9 ms·

"We live in a world where digital products are inherently undervalued relative to other products. We will shell out $5 for a pumpkin spice latte in a heartbeat,

"We live in a world where digital products are inherently undervalued relative to other products. We will shell out $5 for a pumpkin spice latte in a heartbeat, but the second we have to pay $1.99 for an app, we begin to conduct cost-benefit analysis as if we were buying a damn house." This is something I think about a lot, especially as a developer of a service that will one day require subscription (Yipgo). When I buy a coffee, I walk into a physical building, staffed by people who I've got a two way relationship with and I get a physical coffee. As well as the experience itself, there's more a more tangable product in the coffee than there is a blog I might subscribe to. I'm not saying we shouldn't pay for it, I'm just suggesting that might be the phsycology that explains it a little.

chimeracoder 10y ago
Well, the coffee has a marginal cost that is non-trivial. Downloading an app has essentially zero marginal cost.
- riprowan 10y ago
  The coffee also has, at best case, a one-use max.
  - criddell 10y ago
    That's a benefit. If I buy a coffee I know what I'm getting. If I download a $2 app I might get lucky and use it right away in which case it might be a great value. Or it might require 30 minutes of setup and experimentation in which case it has already cost me more than the coffee.
- k-mcgrady 10y ago
  How many consumers consider marginal cost when making a purchase though?
  - duncanawoods 10y ago
    I expect it factors into intuitive value judgements even if not totally conscious. Its like the lock-smith who slaves for an hour using a dozen tools vs. one who takes 30s and no tools. The latter is more skilled and served you better but will not feel as valuable. The artificial scarcity of an app and the work of "not preventing you downloading something" just doesn't ring our value bell.
salesguy222 10y ago
Thanks for your insight :) I think this is a true contributor to the situation. That physical product also provides a physical reward (taste, calories). The relationship of speaking to a cashier, being in a warm building, feeling like you belong to the cool crowd, is a very deep psychological reward that in my opinion likely releases all sorts of chemicals in one's brain. This all furthers the reinforcement to buy again in the future. On the software side, video games achieve many of the same effects. Feelings of belonging, both to a crowd and to digital images on a screen, deeply affect humans. My bet is that a simple app that doesn't achieve this is a less justifiable purchase since there is no physical demand within the person to buy
- tedmiston 10y ago
  On top of this I usually talk to my barista about tasting notes to help decide which coffee feels right that day. The coffee shop has also curated just a couple different kinds of quality beans out of the tens of thousands of different available offerings. This is a value add for me.
  - salesguy222 10y ago
    that is cool info, thank you! i think the overarching point among all of this is that if you create a product or service that has implied continuous delivery of insight/experience/fun etc, then users might be more likely to be satisfied with their purchase a $1.99 drum kit app might be an easier pill to swallow if the creator actively releases info on how to be a better musician, where to chat with super users...
lojack 10y ago
When I buy a coffee I also don't have to worry about it charging me $5 once a month forever unless I go through a maze of menu options (possibly involving phone calls) to get it to stop.
- riprowan 10y ago
  Also, when you buy a coffee you don't have to worry that it might contain spyware or malware.
  - dhimes 10y ago
    It might make you sick, though.
    - majewsky 10y ago
      There's more regulation wrt food safety than application security.
- maneesh 10y ago
  Do you worry about this with app store purchases? In app purchases I get it, but I've never been unfairly charged (or found it difficult to cancel) purchases that go through apple or google
  - lojack 10y ago
    No, its not typically a concern with non-subscription services. And, yes, it is a concern with subscription services purchased through the Apple App Store (don't use Google). I still have to google how to do it. For reference: https://support.apple.com/en-us/HT202039 https://support.apple.com/en-us/HT202039 I'd be impressed if anyone could figure those steps out without visiting that guide first.
    - djrogers 10y ago
