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Stop Using The Cup of Coffee vs. $0.99 Cent App Analogy

joshlehman.com

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Re: Stop Using The Cup of Coffee vs. $0.99 Cent App Analogy

#101

Post by photon137 »

tptacek wrote: post #47

Horrifying. The point about the coffee cup comparison isn't that cups of coffee are the benchmark experience for product pricing; if that were the case, my next root canal would cost $0.20. The point of the coffee cup comparison is marginal utility : the money you spend on an expensive cup of coffee almost certainly has very little utility at the margin, because you are happy to chuck it away for a bad cup of coffee.…

This has got more to do with production and consumption of a physical good as compared to a "virtual" good than anything else. The marginal utility you mention for coffee is derived from the physicality of the product - and thus I think the Starbucks vs. app comparison is invalid.

The barrier to entry to create and deliver a software application is extremely low as compared to creating and delivering almost any physical good. The physicality of a thing - especially coffee - ensures that only one instance of it can be used at any time (and it would probably be "used up" during consumption). Creating a new copy has costs (where copying and delivery costs are zero and more than one copy can exist at a time disorienting the supply/demand dynamics, people would always be reluctant to pay for a thing - hence digital piracy).

Software, has no such restrictions and virtually zero delivery costs. That's why RMS always said that charging for the act of software development is right. But charging for copies of the same stuff (and not providing its source) is not - people may talk about intellectual property - but that's a different debate.

When you buy a car, you pay for it - your neighbour with exactly the same model also pays for it. It's also "open-source" (or at least, it used to be) - you can take it apart and figure out how it works. What you might not be able to do is to create the car from scratch (you may not have the tools, materials, expertise etc.). And that's why you pay a hefty sum for it.

The same does not hold true for simple apps - they are easy to put together, the tools to do so are freely available in most cases and the expertise can be gained in a short amount of time. Hence, the $0.99 price tag - because the developer knows it's easy enough to put something together for free - if you had the time.

Note that this does not apply to high-end software where significant amounts of R&D and engineering effort is required - and hence the end-product can't be easily reproduced from scratch. That's why I still feel slightly guilty (and very privileged) when I can download and use Linux for free and browse through its source all I want - economics says it shouldn't be free - but it is.

Re: Stop Using The Cup of Coffee vs. $0.99 Cent App Analogy

#102

Post by tlogan »

xiaoma wrote: post #95
tptacek wrote: post #47

Horrifying. The point about the coffee cup comparison isn't that cups of coffee are the benchmark experience for product pricing; if that were the case, my next root canal would cost $0.20. The point of the coffee cup comparison is marginal utility : the money you spend on an expensive cup of coffee almost certainly has very little utility at the margin, because you are happy to chuck it away for a bad cup of coffee.…

On the other hand, if people all made such rational comparisons about marginal utility, not many people would be paying $100/month for TV channels that only allow them to watch certain shows at certain times and are full of interruption based advertising and not many people would be flushing $15 down the drain to go see a 90 minute movie instead of buying a month's membership to World of Warcraft and getting tens or…

I think "online purchases" (software services, mobile apps, etc.) are in special category because they are generally run and sold by people which really don't know a lot about pricing and selling.

I know that because I'm in that category.

Re: Stop Using The Cup of Coffee vs. $0.99 Cent App Analogy

#104

Post by recoiledsnake »

zht wrote: post #87
crazygringo wrote: post #81

Wow. The negativity of the comments here to this post is astounding. I personally find this post very insightful. Just yesterday, I bought the EA Tetris app for $0.99. I played it for three minutes, and decided I hated the "touch" interface for Tetris. It isn't Tetris at all. And it pissed me off that I paid money for something useless. It doesn't matter if I paid $20 for it or $0.99. It just makes me feel like a foo…

Or users can be allowed to refund their apps

Or better still, allow developers to specify a trial period if they wish to. Only Windows 8 and Windows Phone App stores currently do this, I believe. Some apps that might be of a single use kind won't make sense for this, but most apps like games will and there will be less resistance to upgrading rather than downloading the "Pro" version all over again.

Re: Stop Using The Cup of Coffee vs. $0.99 Cent App Analogy

#105

Post by brc »

Bro_Merch wrote: post #99
Schwolop wrote: post #86

Earlier quoted context omitted.

I'm an Aussie coffee afficionado, and the best coffee I ever had in London was at Monmouth. No idea of the address, but it was about 5mins walk from the modern art museum, on that side of the Thames, near a food market. As if that'll help... :-)

I'm in the US and you have all really got me curious about the Aussie coffee. I too hate Starbucks and find it quite bitterly me a pot that's been on all day). Unfortunately I just prefer Big Coffees off the shelf brand, but don't know what to try. Just that it's not Starbucks. Is there somewhere that I can order Aussie coffee from and know its actually the coffee you describe and not just branded 'Aussie'?

There's really no such thing as 'Aussie' coffee, as I doubt coffee is produced in commercial quantities anywhere in Australia, although there are local roasters.

What they are referring to is coffee made by an Australia barista.

Basically, coffee culture is huge in Australia, and being a quality barista is seen as a cool kind of job to have, despite the generally low pay.

It's not unusual on a city street in Australia to have 5 or 6 coffee shops in a row. At this point, they are competing on coffee + barista quality. With this type of competition, the consumer gets well educated on the nuances between cups, and so it goes.

