Pipes earn more than water

Andrew Odlyzko writes, over at First Monday,“Content is not king.” And he proves it, demonstrating that spending on infrastructure vastly trumps spending on content.


Yeah? And?

Even the $5 cover price of the Sunday New York Times doesn’t remotely begin to represent the true cost of production. True content is always subsidized and is grossly overshadowed by the costs involved in getting the medium to you. People are shocked that the graphic-design magazineEye costs $35 an issue. But that is probably how much it actually costs to produce. The fact that we can cite precisely one case of true user pay should tell you something.

Odlyzko explains further that people use telephones, even 3G cellphones, to chitchat rather than to surf. Yes. We knew that, too.

We look at Odlyzko’s article as comprehensive documentation of a phenomenon everyone should accept as inherently true – once it’s brought up, anyway, even in cocktail-party conversation. Obviously the medium costs more than the message. It’s the sort of thing that’s self-evident as soon as someone points it out to you. (“Oh, right. I knew that.”)

What Odlyzko fails to explore is the converse: The feeling people have that individual increments of bits should not cost so much. Your cellphone should not ding you 15p a minute, because you know perfectly well it isn’t costing the telephone company 15p to hold a circuit open for you. Early record-company experiments in online downloading, where singles were offered for$2.95 apiece (pushing the price of the equivalent of a CD to $36),were universally rejected because everyone knows there aren’t 295¢ of infrastructure involved in delivering a single single.(The big publishers are recapping the same mistake by pricing E-books the same as their print forebears [NUblogpassim].)

The question, then, becomes one of elasticity. What is the proportion of cost to items received that people will accept as fair?

If you make something affordable and reasonably priced, will people be less likely to steal it?

Probably not. Probably not online. That theory works fine in real life, where razors other than the Gillette Mach III are racked like regular merchandise by Mach IIIs are kept nearly under lock and key. Or take the case of Zip discs: One store we know put out 100 Zip discs for sale one day and ended up with 20 left on the pile at close of business. Fully 15 had been legally sold. In the real world, you know a product is overpriced if people steal it more often than buy it.

Online, that doesn’t really work, but we nonetheless findsome vestige of that elasticity, which rests at the core of the ongoing dilemma “How do we get people to pay for what they’re now accustomed to getting for free?” Damned if we know.

If we’re rambling here, well, give us a break. We just finished slogging through Odlyzko’s article, which could not possibly have been set up worse for online reading(NUblogs innumerably passim).

Posted on 2001-01-12