The other day I attended the “7th Super Hang Out of Amanda Palmer”, an event organized by NHK television program “Super Presentation”. “Super Presentation” is an educational program that uses Ted Conference videos as a means of teaching English. The theme of the event was crowd funding, and Megumi Sasaki, director of the film "Herb and Dorothy 50x50", appeared as guest. Megumi Sasaki made the news for raising over ¥22 million from nearly 2000 people via crowd funding, and she had plenty of interesting stories to tell regarding her experiences.
One thing I learned while listening to the talk is that the sales process as we understand it is currently in the process of turning a huge corner, as a result of mass production. We can understand this better by taking a look at the following diagram.
If we take “Herb and Dorothy” as an example, the types of different products that fall within its scope can be seen to include cinema tickets (¥2000 each), DVDs (¥5000 each), and merchandise goods (average ¥3000 apiece). Even if a single customer were to purchase all of these items, the maximum revenue per person is ¥10,000 at most. There’s not going to be a significant difference in spending from person to person, and no matter how big a fan of “Herb and Dorothy” one might be, the maximum amount they will spend is more-or-less a given.
I’d like to take a moment here to look back at the changes that have occurred in the way business is conducted, since the arrival of the Internet. The term Freemium, introduced in Chris Anderson’s bestselling book "Free", published in April 2010, was used in regard to changing business trends at that time.
The idea is that because, in a bit economy, there is no limit to how little can be charged for distributing content digitally, even if a product is given out freely to 95% of the customer base, the income generated from the remaining 5% who pay for premium content can be enough to make a business viable. This seems to have become a matter of common-sense in Internet trading. Just the other day it was announced that the number of users paying the ¥294 (¥350 for the mobile application) monthly membership fee for premium level access to recipe site Cookpad has surpassed 1 million. This means that of the over 32 million users of the site in April 2013, only 3% of them were actual paying members.
I’d like to clarify here what exactly is being paid for. There are a great many web services—for example, Cookpad, Niconico, Evernote, Tabelog, and Amazon, etcetera—now offering premium memberships, but what is being charged for in most cases are “functions”. Functions such as search results sorted by popularity, increased capacity, improved accessibility, speedier delivery, etcetera. Notice how all of these functions are described using verbs.
Since the arrival of NTT DoCoMo’s i-mode service in 1999, the age of generating income from content information such as recipes and horoscopes, which can be accessed via mobile phones for a fee, has been ongoing. PCs, however, could not replicate the practice of mobile phone companies, like DoCoMo, in sharing the account settlement function to make charging for information easier, so basic content information ended up being available for free. This brings us to the golden age of portal sites stockpiled with free content, then a resource unrivaled in attracting customers. And as this desire for information exploded, it wasn’t long before the primary means of building a customer base shifted from portal sites to search engines. Even amongst all these changes, a pricing model for charging for content information still had not been firmly established.
One model that came about as a result of trial and error research was that of charging for the management of functions that offered added convenience to users. This model of making content information and basic functions available for free to attract customers, but charging for additional, exclusive functionality was acceptable, and once established the numbers of those opting in for the premium content steadily rose. The arrival of smart phones and their ability to access websites allowed for further development of this trend. With smart phones, the old model of charging for content information has become practically extinct. This is because companies are following Chris Anderson’s advice in making information freely available wherever possible.
However, as this premium membership model follows the "fixed subscription" tradition as introduced by i-mode, the goal is not to increase the amount being spent by existing members, but rather to increase the number of paying members via mass production.
Nowadays, as people move from mobile phones to smart phones, another pricing model has been attracting attention. As seen in the world of social gaming, customers are being offered games for free in order to lure them in, with the aim that they will later pay for additional content. This can be viewed as an evolution of the Freemium model.