I had no idea this idea of 'the aussie barista' was being exported to the world, but I guess it makes sense.

In reality, what you're probably seeing is the competitive advantage given from a business cluster in Porter speak. http://en.wikipedia.org/wiki/Business_cluster

Ironically it grew out of Italian culture, mainly through immigrants to Australia. While my best coffee experience was still in Italy, generally I find coffee in other parts of the world appalling in comparison, esp in the USA.

Re: Stop Using The Cup of Coffee vs. $0.99 Cent App Analogy

#106

Post by joshlehman »

CKKim wrote: post #12

Hi Josh, interesting read. I noticed the following typos: "Great software masks it’s complexity" "Package it such that it shows off it’s craftsmanship" "I don’t expect it to even last beyond it’s last drop" "Its like an infant child in that regard"

Thanks, I appreciated the feedback. Fixed those issues. For what it's worth, I up-voted ya.

Re: Stop Using The Cup of Coffee vs. $0.99 Cent App Analogy

#107

Post by eavc »

alexanderh wrote: post #92
crazygringo wrote: post #81

Wow. The negativity of the comments here to this post is astounding. I personally find this post very insightful. Just yesterday, I bought the EA Tetris app for $0.99. I played it for three minutes, and decided I hated the "touch" interface for Tetris. It isn't Tetris at all. And it pissed me off that I paid money for something useless. It doesn't matter if I paid $20 for it or $0.99. It just makes me feel like a foo…

I would say review systems and internet research negates most of the 'gamble' involved with most app purchases. But I guess most users are just mindless consumer zombies. There are a few instances where you "wont know till ya try it yourself"... but they're few and far between with proper research. I think it really speaks to the expectation of developers here that users are expected to "gamble" on app purchases with…

>I would say review systems and internet research negates most of the 'gamble' involved with most app purchases.

I like to occasionally take a flier on a new application that's not gotten enough attention to have research and reviews yet.

Re: Stop Using The Cup of Coffee vs. $0.99 Cent App Analogy

#108

Post by tptacek »

photon137 wrote: post #101
tptacek wrote: post #47

Horrifying. The point about the coffee cup comparison isn't that cups of coffee are the benchmark experience for product pricing; if that were the case, my next root canal would cost $0.20. The point of the coffee cup comparison is marginal utility : the money you spend on an expensive cup of coffee almost certainly has very little utility at the margin, because you are happy to chuck it away for a bad cup of coffee.…

This has got more to do with production and consumption of a physical good as compared to a "virtual" good than anything else. The marginal utility you mention for coffee is derived from the physicality of the product - and thus I think the Starbucks vs. app comparison is invalid. The barrier to entry to create and deliver a software application is extremely low as compared to creating and delivering almost any physi…

The bit about "coffee" and "$5" and "less than" and "marginal utility" have to do with the value of $5 to the average Starbucks customer reading things on the Internet, and nothing at all to do with the nature of coffee other than that coffee is not Important to people's lives.

The point of the comparison is that coffee means so little to people that the cost of a cup of coffee is a good proxy for "how much you should spend without thinking".

That it is an imperfect proxy is something that obviously will not be lost on a site full of nerds like us, but s/trees/forest/g.

Re: Stop Using The Cup of Coffee vs. $0.99 Cent App Analogy

#109

Post by dsr_ »

Udo wrote: post #54

No, I don't think I will stop using it. It is a good analogy because it addresses the unnecessary tradition of cheapness related to getting anything online even though many of those online things do provide more (and longer lasting) value than a cup of coffee. It's still an analogy, it has obvious limitations, but it's not a bad one. Fact: Starbucks Coffee is a Trustable Experience Coffee isn't specific to Starbucks,…

Fact: You're already addicted to coffee.

Odds are good that if the Starbucks you go to regularly closed, and there wasn't another one conveniently close by, you would go to that coffee shop on the other corner. Coffee is a good with proven value to the addicted.

It's also highly substitutable. Some people really insist on the specific order that they've worked out in mind-numbing detail, but most coffee drinkers are happy if it's good enough, hot enough, and can be easily doctored to their preference for dairy and sweetener.

Re: Stop Using The Cup of Coffee vs. $0.99 Cent App Analogy

#110

Post by tptacek »

xiaoma wrote: post #95
tptacek wrote: post #47

Horrifying. The point about the coffee cup comparison isn't that cups of coffee are the benchmark experience for product pricing; if that were the case, my next root canal would cost $0.20. The point of the coffee cup comparison is marginal utility : the money you spend on an expensive cup of coffee almost certainly has very little utility at the margin, because you are happy to chuck it away for a bad cup of coffee.…

On the other hand, if people all made such rational comparisons about marginal utility, not many people would be paying $100/month for TV channels that only allow them to watch certain shows at certain times and are full of interruption based advertising and not many people would be flushing $15 down the drain to go see a 90 minute movie instead of buying a month's membership to World of Warcraft and getting tens or…

I very much think that's the wrong lesson to learn from people's willingness to fork over $100/mo for pay TV.

It is not an iron law that people will not pay $8 for apps because less than $8 is what apps cost, and $8 is what beer costs, and $100 is what pay TV costs.

It is a law, I believe called "gravity", that products that present themselves as market substitutes for other products that cost $1 will have a hard time selling for $8. This does mean that, absent a very effective and inventive marketing strategy, casual games and offline web page readers are hard to sell for $8.

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