So, it's almost four in the morning, and I'm awake, and thinking about the business model of Amie St, an online music store. Artists (mostly unsigned or indie artists) upload their music to the site, and the site offers the music for dowload on a revenue share basis. The price changes over time (from TechCrunch):
- All songs are free to start. Prices fluctuate over time based on demand for the song
- Users who have purchased a song can recommend it to their friends using a limited number of “rec’s” that they receive (users get one per dollar they add to their account). Once recommended, users will get account credit if the price of the song increases, giving them an incentive to find and recommend good music.
I like demand sensitive pricing. Everyone should check out the UK movie theatres run byt the Easy corporation (of easyinternet and Easyjet fame) where excess inventory (read: empty theatres) is liquidated at the market-clearing price.
I have also benn known to advocate from time to time the idea of digital content markets where artists of every variety can set the prices for their content and connect with buyers who are willing to pay that price for the content. No matter if these prices are fractions of a cent- a rights holder ought to have more control, no?
The critical difference is scarcity. There is no meaningful scarcity in digital music, no limit to the number of copies of a song. So the rise in price for the same good absent scarcity or constraint of supply ought to be confusing.
I suppose that one could think of this model as "effective scarcity" in two ways:
- The number of initially free tracks is very large, and the site's recommendation and buzz creation process promotes a much a subset of tracks, so they go up in price as they become the smaller number of "high quality tracks)
- The recommendation process is actually an engine for differentiation and value creation. The products aren't the same