      Really? You view your Apple ID and click subscriptions - it's really pretty simple. Added bonus, every subscription is in one place - no worry about deleting the app and losing your ability to cancel. No phone calls needed to cancel - ever - either. Plus, you get an email confirming every subscription and renewal before the renewal is charged, with a link directly to that subscription so you can cancel it. Not sure how it could be made much easier than that...
1337biz 10y ago
With the coffee you are buying an experience, an emotion. With most non-gaming apps not so much. Doing an cost-benefit analysis with an experience is much more subjective than what you can get out of an app.
antocv 10y ago
I think we are thrown into "cost-benefit analysis" to avoid being the only ones who pay. When you go for coffee, you know everyone else pays the same, nobody gets coffee for free. With digital goods, since they are so easy to copy, you wonder, am I a dumbass for shelling out even $1 when everyone else is getting it for free? There is no way to know if others have bought this, if they have actually payed. On top of that, its so simple, its too simple to pay, but with coffee you have to get your card out, find coins or whatever. Customer wonders, if its so simple, am I being ripped, what if I buy this by accident for several months?
martin-adams 10y ago
I bet people wouldn't pay $5 for a pumpkin spice latte that they can drink in 30 days time. I think the problem is the immediate reward and anticipation of the reward.
paublyrne 10y ago
I think it's the physicality that's especially appealing to us. It's worth comparing the experience to buying a paper magazine. I am also more inclined to do buy a magazine without overthinking the purchase than I am to subscribe digitally to the same magazine. I know the content is worth something, but a physical item feels more valuable somehow. The same with buying DVDs or CDs. Although the content is the same, it feels more real when you can hold it.
kristianc 10y ago
I can never work out if people who make this analogy are trying to guilt people into buying from them or just lack understanding of human psychology. I'm willing to pay $5 for a Pumpkin Spice Latte because I know what I'm going to get. I'm going to get a tasty coffee and possible use of space and WiFi for a few hours if I want it. I have no idea what I'm going to get for an app. I may get something that is going to give me a few minutes of mindshare every day, or I may end up getting something which is completely useless. I have no way of knowing. Starbucks also has no free alternatives. If I want to get a coffee when I'm in town I know I'm going to have to pay a certain price. There's no one handing out free coffee - or coffee that is free if I agree to read a few ads. That's not true of apps. Many apps have perfectly good free alternatives. The fact is, most of what Medium offers, I can get elsewhere. If what this amounts to is asking me to pay for Wait But Why, The Awl or the Ringer - I can get better elsewhere for free. There may be a price I'll pay for fuzzy thinkpieces that talk about how 'problematic' everything is, but it isn't very high. If you want to get into non-free, $9.99 a month gets me either the entire history of recorded music, a selection of essential 'water-cooler' TV watching that I am going to be able to talk to other people about, or access to the entire archive of the Washington Post. I happily pay those and would probably pay 50% as much again, but it does mean that the bar for a glorified blog is very very high. I also have to say as far as Yipgo goes, then it had better be a damn good to-do list.
- swalsh 10y ago
  "Starbucks also has no free alternatives." Actually, every day (when I worked in an office) I had to make the decision of "Do I want the kind of boring office coffee, which is free, or the slightly more exciting Starbucks coffeee"
  - boozywoozy 10y ago
    If you were a hipster in San Francisco, you'd make a decision of whether to have the kind of boring Starbucks coffee, or the slightly more exciting single-origin organically-grown free trade pourover coffee that your non bearded, tattooed barista will take 13 minutes to make.
- 10y ago
wslh 10y ago
"We live in a world where digital products are inherently undervalued relative to other products..." Thank you for the notification. I can't believe someone with business experience can make this really naive statement. This is an issue in almost every digital business. Last week there was a related thread about value creation here: http://continuations.com/post/156889798325/value-creation http://continuations.com/post/156889798325/value-creation
jasode 10y ago
