Summary book 'free' - The psychology of free
3 different ways to buy a magazine:
- Free on the web
- Kiosk (\$4,95 per issue)
- Subscription (\$10,- for 12 issues)
Advertisement make [[1]] interesting: The willingness to pay indicates a certain commitment of the reader and advertisers are willing to pay up to 5 times as much to reach that committed reader.
The 'penny gap' refers to the phenomenon that buyers do not even want to spend the lowest price (1 cent). Reasons are that we are starting to think about choice with any price. [[Nick Szabo|http://szabo.best.vwh.net/]] called mental transaction costs: we do not want to think about anything unless we really have to. He claimed that the system of micropayments was doomed to failure because they limit economical cost but not the cognitive costs.
Key take aways:
- A producer which is interested in attention offering 'free' is a logical choice
- I'll pay to read by blog is not sustainable
[Kopelman] (First Round Capital) discovered that traditional price theory became irrelevant. There is only 'free' and 'all the other models'. Free turns around the demand curve. The biggest gap in any venture is between a product or service 'for free' and any price. This is called the penny gap
Most transactions have pro's and con's. If something is free this gives us a big emotional kick what makes the 'free' product more atrtactive than it actually is. Explanation is that people are afraid of loss. For something that is 'free' there is no risk of loss. Any object that is not free introduces the notion of 'bad choice' that is psycholocally painful.
Free with waste attached can also by psycholically painful. Example of 'Zappos' sending multiple pair of shoes to customers made people feel bad because they need to send back pairs they would not need. Free can also lead to:
- Vorecity (vraatzucht)
- Crowds (Bijenkort wilde dagen)
Free interacts with the percentage time / money one has. For children with an abundance of time downloading MP3 illegally can be beneficial. But if you have the money the comfort of not risksing wrong fileformats, missing title information makes the price of an MP3 cheap.
Open Source hardware development can generate good money. The model works as follows:
- Build a commutity around free information and advise on a subject
- Design products with help of this community that this community wants and pay them by making the rough product free (design drawings, assembly instructions etc)
- Those who are not handy enough to assemble themselves will buy the assembled product from you.
- Repeat this and ask for a minimum of 40% margin
Reasons for people to prefer 'paying' over free are:
- You save yourself time (compare the downloading MP3's illegally and needing to type in relevant info yourself)
- It reduces the chance of getting something you do not want
The combination of 'free' and 'paid' works very well. This combination attracts anyone with time as well as money and people who like to do stuff themselves or have people do it for them.
