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".


Anonymous said...

The advantages of a book: low cost, may survive a dunk in a bath, doesn't require batteries or power charging, it stimulates 3 senses: sight, touch, smell, you can doodle in the margins of the book, you can overwrite the typos.

Mind you, I've yet to get an electronic book reader.


vet said...

As I see it, a book is an item independently of its contents. The content is important, sure, but the physical object itself is also worth something. As such, it can be sold as an object, not just a "vessel" for the contents.

And it's an extremely branded object, very closely associated with the author. So it makes sense to me that it can be sold in ways not unlike rock band t-shirts...

Steven Marty Grant said...

I must admit that I am very old fashion when it comes to books. As much as I embrace most forms of "new media" I have not ventured into "e-books". I think you are spot on with this piece because if a consumer can click a button that seemlessly charges him some small amount (like I-tunes) he or she will spend $50 to $500 ayear and not even notice the money going out.

vet said...

Good to see you, SMG. Yes, that's exactly the way I see it, and I think you can charge for physical items the same way. So long as the price per transaction is low enough.