>about quote: "We live in a world where digital products are inherently undervalued relative to other products." That author describing it as a single category called "digital products" doesn't really explain it. There are lots of non-physical digital products that people will pay for. It's really the smartphone apps in particular that's a special category of negative psychology. After the initial novelty[1] of buying apps in 2008 died away, people realized that smartphone apps were a waste of money. People would buy an app and then later experience buyer's remorse. They felt ripped off. Therefore, the previous bad experiences provide no reinforcement for future purchases. Compare that with consumers who buy a digital song for $0.99 from Taylor Swift and then that enjoyment reinforces the idea that it's ok to pay $0.99 again for an Adele song. Or Kindle owners who pay $9.99 for the latest ebook from Stephen King and then willingly pay that amount again months later for another bestseller. There are many other examples of repeated digital purchases.[2] (Using the positive reinforcement framework of thought, it's not that people pay for $5 coffee because it's a physical product -- it's that the previous $5 purchase of Starbucks gave them pleasure and therefore they willingly pay it again.) If consumers really felt they got value from app store purchases like they do with iTunes songs, Kindles, Netflix, etc, they'd buy more. Therefore, the conclusion that smartphone owners undervalue digital products is not actually correct -- they actually value digital app store purchases as near-worthless because that's the utility they got from them. Also, the avoidance of buying smartphone apps seems related to The Market for Lemons[3] and the thousands of terrible apps written by copycat incompetent programmers prevent people from discovering the truly quality apps that could improve their lives. A lot of bad apps flooding the market ruins it for everyone else. [1] example: http://venturebeat.com/2008/12/23/iphone-fart-app-pulls-in-nearly-10000-a-day/ http://venturebeat.com/2008/12/23/iphone-fart-app-pulls-in-n... [2] Netflix $9.99/month Adobe Cloud apps $49.99/month (more digital subscribers than customers of physical CDs/DVDs) boxing pay-per-view $99 (Mayweather vs Pacquiao) [3] https://en.wikipedia.org/wiki/The_Market_for_Lemons https://en.wikipedia.org/wiki/The_Market_for_Lemons
echelon 10y ago
I'm shocked by how many people (on HN!) responded to you and explained why they might not buy an app. It seems like this hurdle is real.
HalfwayToDice 10y ago
"Yipgo" headsup, your website says 2014 everywhere, it looks like an abandoned product
openmosix 10y ago
This is an unfortunate by-product of the "Google" economy (better say, "VC" economy). Pricing, for the most part, is a psychological thing. When 99.9% of the web products are "free", a $9.99/mo product requires a lot of explanations. If every bar out there would give coffee away for free (to sell you ads in the bar), would you still justify/buy the $5.99 vanilla latte? Possible, but the market would significantly shrink. It also does not help that most of the SV "businesses" do not operate according to business metrics, but following vanity metrics - like monthly recurring active users per square feet (or, worse, by how much they have raised - i.e. debts)
hawski 10y ago
I think that it comes down to friction. When you go for a coffee you will give cash or you will use card. When you use card it can be one of quite easy options: signature, PIN or just contactless payment. I was easier inclined to buy something on Play Store when it was just added to my phone bill. Only because I had to just write the password that I already know and use. Now if your service requires registration and one more password, it must be really worth it. Card payment is a bit of a hassle - imagine going to an odd store somewhere and going with the same procedure at the cash register. Write down your name, card number, valid-to date and CVV. Also a password and a billing address. For me it is a hassle. I can't imagine how awful it must be for most users. It still comes down to easy micropayments. Where one account will take you everywhere.
- tedmiston 10y ago
  Personally I find tapping my phone on a Square Reader to buy a coffee easier than buying an app from the App Store today. With apps, I may need to do extra things like type a long password, grab my CC to enter the CVV. Is it a big download? Well, maybe I should be on wifi first, etc.
Eridrus 10y ago
The comparison to coffee always seems like an odd one. As a society we're physically addicted to and dependant on caffeine and lots of people are completely unwilling to spend $5 on coffee. Honestly though, most apps are less useful than a cup of coffee, especially compared to the next best alternative. Medium is nice, but it's not $5/month better than Blogger. Is it $5/yr better than Blogger? Maybe. But to make that work you need a cost structure that doesn't set money on fire.
wodenokoto 10y ago
The other day I realised that I am willing to pay more for a paper notebook than a note taking app. There is definitely something about the physical aspect.

