The Inequality Engine
This isn’t a shocker: commerce is driven by inequality. The more inequality that exists the greater the opportunity for high profits. When insurance companies hid their rates you had to go a great deal of effort or accept the bad deal in front of you. Then Progressive Insurance and businesses like them changed the game: they publish their rates and the rates for comparable plans from other providers. If they didn’t do this, websites and consumer reporting would do the same thing for them. This has knocked down the inequality between rate providers. It means that all of the providers in the same field have to find a way to offer similar prices because people can compare and contrast. This dynamic makes for a new inequality: companies that don’t participate in the comparison lose out. I bet all those companies would have wished for the old ways when insurance could sell to large numbers of uniformed consumers.
Newspapers and magazines sold their content-- you didn’t have access to the information in the pages until you paid. Other people got the goods if they paid. The web came along and made the information ubiquitous. If newspapers didn’t give away the information, then some freebie website, enterprising blogger or twitter feed would do it for them. This is why old media is in decline-- they can’t make a profit model out of their peddling of inequality. To survive, they have to drop their cover price to zero and use advertising to earn their revenue to get to an equilibrium with their marketplace.
Information peddling is one of the hardest places to build inequality and commerce. A copy of a document leaves the original intact. That’s what’s the web is all about-- everyone could have a copy of one Google search result on their browser: it costs Google money in bandwidth and infrastructure to deliver it, but the going rate for purchase is free. They build their profit from the ads running down the page and the original page you pulled down is still available to be served out more. You can make a million copies and more. The cost is low to deliver. The product model says that each copy-- like a loaf of bread-- costs money to obtain. But information is like sunshine-- difficult to create but available widely-- serve one person or a billion from the same ball of burning hydrogen.
To make commerce, you have to build in the cachet of inequality. The world online is all about information. You need to instill some artificial inequality. Look at Facebook and Twitter. It’s a tale of two cities. Facebook is monetized. Investors line up to pump money into Facebook. It has more than 500 million users. Twitter is of a similar age. It’s struggling to find a business model where it can attach financial success to its online success. The difference is all about inequality. With Twitter, you can create multiple accounts for free. You can post as much as you want and read as much as you want-- heck, you can even read when you’re not Twitter user. Facebook on the other hand is a walled-garden. Until you create an account, you can’t look inside. Inside, you can only see what your friends are doing-- you can only peek at other information by becoming a member of groups or other circles of friends. They’ve created artificial inequality and by doing so, Facebook’s popularity has exploded. The Web is a domain of the free, but limited access has created more success than freedom could bring. The meter of success isn’t just a financial one: Facebook is the most visited site in the world. Look at the top ten most visited sites: non-English Facebook cousins like Hi-5 are doing the same thing.
People want inequality to some degree. If everyone drove BMWs, BMWs would be considered dowdy or lame. Because most people can’t afford them, getting one is a status symbol. If you drive the price of attainment down to zero and make signing up the price of membership, people will still flock to the service.
When planning your $10,000 idea, consider putting in some artificial scarcity. Hold the “good stuff” on the far side of a membership system. Hint at the good stuff to tantalize them. Maybe even make the really good stuff cost money to attain. The New York Times holds the balance of many articles behind a pay wall-- they’ve transplanted the print model. Another approach to assessing what the good stuff is: think about what a few people would love to have. In the VHS days, tapes held movies. In the DVD era, the extra space on the disc holds behind the scenes material, commentaries, etc.. They’re using the space to make the discs more attractive. You could take the bonus features of your idea and hide them behind a paywall. For example: a report is free download in its short form. The long form, the original source data and the like may be hidden behind a login system. Maybe you post the short version of an article is free in its online reading form, but the longer version read in MP3 format is on iTunes for 99¢. That way, users could get your information during their morning jog or listen to it on the drive into work-- handier format, more information and its just on the far side of the penny gap.
The penny gap (http://redeye.firstround.com/2007/03/the_first_penny.html) is a divide between something everyone would want and get for free; and those items that people are willing to pay for. It’s not the width of a copper coin. It’s a chasm-- a craggy chasm. A freebie site can be set-up on Blogger in 10 minutes for free. An e-commerce site needs layers of security, set-ups, etc.. They’re a great target for hackers and malicious sorts. And, people expect to get something for their money. All that aside, it costs about 50¢ per e-commerce transaction (some are cheaper, some are more expensive, some get cheap when you scale them into millions of transactions). If you’re going to charge anything, you have to charge more than the handling fees, otherwise you’re paying the payment gateway and not yourself. Imagine if there were not handling fees. The penny gap is a divide that many consumers will not jump. If you get them to jump across, they’re good for more than a penny-- they’re okay to open their wallets and you could make them part with a lot more throughout your relationship.
Paypal allows you to set up a merchant account that accepts recurring payments. You can make a subscription system that charges people to the extent of their comfort level and then keeps charging them. Flickr does this with their Freemium system-- they charge some users for expanded access and rights. Every year, users can roll over their account, renew their membership and continue funding Flickr. You can do this too on your site. While this is all about collecting revenue, it can cost you nothing to put the same system into place.
Through a combination of Drupal, Ubercart, Paypal and sweat equity, you can establish a subscription system. People can log in to your site, proceed to a payment page, be taken to Paypal where they input their payment information and voila-- you’ve established a trickle of revenue.
This next step may be a little dubious to some: once you get people to agree to pay, they may forget they’re paying you. As the subscriptions roll-over people may forget they have the membership, or they may neglect using it. For example: one woman I know uploads dozens of photos to her Flickr pro account. I upload a half dozen a month to my account. We both pay the same amount for our accounts.
To sum up, here are some types of salable inequality:
- enhanced data (source files, etc.)
- portability (the podcast version of a must-have article)
- walled garden (people have to surrender free anonymity-- one or both aspects).
- subscriptions (pay today and then repeat every month or year).
Inequality is at the heart of commerce. If your goal is to earn money through commerce, look for a palatable and marketable form of inequality that you’re willing to peddle.