Category Archives: business

The psychology of mattress pricing

Anyone who has ever purchased a mattress knows this drill:

Marked price: $1,799
Sale price: $899.50 – 50% off!!!
Extra haggling: $750.00

Meanwhile, you’re still not 100% certain that you’re getting a good deal, but because you’re paying so much less than the item was originally marked, you feel ok.

This strategy is called price anchoring. In this [interesting article on price anchoring](, Dan Nguyen posts about an interesting example from Daniel Kahneman’s new book involving a roulette wheel and a guessing game. If you find the mattress pricing scam appalling, you should definitely check it out. It’ll make you even less excited about their tactics.

Apple’s 30% vig is bad for innovation

Let me start out by saying that I believe Apple is well within its rights to enforce these policies as they are. This isn’t a question of “right” or “wrong” in my mind. People framing it in this fashion are living in a false dichotomy. Apple’s actions fall on the continuum of incentive, just like everything else. The assertion I’m making is that Apple’s decision to apply a 30% commission across the board for in-app subscriptions is too aggressive and will stifle innovation, leading to less choice for iOS customers, unsatisfied customer experience which inevitably will lead to softening iOS device’s attractiveness to consumers.

Let’s back up for a moment and address what is probably the most defensible position for Apple’s 30% cut. Apple has hit one out of the park with iOS and all the associated devices. Between the iPhone, iPod Touch, and iPad, Apple has sold over 160 million iOS devices [1]. Even if a large part of that number are users replacing old devices, the number of iOS users remains _not insignificant_, to say the least. Apple has cultivated an audience who expects a seamless purchasing experience. iOS users expect to click a button and purchase content without going through any checkout procedures or creating new accounts. Along these lines, Apple wants to accomplish two things:

* Preserve that experience throughout iOS
* Be compensated for cultivating an engaged and free-spending user base

Stated simply, publishing an app or content on the iOS platform puts you in front of millions of users who buy content frequently. That puts Apple in a position not dissimilar to a publisher with a huge readership. If half of those 160 million devices are still active, that gives Apple 80 million eyes. The NY Times circulation is 1.4 million on a Sunday. That number is less than 1 million on weekdays [2].

So, we clearly have a situation where Apple deserves compensation for what it has built. But what should that number be, and how is a 30% cut bad for innovation?

In the publishing world today, there are content creators who have their own “go to market” (to borrow from Steve Jobs) strategies, and there are content creators who rely on delivery facilitators. These two classes are not mutually exclusive. Popular Mechanics, for example, is available in the iTunes App Store as an app, as well as through Zinio. Popular Mechanics is a publisher, and Zinio is a facilitator. Zinio doesn’t create any of their own content, but they have solved a problem, and publishers (a.k.a. content creators) want to make use of this solution without reinventing the wheel, so to speak.

Zinio is a pretty weak example of innovation, but you don’t have to go far to find a much more interesting example. Have a look at Flipboard. Unlike Zinio, who simply converts magazine pages to images and text, Flipboard brings a lot of new ideas to the table, but eventually, they’re going to have to carve out a piece of the compensation model. With Apple in the equation at 30%, that doesn’t leave much room for Flipboard. What about the user base that they have cultivated? What about the value they bring to to iOS as an exclusive application?

By capturing 30% of all subscription revenues, Apple is squeezing companies like Flipboard out of the equation. By consequence, Apple is moving customers “closer” to the creators of content. This sounds like a good thing, but when you look at innovators like Flipboard, you really have to question the value of this closeness. Publishers are frequently monolithic organizations that don’t adapt well to change. Their business is developing content, not mobile technology. If Flipboard is any evidence, pushing the delivery facilitator role out to smaller, more agile companies is a good thing. Apple would clearly prefer to work directly with publishers, as we can see by looking at “The Daily”.

By pursuing 30% of all in-app subscription revenues, Apple is creating a strong disincentive for facilitators. Even if you assume that publishers will hop on board with applications like “The Daily”, consumers still lose when companies like Flipboard never come in to existence, and that is how Apple’s mandatory 30% take stifles innovation.

1 – “Apple sells 160 millionth iOS device as average iPhone price grows to $625”:

2 – “Newspaper Circulation Falls Nearly 9%”:

Viacom: Hoist with their own petard

File this one in your WTF file. First, some context:

Some time in 2007, Viacom “filed suit against YouTube”:, claiming that YouTube’s users were uploading Viacom content to their website, but did nothing to stop it. Furthermore, YouTube was benefiting from this violation by collecting ad revenues associated with the display of that content; an ultimate evil amongst copyright holders. YouTube claims they are protected by the DMCA (always use your powers for good!) because the content was uploaded by users, and YouTube makes a “reasonable” effort to police the uploads.

YouTube’s chief counsel in defense of the lawsuit posted a “lengthy repudiation”: of those claims on the YouTube blog today. This is where it gets really interesting. It appears that not only did Viacom upload their own content to YouTube, whom they are suing for having displayed said content, but they did so surreptitiously. Long quote from the article follows:

bq. For years, Viacom continuously and secretly uploaded its content to YouTube, even while publicly complaining about its presence there. It hired no fewer than 18 different marketing agencies to upload its content to the site. It deliberately “roughed up” the videos to make them look stolen or leaked. It opened YouTube accounts using phony email addresses. It even sent employees to Kinko’s to upload clips from computers that couldn’t be traced to Viacom. And in an effort to promote its own shows, as a matter of company policy Viacom routinely left up clips from shows that had been uploaded to YouTube by ordinary users. Executives as high up as the president of Comedy Central and the head of MTV Networks felt “very strongly” that clips from shows like The Daily Show and The Colbert Report should remain on YouTube.

bq. Viacom’s efforts to disguise its promotional use of YouTube worked so well that even its own employees could not keep track of everything it was posting or leaving up on the site. As a result, on countless occasions Viacom demanded the removal of clips that it had uploaded to YouTube, only to return later to sheepishly ask for their reinstatement. In fact, some of the very clips that Viacom is suing us over were actually uploaded by Viacom itself.