Price Cutting: An Online Mystery

December 17, 2010

One of the mysteries of online is the behavior of users. Individually the actions are idiosyncratic. Put the behaviors of many users together, and you get a completely different insight into what happens in online environments. The usage data don’t falsify online actions. The more data one has, the easier it is to identify what’s hot and what’s not and what’s working and what isn’t.

Traditional media is starting to get with the online program. The chatter about tracking user behavior is one signal of growing awareness of the value of online behavior.

Every once in a while, a story appears in the “real” publishing industry that highlights one of the mysteries of online. To get the information first hand, navigate to ”Amazon Can’t Dent iTunes.” The online version of the story was live as I write this on December 17, 2010. If the link is a 404, you can chase down a hard copy of the December 17, 2010 hard copy newspaper. The main point of the story for me was that Apple’s iTunes has resisted Amazon’s price cutting.


Amazon is like the Energizer bunny, one of the great ad campaigns in my opinion.

Now in a normal business, a “sale” or “close out” will attract shoppers. In retail, lower prices are one of the standard items in the selling tool kit. A local store had a surplus of weird green sweaters. I saw a sign that said, “Sweaters. $10 each.” The shoppers took the bait like a hungry trout in late autumn.

The Wall Street Journal story told me that price cutting in digital music has not worked out too well for Amazon. The Apple iTunes and snazzy hardware ecosystem has kept its grip on music. I am not a music person, so the fascination with digital music is interesting, but of no consequence to me.

What is of consequence is the apparent reality that similar digital services may not work like retail. A lower price from Amazon has not pulled in the trout, sorry, shoppers. Apple with its higher prices does. Toss in the clunk iTunes software which is like trying to type wearing woolen mittens. The consumer behavior appears to be another genuine mystery of online. Amazon should get more customers. Apple should respond with some pricing tactic. Woulda, shoulda, coulda. Apple does its thing and Amazon is, if the Wall Street Journal story is accurate, keeps on trying like the Energizer bunny.

What’s up? TechEye has a good round up, but the mystery is not resolved. The addled goose has some data about online pricing. I keep that locked up near the goose pond here in Harrod’s Creek. I can pose three questions about this mystery:

  • What does consumer behavior in online music reveal about the magnetism of one service or another? Is the pull strong, weak, or non existent?
  • What customer segment will respond to low prices or free services? What does this say about the revenue generation methods needed to make those who chase deals? Will traditional fees work? Will ads work?
  • How much will the free or low cost service have to spend before the cash burn becomes top burdensome to sustain?

The answers to these questions help explain why certain online services become natural monocultures. The behavior of the individual is idiosyncratic, but the actions of the customers are a bright white line. Amazon got to the party too late, lacks a rich media ecosystem, and is, at the end of the day, the digital equivalent of a big box store.

Another mystery of online to contemplate, particularly in the context of online monopolies. Can governments regulate human behavior to prevent a natural monopoly to form around certain services? What should work does not work? Apple iTunes is what it is, and it will be tough to kill off its ecosystem.

Stephen E Arnold, December 17, 2010

Freebie. If you want more about the mysteries of online, just search for “mystery” on the splash page of Beyond Search or click here for a collection of unedited write ups.


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