On pricing and paywalls

The price of books published by indie authors on Amazon kindle store is slowly falling to $0.99. This is very similar to the iTunes App Store pricing. If I remember well, SEGA was the first major publisher to drop the price of it’s hit game Super Monkey Ball to $0.99 and all hell broke lose. Now we had a quality title selling for the lowest price point and it set the standard for most gaming titles to follow. Super Monkey Ball was one of the early success in the app store and in some part due to its “innovative” pricing. The same seems to be going on in the eBook space and the idea of $0.99 eBooks dominating the store is not too far fetched.

What does this teach us? And what does this have to do with paywalls?

The lesson to be drawn here is that in a competitive market with a relatively low barrier to entry the equilibrium price will be near the bottom of the pricing tier. That in itself is not a bad thing. As the saying goes: we will make it in volume. And indeed some have. SMB paved way for Angry Birds, Fruit Ninja, Cut the rope et al. Having said that, it’s also clear that this price point will not suite every player in the market and force more pricing innovation.

Enter in-app payments. Apple realizes and works hard to make sure that the apps (or more importantly the developer) ecosystem is healthy. They create the conditions for developers to succeed and in-app payments was their another attempt at helping devs monetize their wares. The developers can now charge for additional content and an increasing number do. IAP were followed by iAds. There will be more pricing innovation and we can expect more from Apple.

Both apps and eBooks are content types where paying for content is the norm. This is made possible by controlling the distribution, delivery and consumption medium (iOS devices and Kindles/Nooks). It helps that the payment infrastructure is built into the platform. The price will not go to free because the economics don’t work (yes, there are zero dollar apps, but they are not a significant money maker for most devs on iOS). I will not touch on Android side of the story in this article so let’s keep ad-supported Angry Birds out of discussion for now.

These developments somehow seem to coincide with the rise of paywalls for content on the web. Of the major publications, WSJ has always had a paywall and arguably it works because they provide time sensitive information (Bloomberg has built a vast empire that way), but last month NYT raised it’s paywall as well. It’s too early to say how successful NYT is going to be with it, but I am not counting on it being a significant contributor to their revenue. A long time ago I remember reading somewhere that you can’t charge for news for a simple reason that as soon as you raise a paywall someone else will make it available for free. This happened pretty fast as The Atlantic found a way to link to NYT articles by skipping the paywall. As TechDirt pointed out earlier – Did The NYTimes Just Offload Its Front Page To The Atlantic?
(http://www.techdirt.com/articles/20110404/00434713761/did-nytimes-just-offload-its-front-page-to-atlantic.shtml).

Where does this leave us?

The conclusion so far seems obvious: if you don’t control the discovery, distribution and preferably end user experience, you won’t succeed with charging for content.

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