Tiered Pricing Ahead for iTMS? And why a little piracy is a good thing.
Category: Economy & Business...
Posted Monday, September 05, 2005 at 05:05 PM [GMT-6]

I'm probably the last person in the universe to discover Chris Anderson's blog, The Long Tail.* But it's now firmly entrenched in NetNewsWire where I'll be checking it often.

A couple of somewhat recent posts caught my eye and I'm linking them in one article despite their taxonomic disparities. (I don't know what it means either; I just made it up.)

The first article discusses the possibility that Apple may move to a tiered pricing structure in its iTunes Music Store (iTMS), discarding its current $.99/song policy. The move may be to a range of prices that provides for a higher fee for new music and a lower fee for older or less popular music. According to the article, the record labels are all in favor of the former, which is no surprise. What's surprising, perhaps, is that they're also in favor of the latter. The thinking is that the less popular music -- which, in this case, represents "the long tail" -- would sell better at a lower price. You could get into all kinds of discussions about demand elasticity, etc. but the idea does have merit and I find it attractive from a selfish perspective. I suspect that my preference for Diana Krall over Coldplay, or for Brazilian samba over glitch/dance would mean that my likely choices in downloads would fall into the lower price categories. In any event, it's in Apple's best interests to pay close attention to things like this as iTMS continues to mature.

The second article presents an even more intriguing suggestion, that a small amount of software piracy is actually beneficial to the industry. This is based on two premises, one related to "user experience" and the other economic.

On the user experience side, Anderson states "Any protection technology that is really difficult to crack is probably too cumbersome to be accepted by consumers." This is not a new concept, and we're all experiencing it more often. As software (or any digital content, really) becomes subject to increasingly strict DRM, it also becomes increasingly a pain to register, to use on different computers (or music players), etc. There's a fine line between making the DRM scheme strong enough for protection and too strong for reasonable use.

The economic argument goes thusly: "...piracy can actually let you raise your prices." Anderson gives a great example of how this can be the case:

An even more interesting argument is this one:

This implies that piracy should be encouraged in order to gain a foothold in an otherwise closed market. Anderson refers to that strategy as "controversial," but it's worked for centuries in the field of religious evangelism, where the creation of a few "true believers" (spiritual beta testers?) can ultimately influence the direction of an entire nation or culture.

Interesting articles, both. I recommend them.

*If you're unfamiliar with the term, "long tail," it's a description of a commonly observed phenomenon in statistical analysis wherein a vast population of events occur very infrequently, while a very few events occur very frequently. Anderson adapted that term and in its proper noun format ("The Long Tail") uses it to described economic and business models that place value on providing an immense array of goods even though no single item is sold very frequently. Focusing on The Long Tail is what companies such as Amazon.com and NetFlix (and Apple's iTMS) do, and it's working out very well for them. If you want a quick primer regarding The Long Tail, visit Wikipedia.

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