the software included). On the whole, it's not clear what's compelling about Sun's offer compared to the alternatives, and that's its biggest challenge. But that hardly reflects poorly on open source software or on the idea of not selling software.

Filed Under: business models, economics, infinite goods, open source, scarce goods, software
Companies: sun

A Few Extra Virtual Maps Isn't A Real Reason To Buy A Video Game

from the it's-about-the-scarcity dept

There's definitely been an ongoing battle in the video game world from some executives complaining about used game sales for console games (there's been a bit of confusion in the past tying this to video game DRM -- which is more focused on PC games). We noted that EA was among those concerned, but was hoping to give people more reasons to buy new, rather than second hand. However, some folks in the comments complained about the methods EA was using, and that's worth a further discussion, especially as other examples are being shown. Reader DEF points out that another video game company, Epic, is trying to encourage original purchases by giving buyers a free voucher for certain in-game items, such as special maps. Such vouchers would only work for the initial buyer, thus, in theory increasing the value of the initial purchase.

There are a couple of problems with this approach. While I do think it's better to come up with "reasons to buy" rather than trying to sue people or pass laws requiring a cut of the secondhand market, this approach may get it backwards. Effectively, they're selling "infinite goods" rather than scarce goods, and that seems likely to backfire, for a few reasons. First, it actually diminishes the value of the game. One aspect that buyers take into account is the resale market. An active second hand market increases how much people are willing to pay for the original product, because they recognize that they can sell it later.

Second, when the focus is on charging for infinite goods (or only promising them to those who buy first hand copies), the incentives get risky. Suddenly, gaming companies are put in a position of choosing what "virtual" items are allowed in the game for first hand buyers vs. second hand buyers, and that leads them to make bad decisions in locking up important aspects of a game, frustrating potential buyers.

Plenty of games have shown that money can be made in charging for the service (a scarce good) of connecting and accessing an online world or community. If video game makers focused on that, then the entire issue of the second hand market wouldn't be such an issue. In that case, they'd want to get the actual games distributed as widely as possible, with as many features enabled as possible, to make the idea of playing in the online environment even more appealing.

Filed Under: infinite goods, video games, virtual goods, virtual map
Companies: ea, epic

Investors Recognizing How ProIP Is Bad For The Entertainment Industry

from the it's-not-a-bad-thing dept

Kevin Stapp writes in to point out an interesting article over at the Motley Fool, where the author, Anders Bylund, points out why the new ProIP law is bad for the big entertainment companies from the perspective of an investor in those companies. Basically, he recognizes what some of us have been saying for years. If you rely on stronger copyright as a crutch to protect an old business model, you're much slower to adopt newer business models that can greatly increase the size of your market. In other words, by denying the growth potential of infinite goods, you shrink the potential size of your market, and that's bad for the company and bad for investors:

As much as I love my Walt Disney investment and the great entertainment the company has created over the years, it's also part of a boneheaded industry that can't deal with the digital revolution.... Disney, Warner Music, and their colleagues could handle rampant piracy in a much more delicate manner and turn today's massive problem into free distribution and dirt cheap marketing. Yes, there are ways to make money when others copy your dearly beloved content for free. The PRO-IP Act is a step in exactly the wrong direction, though.

Exactly. And this reinforces the point that it's a mistake to keep trying to find the right "balance" between content producers and content consumers. There's no need for a balance if the content producers adopt business models that both expand their market (by properly defining the market) and leave consumers free to share and promote the content in a way that actually helps the bottom line of the content producer. It's quite rare to see short-term investor-types recognize such strategies, so it's quite interesting to see a discussion like this on a mainstream site like the Motley Fool. Hopefully others will start recognizing this reality soon as well.

Filed Under: business models, economics, infinite goods, investors, long term thinking, proip
Companies: disney

Rock Band Video Game Selling T-Shirts Of Fake Bands

from the lotttttts-of-t-shirts dept

When critics of our analysis of the economics of infinite and scarce goods want to mock our ideas or make fun of us, they often fall back on the false claim that the business model we advocate is "give away everything and make it up by selling t-shirts." Or, rather, if they're really in a mocking mood, they usually write "llllllloooooooooooooooooootttts of t-shirts." It's quite amusing, though, of course, it shows a fundamental misunderstanding of what we mean by scarce goods.

That said, t-shirts can make up one part of the scarce goods that someone sells, though, it will almost always be a small part of it. And, there's no reason to mock the contribution that selling t-shirts can make as part of a larger business model. Reader Aaron de Oliveira points us to the interesting news that the super popular video game Rock Band is now letting players who have uploaded their own fake rock band logo order t-shirts, keychains and other merchandise from their fake band. As de Oliveira correctly notes, not only does this make some money, but it also makes the gaming experience better, connects fans more closely to the game and their own fake rock band in the game:

The company realizes it's not in the music business or in the t-shirt business. Its business model is the custom experience and it uses music (fun & free or cheap) and t-shirts to improve that experience in such a way that people are willing to pay for it.

Bingo. So go buy llllllooooooooottts of t-shirts to make it work.

