Have you ever tried looking up stock prices online? Let’s say we look up the ticker symbol GOOG on Yahoo! Finance:
Hmm. It says, “Quotes delayed for <ticker symbol>. Get streaming real-time quotes – FREE TRIAL”. And this is the same ticker symbol on MSN Money:
Quotes on MSN Money are delayed 15 minutes. Now how about we just look up Google’s stock price on well, Google themselves! This is Google Finance:
15 minute stock quote delay. Ever wonder why that is?
It’s a pricing strategy. The product here is information–the price of the stock quote. They segmented their customers into those who are casual surfers (who may or may not care about investing) from those who are serious stock traders (stock prices accurate up to the nearest millisecond is critical!). The perceived value of the same piece of information is different to each consumer.
If you suffered from some life-threatening disease and have a week left to live, how much you would pay for information of a possible cure? (note: I said “possible” cure) I’m sure you would sell off everything you have for that information, maybe even taking on a loan. Now if I told you that I have information for a verified cure, but you don’t have the disease, how much would you pay for the information now? None.
This is pretty much the same thing. Companies that are in the business of selling information, are always looking for ways to generate a bigger return from their “product”, and this is one of them — by extracting more money from people who are willing to pay the price.
The internet is irrefutably an amazing information disseminating platform, enabling anybody to reach information anyone around the world has created (see the side bar). I am sometimes amazed by how my blog has been visited by people from all continents. I’m not even anywhere close to being a celebrity, I’m just some random guy.
Companies leverage the wonderful inter-webs to sell even more units of the same information, thus benefiting from economies of scale. Information cost almost nothing to reproduce (think cut + paste) but it does cost money to produce. It costs Microsoft millions, if not billions to create that first Windows XP CD, but the cost of producing the second, third, (and to infinity) CD is free. For a given piece information, the sunk cost invested in creating that information can be recovered by simply selling more and more of that same information.
If it costs $10 to produce a certain unit of information, I only need to sell it to 10 different people at $1 each before I start raking in pure profits, virtually until the end of time (or until nobody wants it at all, whichever comes first). Talk about a great source of passive income. Maybe I should be a book author :p
Another example: College textbooks. Goodness knows how I had to scramble at the start of every semester hunting down the lowest price for all my textbooks. There’s always the hardcover version and the paperback. The contents of the two are identical, but one is way more expensive.
I was really proud of saving a ton of money on this book. Retail price for the hardcover on Amazon is $156.56. Somehow then, I managed to find an obscure paperback version with identical contents. But get this, the cover was in Chinese! The content inside was English though. The quality of the paper itself was very cheap, felt like it was cheaper than toilet paper–but I bought it for ~$40, or only a quarter of the ridiculous price. I made an ‘A’ in the class, and after the class, I put the book in the restroom. (ok I lied about the restroom, I don’t disrespect books like that)
Actually, I think I got lucky in finding that knockoff. Usually the hardcover books are released first at a high price, and those desperate for it would rush to get it. After sales starts to slow, then usually they bring to market a cheaper paperback version. Releasing both at the same time would obviously be a bad idea since sales from the paperback would cannibalize sales from the much more profitable hardcover.
Another example: My car. It’s an ’05 model, and I knew I wanted *that* exact car (loathed the ’06 design), I’ve always wanted it, but I waited until the ’06 model was launched, and then some more — until I knew that car dealerships were dying to just get rid of the ’05 models from their limited shelf space to make room for the new 06′s. That was leverage in the price negotiations, needless to say. The dealership had to price it aggressively due to unfavorable circumstances facing them.
But I digress, my car isn’t an “information” product, but I thought I’d mention that since it’s still a pricing/negotiation strategy :p