The Penny Gap

by | Jul 1, 2011

Over the past few years, I have not been devouring books like I once did. Mainly, because I absorb and reshape so much online content on a day-to-day basis, that the idea of leisure time reading now seems other than leisurely to me. Which is lame. Thankfully, I fixed the lameness for a time this week, when I cracked open Free: The Future of a Radical Price by Chris Anderson, and kept reading until I got to his last, and most important, sentence of the book: “Free may be the best price, but it can’t be the only one.”

There are lots of interesting places in Anderson’s text to focus. One I’d like to address in more detail here is something Anderson calls “The Penny Gap,” which is a pricing model that changes the score.

“There are really two markets: free and everything else. And the difference between the two is profound,” Anderson argues. “If you charge a price, any price, we are forced to ask ourselves if we really want to open our wallets. But if the price is zero, that flag never goes up.”

Anderson’s book is well researched and offers lots of economic theory. In his “Penny Gap” section, Anderson points to George Washington University economist Nick Szabo and his ideas on “mental transaction costs.” Szabo looked at micropayments and claimed that such systems are “destined to fail,” because the cognitive costs are too high. Or as NYU professor Clay Shirky said, “In a world of free content, even the moderate hassle of micropayments greatly damages user preference, and increases their willingness to accept free material as a substitute.”

All of which is a terrific argument to go ahead and charge a fair price for one’s paid offerings.

I started charging for my weekly email newsletter in March and set the opening price at $1.00/month, or a quarter per issue. Is that price too low? It’s not too high. I chose one dollar because that’s the cost of a song in the iTunes store, and something that’s very easy to agree to, but what I’ve learned is price isn’t the issue when charging for online content. The issue is getting people to agree to pay at all.

So here’s what I’m willing to do to boost circulation. During the month of July, you can subscribe to Hungry for Gumbo for free. Your subscription will last the life of the newsletter. Simply send me an email (db at davidburn dot com) asking for the free subscription and I’ll sign you up. If you don’t like receiving the newsletter you can always unsubscribe, which is also free.

How does this motivate you to pay me for my writing? It doesn’t. But it may motivate you to share my writing with others who will pay.