I got this in my inbox last week:
The key term in that ad is “Only $2.95.”
There was a time when offering a trial run of your product for a superficially low price was a great way to grow your business. But those days are over if your product is digital content.
Last year, venture capitalist Josh Kopelman wrote, “The truth is, scaling from $5 to $50 million is not the toughest part of a new venture - it’s getting your users to pay you anything at all. The biggest gap in any venture is that between a service that is free and one that costs a penny.”
Kopelman called this “The Penny Gap.” In other words, the psychological difference between free and almost free is actually very large.
Chris Anderson also wrote about this in Wired this past February (hat tip: Josh Kopelman):
From the consumer’s perspective, though, there is a huge difference between cheap and free. Give a product away and it can go viral. Charge a single cent for it and you’re in an entirely different business, one of clawing and scratching for every customer. The psychology of “free” is powerful indeed, as any marketer will tell you.
This difference between cheap and free is what venture capitalist Josh Kopelman calls the “penny gap.” People think demand is elastic and that volume falls in a straight line as price rises, but the truth is that zero is one market and any other price is another. In many cases, that’s the difference between a great market and none at all.
The huge psychological gap between “almost zero” and “zero” is why micropayments failed. It’s why Google doesn’t show up on your credit card. It’s why modern Web companies don’t charge their users anything. And it’s why Yahoo gives away disk drive space. The question of infinite storage was not if but when. The winners made their stuff free first.
MLB.com is clawing and scratching for paying customers, instead of embracing viral channels. By charging $2.95 for the All-Star week, they limit their exposure to those fans that have an extreme desire to watch the events, but have no way of reaching a television. That’s a very limited segment. Had it been free, they could have enticed many more casual fans to try out MLB.tv.
MLB.com has done a lot of things right in recent years, but their focus is still misguided. The most successful online content sites are free for consumers, and supported by advertising. Given MLB’s ever-growing popularity, as well as their strong relationships with major advertisers, MLB.com could become a true internet powerhouse with some small, but crucial, changes.
Unfortunately, they are still very much stuck in a twentieth century, brick-and-mortar mindset. The site is a very closed community, and they have even resisted making their free videos embeddable on other sites. While MLB Advanced Media’s revenues continue to grow, they continue to miss a very significant opportunity.
Feedback? Write a comment, or e-mail the author at shawn(AT)squawkingbaseball.com
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