Why Do People Pay for Things They Can Get Free?

This is an adaptation of a talk I gave on June 19 at O'Reilly's Tools of Change for Publishing 2007 conference in San Jose. You'll find slides that accompanied the talk here.

Summary: People pay for comfort and convenience. You can deliver that by giving a guarantee. For example when you buy a song from Apple through iTunes they guarantee that you'll get the right song. People pay for a guarantee to get comfort and convenience.

A short history of bottled water

In 1789, the same year as the french revolution a french marquis, Marquis de Lessert, who was suffering from kidney and liver problems started drinking water from the Sainte Catherine source in a little french alp town close to the Suisse border, a town called Evian-les-Bains.

The water made him feel better. He claimed it improved his health so people started buying the water and that was the beginning of the most successful water brand in history. The commercial history of water started earlier, San Pellegrino, for example, were in business around 1400. In 1826 Evian started selling water in bottles.

In 2003 the bottled water industry had annual sales of more than $35 billion worldwide and the numbers have risen since.

Why buy water when we can get it for free

Why do we buy water when we can get it for free from the tap? People have many reasons for drinking bottled water.

They don't want to do the dishes.
It's healthier than Coke.
It's cold
It tastes good
It's portable so you can drink water anywhere.
It's clean

So what reasons do we have for paying for water? People have an easy time fixing 1, 2, 3 and 5 on their own.

Making water taste good is harder and cleaning water is a science. That explains why companies selling water focus their PR and marketing on the health/ purity issue, it's something companies can do that a person can't fix easily on her own.

Bottled wine

About ten years ago John Perry Barlow wrote a brilliant essay in Wired magazine called "The Economy of Ideas". It's an exploration of what is happening with information as we are entering the digital age. Here's what he wrote about books:

"one didn't get paid for ideas, but for the ability to deliver them into reality"

and

"For all practical purposes, the value was in the conveyance and not in the thought conveyed. In other words, the bottle was protected, not the wine".

While we have

increased the value of water by adding a bottle
we have also increased the value of information by removing a bottle

And the wine has done pretty well on its own.

Increased openness

There's a trend of information moving towards increased openness. From print to web to blogs and wikis, information is freeing itself from all bottles, whether it's the container presenting the information or concepts like ownership which limits how information can spread.

My guess is that the trend will continue and that we'll see sets of documents and files that belong to no one and that you can use in pretty much any way you like. This public infosphere will have higher quality than most other information for the simple reason that developers will like it, developers defined as anyone who likes tinkering with information; authors, bloggers, coders, journalists and enthusiasts. The new set of information has rid itself of the biggest barrier to entry which is ownership.

What happens when people are free to do what they like with a book?

Once you know that you can do whatever you like with a document or database you start thinking in new ways.

It's similar to switching from dial up modem that costs by the minute to broadband that is running 24 by 7 at a fixed price. You start to look at it and think about it in new ways. You begin to think different.

Here's an example of what happens when information is turned loose.

Iranian law doesn't allow copyright on anything coming from outside of the country so they're used to things like multiple translations of a single text.

Here's what one of Irans most famous translators, Sahabi, said about the quality of translations...

"Sahabi pointed to the glut in the book market in terms of translated books and questioned the quality of books which are available in large numbers from different translators. He blamed this problem on the lack of copyright in Iran which gives translators a free hand to translate materials from different subjects."

Sahabi asks for an organ that "can monitor the market to ensure that a book is not translated more than once."

Like I said, you begin to think different.

So what is it companies can do with information that a person can not do easily on her own?

Think different

Apple introduced the iTunes Music Store in April 2003. Today it has more than 5 million songs which they sell along with movies and tv shows. It is the most successful online music store in the world.

With file sharing you don't know if you'll get the music now because there's no one guaranteeing it because you don't know who is at the other end. Anonymity is a common and appreciated value in file sharing environments.

iTunes let people ignore the hazards of file sharing by guaranteeing certain qualities, qualities that become even more important with video. Apple charges for music by guaranteeing that

you'll get the right song
you'll get it quickly
it will have good sound quality

Those are qualities that are harder to find in a p2p file sharing environment. Apple charges for the things they can guarantee. They validate the music for you.

Guarantees as a business model

Finding, assessing and validating qualities of a piece of information is something that requires an effort. It is something companies might be able to do well.

Hearing Chris Anderson talk about free books with ads and ad-free versions that cost you some, I realized that part of what Chris charges for is a guarantee, he guarantees you won't have to attend to ads in the ad-free version of his book.

Of course, people can still download a document and go through every page to check that it doesn't have ads and do the job manually but they'll pay for the convenience of not having to think about it. They won't pay 20 or 30 dollars but maybe one or two dollars. So it's a different business model. But remember that this is relevant to physical media as well as non-physical, it's a question of finding the right price for the guarantee you're offering.

Today guarantees are most relevant to bits, to non-physical things, things you can download such as audio, pdf documents, reports and different kinds of video. As the price of printing a book goes down, and it is going down, people will start fixing books on their own and guarantees will become more relevant in the physical world as well.

How do we find out what guarantees to give?

Ads are one side of it, what we don't want in a book. Another side is what we do want in a book.

Guaranteeing that you'll get the whole book with all pages intact is a guarantee that the content will be present, after all you don't want a mystery novel to end unsolved.

Here's something I'd like to see in a book. Since I am an Amazon junkie addicted to all the info they serve about books I wouldn't mind getting all that in the book I'm buying. Like a boosted version of the stuff publishers put in books today. Reviews, categories, book weight, similar authors, blog comments about the book, wikipedia entries whatever. The more info the better. The more relevant it is to the book the better.

Thinking about this got me thinking about a specific book, Bad Twin. It's published by Hyperion and written by an author named Gary Troup.

He doesn't exist. He's a fictional character from the tv show Lost. You can read all about it in Lostpedia, the reference of choice for all things Lost.

You'll also find a press release from the Hanso foundation that appeared at the Hanso foundations website in the PR section after the book was released. The release basically says that the book criticises Hanso Foundation and Hanso is a reputable company that has existed for thirty years and you shouldn't believe this guy blindly and so on. This is a fictional company, remember.

What's Lost?

And here's an idea. You can sell a guarantee that a book has a connection to a topic, like Bad Twin and Lost, because when people are interested and passionate about something they want more.

You could tell authors to write what they like but you want the book to have some connection to the topic or person or item or concept or whatever.

I think people will pay for that. You are helping them select what to read. Sure they can find out on their own but it's convenient to get a story packaged and the convenience is probably worth a dollar or three.

So why do people pay for things they can get free? Well you just read the long answer. The short answer is, they don't.

While we're on the topic of passion, this feels like something people working in publishing could feel passionately about and if you feel passionate about something you can be sure there are others like you.

Thank you.