We can categorize game users who spend real money on purchasing in-game items and upgrades as one of four distinct types: non-paying, lightly-paying, medium-paying, and high-paying. As can be seen in the above diagram, there can be a huge difference in the amounts people choose to spend on online games. The left hand side of the scale represents paying users and the varying levels of revenue generated from them. The curve dips sharply as it moves to the right, where non-paying users who only avail of a game’s free content are represented. A recent survey showed that paying users of current social gaming phenomenon “Puzzles and Dragons” account for 36% of the game’s total user base, with 64% of users playing for free. When the average monthly revenue is broken down across the user categories mentioned above, we find that 8.8% spend less than ¥500; 9.1% spend between ¥500 and ¥1000; 7.9% spend between ¥1000 and ¥3000; and 1.1% spend over ¥10,000 on the game per month. (The same survey stopped short of publishing its findings on the reasons people gave for their level of expenditure, however.) Spending more than ¥10,000 a month on a smart phone game may sound surprising, but as I hear more and more users confess to spending more than that on the game in a single month, it might not be as unusual as we think. This tactic of generating revenue from customers who grow fond of and get addicted to games seems to have become the norm in the world of social gaming. As the shape of the above graph resembles a precipitous cliff-face, let’s call this pricing model the ”Cliff Pricing Model”. (If there is an actual official nickname for this model, I am not aware of it!)
Once again, lets try and work out what people are actually paying for. When it comes to the “Cliff Pricing Model”, it seems as though user’s are being charged for their own emotional responses. ”I want to keep playing!” “Just a little more and I’ll beat the boss!” “If I stop now it will be a waste of the effort I’ve put in so far.” “There could be an ultra-rare item in the next lottery!” These are just some of the emotional reactions users come to experience while engaging in social games.
At this point I’d like to return to my “Herb and Dorothy” crowd funding story. Looking at the project’s page on Motion Gallery (where we can see it earned ¥14,633,703 in donations), there are a few interesting things to take note of. Starting with cinema tickets, DVDs and related merchandise, which form the base of the mass produced items for this project, we can see that other, more specialized products intended to generate revenue from the project’s biggest fans were also available. These included private film screenings (¥1 million each); a special dinner party (value ¥300,000); and a deal to have your name included in the film’s end credits (¥30,000 per name).
When it comes to crowd funding, another new business model seems to have emerged, in which customers pay for an emotional response. As well as items such as cinema tickets and DVDs (information and function-based products), things like private screenings, special dinner parties and name inclusion in end credits are designed to provoke emotional responses, such as excitement or happiness. As the form of the above graph resembles a slide, let’s call this the "Slide Pricing Model". This graph illustrates how availability of these extra, emotion-provoking products is limited. Starting from a point where 361 sets of advance tickets (at a cost of ¥3,000 a set) were available, higher end items such as Art Prints by Christo and the aforementioned private screening were limited to six and one respectively.
If we were talking about a music artist here (this is where Amanda Palmer comes in) the content of a CD might represent the information that could be distributed freely. The emotional response in this case comes from attending an artist’s live performance, so sales of concert tickets are where the money can be made. (Turning cinema theaters into places that inspire the same kind of strong emotion might do very well for them, I think.) To digress slightly, as more and more artists have taken to using social media outlets such as Twitter and personal blogs to communicate information, and fans can use the same sites to interact with them, fan clubs are also moving from being free information sources to chargeable “functions”, as they offering members the chance to obtain rare tickets and other special items. As fan clubs operate on a subscription basis, this appears to be a very effective pricing model.
As another slight digression, over 2 years ago I wrote a NOTE suggesting AKB48 was a good example of crowd funding. Thinking about it now, I believe they have developed an excellent pricing model, by adding emotion-evoking experiences such as meet-and-greets with fans and internal elections to their information and function-based products such as CDs. While the Official AKB48 Channel on YouTube allows fans to listen to the band’s music for free, to a certain extent, including the voting cards needed to vote in the AKB48 elections with CD releases encourages fans to part with yet more cash. And sure enough, the CDs are snapped up as quickly as recovery medicine in social media games. This is because our natural human instinct is to succeed or to obtain, and not to lose out or be outdone. This often leads to feelings of regret about having incurred a loss once the initial rush of emotion has passed. And this is the reason why trade-in sales in the retail world are so successful. It does seem as though the age of service over product is growing ever nearer, though in the case of AKB48, its probably true to say that the group is more interested in making the news for breaking records on the Oricon charts than anything else. But that’s another story altogether.
