Fri, May 15th 2009 3:21am
by Mike Masnick
Thu, Feb 19th 2009 11:47am
from the service,-value,-pricing dept
He started out by pointing out something that we've discussed in the past: digital content is best viewed as a service, not a product. As a service, you focus on providing continual value -- and people are paying for that future value (which is a scarce good prior to delivery), rather than an infinite good already created. There's value in paying for that future (scarce) service, and it trumps paying for an abundantly available good.
From there, he noted that the reason "piracy" is doing so well is that the "pirates are ahead not just on price, but on service." In fact, he noted that since DRM decreases the service value for customers, it also tends to increase piracy, rather than decrease it.
Then, he showed how that combination of service and smarter pricing allowed the company to run experiments and make a lot more money -- competing quite successfully against piracy. The most stunning example: last weekend, the company ran an experiment with the game Left 4 Dead. It heavily discounted the price, and sales shot up 3,000%. And this wasn't just a case of building off a small base. The sales over the weekend were more than when the game launched.
In fact, it looks like a big part of the problem facing the industry is that they charge way too much for their products. Here are the numbers Newell shared from Valve's experiments with "sale" pricing:
- 10% off = 35% increase in sales (real dollars, not units shipped)
- 25% off = 245% increase in sales
- 50% off = 320% increase in sales
- 75% off = 1470% increase in sales
Between all of this, it's pretty clear, yet again, that "piracy" is hardly the issue. If you provide a valuable ongoing service at a much more reasonable price, there's no problem at all. Once again proving that the issue is a business model issue, rather than a legal issue. It's too bad so few old school content providers are willing to recognize this, and quite troubling that some folks in our government are still missing this as well. It's going to lead to bad laws and even worse enforcement of the law.
by Mike Masnick
Mon, Jun 30th 2008 11:28am
from the what-else-are-you-gonna-do? dept
by Timothy Lee
Tue, Apr 22nd 2008 10:16am
from the a-feature-not-a-product dept
The always insightful Bruce Schneier has a new piece out arguing that the stand-alone security industry is doomed, as security increasingly becomes a feature of other products, rather than a product in its own right. He points out that hardly anybody wants to buy a "security product." They want to buy useful products -- operating systems, databases, web servers, whatever -- and take for granted that the developers of those products have designed it to be secure out of the box. Schneier points out that consolidation in the security industry has not taken the form of large security firms buying small security firms, but of non-security-focused software firms buying security firms to help bolster the security and reputation of their products. This may indicate that developers of other software products are recognizing that better security is one of the key features customers are demanding in their products.
If you'll excuse me for jumping on a Techdirt hobby-horse here, this is another example of the economics of abundance at work. Security products are increasingly becoming commodities. Obviously the software ones -- anti-virus tools, software firewalls, intrusion detection systems -- have a marginal cost of zero, and even many of the hardware devices are built on commodity parts that get cheaper every month. What hasn't gotten cheaper is the expertise required to put the bewildering array of security tools together into a coherent system that's customized for a firm's particular business. Indeed, as security products have gotten more numerous and more complex, it has actually gotten harder to keep track of them all and know which security tools are the best ones to use in any given situation.
And crucially, this isn't something you can outsource to a third party. I've written before (in the context of e-voting) that encryption isn't magic pixie dust that automatically makes a system more secure. The same point applies to security more generally. Having the best firewall in the world won't do you any good if it's not configured properly, or if your network hasn't been designed with security in mind. And because every large organization has different security needs, every organization needs a slightly different security setup.
This creates a huge opening for companies who understand that customers are not looking to buy a security software product, but a suite of software that they can count on to be secure without worrying about the details. We've pointed out that this is essentially the business Red Hat is in: not selling software but selling the expertise of its employees with respect to the software. Security is a big part of that. "Security software" is an infinite good, and the market for it will get increasingly crowded in the future. On the other hand, the expertise needed to build complex software systems securely is as scarce as ever, and such expertise is one of the key ways that software companies can distinguish themselves from the competition.
by Mike Masnick
Thu, Apr 10th 2008 6:23pm
from the you-think? dept