Wednesday, June 30, 2010

Rewards and expectations

So England crashed out of the World Cup, to the surprise of no-one except those few million fans who seem to have a 44-year blind spot in their collective memory. And this is disgraceful and pathetic, and shows that England's footballers, and their coach, are a bunch of overpaid, overrated pillocks.

Well, fair enough. I can't see any way of arguing that anyone who earns that much isn't overpaid. It's not as if there were a critical shortage of applicants for their jobs.

But I can't help being struck by the contrast with the New Zealand story of the 2010 World Cup. The unfortunately named All Whites succeeded in getting draws in all three of their first-round games, failing to make it to the second round. And this is a national triumph, the best result ever for New Zealand football, and suddenly the All Whites are national heroes.

Such is the alchemy of "expectations", which can transform the same result into triumph or disaster.

And salaries, of course. We are very attached to the unfounded superstition that, if we pay more for certain jobs, we'll get better people. How's that working out?

Friday, June 4, 2010

The impulsive economy

Scott Adams has a glum view of the outlook for authors and other creative-artist types in the coming decades. He sums it up as his theory of content value: "As our ability to search for media content improves, the economic value of that content will approach zero."
I predict that the profession known as "author" will be retired to history in my lifetime, like blacksmith and cowboy. In the future, everyone will be a writer, and some will be better and more prolific than others. But no one will pay to read what anyone else creates. People might someday write entire books - and good ones - for the benefit of their own publicity, such as to promote themselves as consultants, lecturers, or the like. But no one born today is the next multi-best-selling author. That job won't exist.
Adams isn't the only one predicting the death of Old Media. There's been a bull market in such predictions anytime this past fifteen years. The argument goes: since "content" is essentially free (on the internet), the only reasons people are still paying for it all boil down to inertia, and that won't last forever.

While I have enormous respect for Adams (and other prophets who've said the same thing), I think they're working from a fundamentally flawed mental model.

The flaw dates right back to the economics we learned in school, where a consumer has $whatever to spend, and divides it up into 'budgets' - $something for necessities, $something for savings, $whatever's left for luxuries/discretionary spending. Within that "discretionary" budget - the theory goes - they make rational decisions based on what will give them the greatest satisfaction ("utility") for the $.

In that case, why would anyone spend their limited $ on something that they could get for free? It's - not rational.

And that model is well and good. But it's based on a fundamental assumption that just isn't true in real life: that the consumer is on a budget.

Oh, of course they are in a sense. Big-picture wise. They live where they can afford to live, the clothes they wear and the consumer goods they possess and the car they drive - these things are dictated, in large part, by their income. But for the small stuff - for books, magazines, movies, fast food, drinks - there is no exact limit to their spending. If they overspend one month, all that means is that they put off buying that big-screen TV for another month. It's not a decision they'll even notice making.

In general, the only time they'll set a fixed weekly budget is when they're driven to it by a crisis - unemployment, baby, divorce or whatever - and when the crisis is past, they'll abandon the budget just as soon as they think they can get away with it.

What this means is that a significant part of people's spending is not so much "discretionary" as "impulsive". And getting one's hands on that money is not about offering them the most attractive package for their money, compared with your competitors. It's about persuading them to give you some money.

Not much money. The best business models for this part of the economy, I think, are those that take small amounts, but take them frequently. A coffee shop is a good example (occupying the same niche that pubs have, by and large, been taxed out of).

Another is mobile phones. The operators have only recently realised that their market falls into this category, which is why they're now frantically marketing "packages" designed to subsidise heavy users at the expense of lighter ones - so that each individual customer only sees bills that are just small enough not to sweat about - because if the bill is small enough, then the provider can live happily in that "impulse" segment where spending isn't scrutinised at all.

In the digital economy, Apple has built the most successful business model of the past decade on this insight. Everyone knows that paying money for music, online, is entirely optional - there are lots of ways to hear that music for free, many of them entirely legal. But if you price it as an "impulse" buy, and make the process easy enough, then an awful lot of people will succumb to that impulse. In other words: you can compete with "free".

Within that impulsive proportion of their spending, people don't "spend" all their money to get the best possible "utility" for their limited resources. They spend it to feel better about themselves. From the providers' point of view, they're pretty much giving it away; the trick is to get them to give it to you rather than, say, Coca-Cola.

And this is the key to how authors are going to survive in the next couple of decades. It's not about "selling" a product. It's an exercise in persuasion. Make people want to give you money - to give a talk, shake your hand and collect your autograph, put your picture in a magazine, subscribe to your latest writings, convert you into a TV series or a range of coffee mug slogans, go to bed with you... whatever. Or even to have a small bundle of paper with your name and your words printed on it, to sit on their coffee table and lend to their friends and read wherever and whenever they like, unlike electronic devices which are too bulky, and too fragile, to use in many environments. We could call it "a book".

Tuesday, June 1, 2010

I could easily use another pun on 'tooth', here

People can get very confused when you go off-script.

Yesterday took me back to the dentist. Not for the root canal this time, but for a general 12,000 mile service. The assistant, knowing I was British, asked me how I like New Zealand.

After five and a half years, I'm used to that question. But I still don't know quite what to say to it. I equivocate.

"At least the weather is better than England, huh?"

I look out at the concrete-grey sky, the leaves carried by the bitter winter wind across the car park, the runoff from ten days of rain that has left much of the country underwater. I think of late May/early June in England.

"No," I reply firmly. "I haven't been to England in the past week, but I'm pretty sure the weather right now is better than this."

It catches her completely off-balance. The impression I get is that in all the many times she's had this conversation before, nobody has ever said British weather is better than NZ.