chimeracoder 10y ago

Well, the coffee has a marginal cost that is non-trivial. Downloading an app has essentially zero marginal cost.

riprowan 10y ago
The coffee also has, at best case, a one-use max.
- criddell 10y ago
  That's a benefit. If I buy a coffee I know what I'm getting. If I download a $2 app I might get lucky and use it right away in which case it might be a great value. Or it might require 30 minutes of setup and experimentation in which case it has already cost me more than the coffee.
k-mcgrady 10y ago
How many consumers consider marginal cost when making a purchase though?
- duncanawoods 10y ago
  I expect it factors into intuitive value judgements even if not totally conscious. Its like the lock-smith who slaves for an hour using a dozen tools vs. one who takes 30s and no tools. The latter is more skilled and served you better but will not feel as valuable. The artificial scarcity of an app and the work of "not preventing you downloading something" just doesn't ring our value bell.

salesguy222 10y ago

Thanks for your insight :) I think this is a true contributor to the situation. That physical product also provides a physical reward (taste, calories). The relationship of speaking to a cashier, being in a warm building, feeling like you belong to the cool crowd, is a very deep psychological reward that in my opinion likely releases all sorts of chemicals in one's brain. This all furthers the reinforcement to buy again in the future. On the software side, video games achieve many of the same effects. Feelings of belonging, both to a crowd and to digital images on a screen, deeply affect humans. My bet is that a simple app that doesn't achieve this is a less justifiable purchase since there is no physical demand within the person to buy

tedmiston 10y ago
On top of this I usually talk to my barista about tasting notes to help decide which coffee feels right that day. The coffee shop has also curated just a couple different kinds of quality beans out of the tens of thousands of different available offerings. This is a value add for me.
- salesguy222 10y ago
  that is cool info, thank you! i think the overarching point among all of this is that if you create a product or service that has implied continuous delivery of insight/experience/fun etc, then users might be more likely to be satisfied with their purchase a $1.99 drum kit app might be an easier pill to swallow if the creator actively releases info on how to be a better musician, where to chat with super users...

lojack 10y ago

When I buy a coffee I also don't have to worry about it charging me $5 once a month forever unless I go through a maze of menu options (possibly involving phone calls) to get it to stop.

riprowan 10y ago
Also, when you buy a coffee you don't have to worry that it might contain spyware or malware.
- dhimes 10y ago
  It might make you sick, though.
  - majewsky 10y ago
    There's more regulation wrt food safety than application security.
maneesh 10y ago
Do you worry about this with app store purchases? In app purchases I get it, but I've never been unfairly charged (or found it difficult to cancel) purchases that go through apple or google
- lojack 10y ago
  No, its not typically a concern with non-subscription services. And, yes, it is a concern with subscription services purchased through the Apple App Store (don't use Google). I still have to google how to do it. For reference: https://support.apple.com/en-us/HT202039 https://support.apple.com/en-us/HT202039 I'd be impressed if anyone could figure those steps out without visiting that guide first.
  - djrogers 10y ago
    Really? You view your Apple ID and click subscriptions - it's really pretty simple. Added bonus, every subscription is in one place - no worry about deleting the app and losing your ability to cancel. No phone calls needed to cancel - ever - either. Plus, you get an email confirming every subscription and renewal before the renewal is charged, with a link directly to that subscription so you can cancel it. Not sure how it could be made much easier than that...

