The Internet is a dollar store

For online content, charge as little as you can, not as much as you think the product is worth.

Rafe Needleman Former Editor at Large
Rafe Needleman reviews mobile apps and products for fun, and picks startups apart when he gets bored. He has evaluated thousands of new companies, most of which have since gone out of business.
Rafe Needleman
2 min read

It appears some people haven't figured this out yet, but the Internet is a dollar store, the kind you see tucked into the corners of shopping malls about to be demolished. In dollar stores, everything is a buck. So why not buy it? It's just a buck!

The Internet is not a Tiffany, the kind of store you see in the best locations in shopping malls that have not yet become dated monstrosities about to be demolished. In a Tiffany store you pay too much for a hunk of metal because the brand name behind the metal adds cache to the product.

I'm writing this because today we hear from Bloomberg News that The New York Times is considering charging $5 a month for access to stories on its Web site. Is the fee reasonable? For the quality of the Times' writing and reporting, you bet it is.

But it's still too much, and it's bad business. The success of the iTunes store, and the iPhone app store, shows how easy it is to get people to pay a small amount for a downloadable product. It's a lesson worth learning. And with the cost of distributing each incremental copy of a digital good being close to zero, there is no reason at all to overcharge for products.

There are contrary views. One analysis shows that $0.99 iPhone apps are no more popular than more expensive apps. But especially for companies trying to convert customers who have to date paid nothing for the service (the New York Times content is free), the logic of charging as little as possible, as opposed to as much as possible, makes more sense.

The old joke's punch line, "Yeah, but we make it up in volume," is no laughing matter on the Net. This is a model that is known to work. You want your price point to be so low that people don't think about it. $5 a month is $60 a year, real money for most people. $1? Far fewer people experience the payment of a dollar as an actual transaction. People will pay trinket prices for online goods without thinking about it. And especially when you're selling content that you want as many people as possible to see, wouldn't you rather collect a little money from a lot of people, than a fair price from just a few?