Filed Under: business models, economics, infinite goods, rock band, scarce goods, t-shirts, video games

Books Are The Souvenir Edition For Your Idea

from the good-quotes dept

We've talked at length about the difference between infinite goods and scarce goods in various areas, and how you should spread the infinite ideas to make the scarce goods more valuable, but here's a great quote that puts that in perspective when it comes to books. Mathew Ingram points us to an interview with entrepreneur and author Seth Godin, where he notes:

"Books are souvenirs that hold ideas. Ideas are free. If no one knows about your idea, you fail. If your idea doesn't spread, you fail. If your idea spreads but no one wants to own the souvenir edition, you fail."

That's a beautifully succinct way of explaining the entire concept, though I think that the last bit (about getting people to own the souvenir edition) may be changing as well -- and other business models will start to show up.

Filed Under: books, business models, economics, infinite goods, scarce goods, seth godin, souvenir

Yet Another Report On Why Forcing A La Carte Cable Is A Bad Idea

from the think-it-through dept

If there's one topic that we regularly discuss that many of our readers (even those who agree with us on most other things) disagree with us on, it would be mandatory a la carte cable. We've explained repeatedly why forcing cable companies to offer a la carte cable is a bad idea that would likely lead to higher prices and less choice. Yet people still argue against it, claiming (incorrectly) that they would just order a few channels and prices would decrease. Instead, those fewer channels would inevitably cost a lot more (if they were still available at all) because a la carte pricing for channels reduces demand for individual channels, resulting in higher (not lower) prices per channel. Jeff Eisenach and Adam Thierer have put together a short report looking at the problems of a la carte cable, and noting that even if the intentions of those supporting mandatory a la carte cable are strong, the end result isn't likely to be what they'd expect.

On top of that, it's probably worth pointing out that this debate may soon be moot anyway. As we move increasingly to a world where most TV programs are available online, the entire concept of the channel will go away. It won't matter what channel a particular program is on, because you'll just subscribe to that program, and it will get delivered over the internet. In the meantime, though, there's simply no reason to force cable companies into providing a la carte channel selections.

Filed Under: a la carte, cable, costs, economics, infinite goods, prices

Paul Krugman Joins The Infinite Goods Brigade

from the the-concept-is-getting-through dept

It looks like Paul Krugman is the latest economist to join the growing group of folks who recognize the impact of infinite goods on business models -- and how it's not a bad thing, just an inevitable shift in the market. Unfortunately, his writeup on the issue is a little weak. He references Esther Dyson's predictions about this from fourteen years ago and the recent Rolling Stone article we discussed last month. What's disappointing is that, as an economist, he should have been able to look at the fundamental economics and understand why this makes sense, but he chooses not to do so. That leaves him open to criticism. The next stage of this debate is going to be showing, fundamentally, why this inevitable change isn't a bad thing. Some people already recognize this, but it clearly is going to require a lot more convincing evidence.

Filed Under: business models, economics, infinite goods, paul krugman

Advocates Of A La Carte Mandates Misunderstand Infinite Goods

from the bundling dept

Some minority organizations are making the case that a la carte mandates would destroy the market for niche channels. They point out that the market for minority programming like BET and Univision is relatively small, so they (and minority viewers) benefit from being able to tag along with channels that have broader interest. FCC chairman Kevin Martin disagrees, saying that "if a cable operator only wants to carry one channel, it should not be required to buy 10 or 20 channels in order to do so." Martin seems to be thinking of cable channels as tangible products like cars or toasters: if people are only "required" to buy the channels they really want, they'll save money because they won't be "forced" to waste money on other channels they're not interested in. But this argument ignores the fact that television content is an infinite good. The costs of delivering cable content is almost all fixed; once coax has been run to a customer's house, it costs almost exactly the same to provide a given customer with every channel on the cable network or with only one channel. As a result, bundling is economically efficient: throwing in additional channels increases the value of the cable service without imposing any extra costs on the system.

People imagine that an a la carte mandate would mean that if they're currently paying $50 per month for 50 channels, then they should be able to pay $1 per month for one channel. But that doesn't make any sense. Switching a given customer from 50 channels to 1 channel doesn't reduce costs (the other 49 channels would presumably still be produced for other viewers), so why should the customer expect a lower bill? If anything a switch to a la carte actually makes things more expensive because in some cases cable companies have to install new equipment and set up a more complicated ordering and billing system to keep track of who had signed up for which channels. In reality, what would happen is that the cost of each channel would go up a lot. Instead of $1/channel, cable companies might charge something like $8/channel, with each customer choosing 6 channels on average. The result would be that most people would pay about the same for a lot fewer channels.

It's a mistake to think of bundling as being "forced" to pay for channels we don't want. After all, non-sports fans don't get outraged about the fact that they're "forced" to take the sports section with their morning paper. The right way to think about it is that you're paying for the parts of the bundle that interest you, and the rest of the paper is a freebie that doesn't cost you anything extra. It would be silly to demand that newspapers price each section of their paper separately and let you do without the sections you don't want. It's equally silly to demand that cable companies not show you channels you're not interested in watching, since those aren't costing you anything either.

Filed Under: a la carte, cable, costs, economics, infinite goods, prices