1337biz 10y ago

With the coffee you are buying an experience, an emotion. With most non-gaming apps not so much. Doing an cost-benefit analysis with an experience is much more subjective than what you can get out of an app.

antocv 10y ago

I think we are thrown into "cost-benefit analysis" to avoid being the only ones who pay. When you go for coffee, you know everyone else pays the same, nobody gets coffee for free. With digital goods, since they are so easy to copy, you wonder, am I a dumbass for shelling out even $1 when everyone else is getting it for free? There is no way to know if others have bought this, if they have actually payed. On top of that, its so simple, its too simple to pay, but with coffee you have to get your card out, find coins or whatever. Customer wonders, if its so simple, am I being ripped, what if I buy this by accident for several months?

martin-adams 10y ago

I bet people wouldn't pay $5 for a pumpkin spice latte that they can drink in 30 days time. I think the problem is the immediate reward and anticipation of the reward.

paublyrne 10y ago

I think it's the physicality that's especially appealing to us. It's worth comparing the experience to buying a paper magazine. I am also more inclined to do buy a magazine without overthinking the purchase than I am to subscribe digitally to the same magazine. I know the content is worth something, but a physical item feels more valuable somehow. The same with buying DVDs or CDs. Although the content is the same, it feels more real when you can hold it.

kristianc 10y ago

I can never work out if people who make this analogy are trying to guilt people into buying from them or just lack understanding of human psychology. I'm willing to pay $5 for a Pumpkin Spice Latte because I know what I'm going to get. I'm going to get a tasty coffee and possible use of space and WiFi for a few hours if I want it. I have no idea what I'm going to get for an app. I may get something that is going to give me a few minutes of mindshare every day, or I may end up getting something which is completely useless. I have no way of knowing. Starbucks also has no free alternatives. If I want to get a coffee when I'm in town I know I'm going to have to pay a certain price. There's no one handing out free coffee - or coffee that is free if I agree to read a few ads. That's not true of apps. Many apps have perfectly good free alternatives. The fact is, most of what Medium offers, I can get elsewhere. If what this amounts to is asking me to pay for Wait But Why, The Awl or the Ringer - I can get better elsewhere for free. There may be a price I'll pay for fuzzy thinkpieces that talk about how 'problematic' everything is, but it isn't very high. If you want to get into non-free, $9.99 a month gets me either the entire history of recorded music, a selection of essential 'water-cooler' TV watching that I am going to be able to talk to other people about, or access to the entire archive of the Washington Post. I happily pay those and would probably pay 50% as much again, but it does mean that the bar for a glorified blog is very very high. I also have to say as far as Yipgo goes, then it had better be a damn good to-do list.

swalsh 10y ago
"Starbucks also has no free alternatives." Actually, every day (when I worked in an office) I had to make the decision of "Do I want the kind of boring office coffee, which is free, or the slightly more exciting Starbucks coffeee"
- boozywoozy 10y ago
  If you were a hipster in San Francisco, you'd make a decision of whether to have the kind of boring Starbucks coffee, or the slightly more exciting single-origin organically-grown free trade pourover coffee that your non bearded, tattooed barista will take 13 minutes to make.
10y ago

wslh 10y ago

"We live in a world where digital products are inherently undervalued relative to other products..." Thank you for the notification. I can't believe someone with business experience can make this really naive statement. This is an issue in almost every digital business. Last week there was a related thread about value creation here: http://continuations.com/post/156889798325/value-creation http://continuations.com/post/156889798325/value-creation

