Sunday, September 23, 2012

What is to gain at the price of zero?

The definition the book gives for product differentiation made me wonder if this is precisely why news companies are fine with online news' becoming commodified -- because most of them are working for the price of zero, yet product differentiation is only worthwhile when the value added by differentiation is greater than the cost for a company to supply the differentiating characteristics. 

I wonder, though, how are they going to start making people pay if they continue to commodify?  It seems a little shortsighted for them to equate "value" with only revenue and not other things like audience engagement that may indirectly bring the company profit in the long run (i.e., more engaged audience -> more likely to click on things on the site -> more likely to see ads on the site -> more likely to make advertisers happy -> more ad revenue for newspapers). 

Dan Ariely has a very interesting chapter on the cost of zero cost in Predictably Irrational, and I think the newspaper industry may benefit from reading it. Long story short -- When things are "free" we act differently. We forgo rational "cost-and-benefit analysis because, well, there is no literal 'cost' when it's at the price of zero! I don't know the answer to "so what can newspapers get out of offering the news for free (other than traffic, which they clearly lose when compared to Google...)?" But newspaper folks are smart people (right?) -- I'm sure, and hope they will figure something out that is equivalent to CNN's making the audiences watch a 30-second commercial (that feels like forever) before each of their free online news story to satisfy the advertisers but also meet the needs of news audiences that want news "for free."

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