Up to this point, in terms of Web services and mobile applications we’ve mainly been discussing their architecture, both information-based and functional. But when we look at the recent activity of people like Leo Kato Koichi, author of "Internet Advertising to Sell", we can see we have already entered a realm where discussion has turned to how to design human perception and emotion. Although the concept of creating consumption out of emotion may seem similar to selling through emotional connection or empathy selling, I believe it is something new entirely. This is because emotion can be provoked within a single person, when no other connection is present. Although I have written a lot about gamification in the past, I am now starting to believe that what games do best may actually be this 'designing of human emotion'.
When dealing specifically with the Internet, the majority of mass products are first transformed into information (bits) and then stocked, for example on Amazon or kakaku.com. All the attributes of a product—for example, its color, size, weight, country of origin, price and product information—are displayed as information on a dedicated product page. This works the same for even brand name products. At the time of converting the product to information, it adopts the functionality of being something users can search for and compare against similar items. This is relevant to the likes of domestic appliances that have developed as much as they can and can no longer offer anything new, as the only thing that can be used to promote new products in this range is information. During the heyday of mass media, enterprises were able to create a desire for information (an emotional response), by controlling how much of it was made available. With the advent of the Internet, however, two major obstacles to this—the stockpiling of information on the Web and social media sites where the flow of information could not be controlled—appeared, making it more difficult for people to be manipulated this way. Crucial to this was the fact that reviews written by users would be stored perpetually on the Web as publicly accessible information. As a result of personalization, assembly and presentation of user-specific information independent of searches is a feature that has come into being in recent years, but even this has not yet replicated the old means of manipulating a person’s desire.
Recently, Internet businesses that generate income out of emotion, such as the social gaming and crowd funding sites we’ve been discussing, have become the subject of major studies, as experts try to establish what kind of universality can be extracted from them. Although emotional branding was fashionable in the past, the main issue now seems to be not so much the content of a message, but the all-out-war between technology and academic knowledge. While a big fuss has been made about the lifting of the ban on Internet voting and a lot of attention is being paid to how much of a turnout there will be for the House of Councilors election, the fact that a huge turnout is not expected in some quarters is a sign that not enough emotion has been evoked in regard to the event. Regardless of how much systems and structures may change, it seems society does not. But how can we evoke an emotional response in people? Can we design human emotion? This is the topic of the moment that continues to be examined with great interest.
This may become a bit of a discussion point, but while writing this NOTE I was reminded of how, at the F8 conference in 2011, Facebook announced they were trialing a new kind of button, similar to the “like” button, which was to include a selection of verbs. Although this idea may have fizzled out, when I think in terms of the context of this essay, the verb that comes to mind is “function”. In thinking more about this topic, I was wondering what possibilities might arise for delving deeper into the area of emotions. Of course, with even Facebook introducing emoticon stamping to status updates, how feelings are visualized is one direction it can go. With some kind of impetus, and with all going well, I can easily see the advertising expenses of enterprises moving from function-heavy sites like Google to emotion-evoking sites like Facebook. It’s a very interesting thing to consider.
Up until now, it seems as though Facebook has been trying too hard to generate income from social networking. But no matter how it’s done, any attempt at making money from a social network is always going to involve the distasteful notion of using human relations as a tool for business, the same way network businesses represented by Amway do. When it comes to making a profit from networking, unless you have an Open Web ecosystem that a vast amount of people have unlimited access to, as in the case of Amazon affiliates, its a very difficult prospect to make work.
As always, please leave your comments and opinions on my Twitter and Facebook. In the event of any factual errors appearing in this article, we’d be grateful to you for pointing them out to us. Until next time!