jasode 10y ago

>about quote: "We live in a world where digital products are inherently undervalued relative to other products." That author describing it as a single category called "digital products" doesn't really explain it. There are lots of non-physical digital products that people will pay for. It's really the smartphone apps in particular that's a special category of negative psychology. After the initial novelty[1] of buying apps in 2008 died away, people realized that smartphone apps were a waste of money. People would buy an app and then later experience buyer's remorse. They felt ripped off. Therefore, the previous bad experiences provide no reinforcement for future purchases. Compare that with consumers who buy a digital song for $0.99 from Taylor Swift and then that enjoyment reinforces the idea that it's ok to pay $0.99 again for an Adele song. Or Kindle owners who pay $9.99 for the latest ebook from Stephen King and then willingly pay that amount again months later for another bestseller. There are many other examples of repeated digital purchases.[2] (Using the positive reinforcement framework of thought, it's not that people pay for $5 coffee because it's a physical product -- it's that the previous $5 purchase of Starbucks gave them pleasure and therefore they willingly pay it again.) If consumers really felt they got value from app store purchases like they do with iTunes songs, Kindles, Netflix, etc, they'd buy more. Therefore, the conclusion that smartphone owners undervalue digital products is not actually correct -- they actually value digital app store purchases as near-worthless because that's the utility they got from them. Also, the avoidance of buying smartphone apps seems related to The Market for Lemons[3] and the thousands of terrible apps written by copycat incompetent programmers prevent people from discovering the truly quality apps that could improve their lives. A lot of bad apps flooding the market ruins it for everyone else. [1] example: http://venturebeat.com/2008/12/23/iphone-fart-app-pulls-in-nearly-10000-a-day/ http://venturebeat.com/2008/12/23/iphone-fart-app-pulls-in-n... [2] Netflix $9.99/month Adobe Cloud apps $49.99/month (more digital subscribers than customers of physical CDs/DVDs) boxing pay-per-view $99 (Mayweather vs Pacquiao) [3] https://en.wikipedia.org/wiki/The_Market_for_Lemons https://en.wikipedia.org/wiki/The_Market_for_Lemons

echelon 10y ago

I'm shocked by how many people (on HN!) responded to you and explained why they might not buy an app. It seems like this hurdle is real.

HalfwayToDice 10y ago

"Yipgo" headsup, your website says 2014 everywhere, it looks like an abandoned product

openmosix 10y ago

This is an unfortunate by-product of the "Google" economy (better say, "VC" economy). Pricing, for the most part, is a psychological thing. When 99.9% of the web products are "free", a $9.99/mo product requires a lot of explanations. If every bar out there would give coffee away for free (to sell you ads in the bar), would you still justify/buy the $5.99 vanilla latte? Possible, but the market would significantly shrink. It also does not help that most of the SV "businesses" do not operate according to business metrics, but following vanity metrics - like monthly recurring active users per square feet (or, worse, by how much they have raised - i.e. debts)

hawski 10y ago

I think that it comes down to friction. When you go for a coffee you will give cash or you will use card. When you use card it can be one of quite easy options: signature, PIN or just contactless payment. I was easier inclined to buy something on Play Store when it was just added to my phone bill. Only because I had to just write the password that I already know and use. Now if your service requires registration and one more password, it must be really worth it. Card payment is a bit of a hassle - imagine going to an odd store somewhere and going with the same procedure at the cash register. Write down your name, card number, valid-to date and CVV. Also a password and a billing address. For me it is a hassle. I can't imagine how awful it must be for most users. It still comes down to easy micropayments. Where one account will take you everywhere.

tedmiston 10y ago
Personally I find tapping my phone on a Square Reader to buy a coffee easier than buying an app from the App Store today. With apps, I may need to do extra things like type a long password, grab my CC to enter the CVV. Is it a big download? Well, maybe I should be on wifi first, etc.

Eridrus 10y ago

The comparison to coffee always seems like an odd one. As a society we're physically addicted to and dependant on caffeine and lots of people are completely unwilling to spend $5 on coffee. Honestly though, most apps are less useful than a cup of coffee, especially compared to the next best alternative. Medium is nice, but it's not $5/month better than Blogger. Is it $5/yr better than Blogger? Maybe. But to make that work you need a cost structure that doesn't set money on fire.

wodenokoto 10y ago

The other day I realised that I am willing to pay more for a paper notebook than a note taking app. There is definitely something about the physical aspect.