virtual worlds making real money

I caught something on the news the other day that made me laugh. It’s about a gamer who made half a million by selling virtual property.

First few minutes after reading this article I was just thinking what a bunch of nerds, and that the world has truly gone to hell.  Someone making money on something that has no tangible value? Well I guess that depends on what you consider to be valuable.

For example how is it any different than art? The cost to make an oil painting is maybe 500 dollars worth of materials to create, which then sells for thousands. I mean that is real value to someone.  Your NHL hockey tickets is more real than your Pee Wee league hockey ticket, because you put value on it. You pay for the luxury of the BMW, though it does the same thing as a Honda.

So are they nerds with no life? Or highly creative capitalists in finding new ways make money? In a way you have to admire people who go around obstacles, conventional ideas of how to make living. Not that we don’t need the traditional ways, but that isn’t the only path and the guy who made real money from selling a virtual asteroid is a testament to that.

And why not if draws speculators away from real-world markets, where they screw up values of houses.

free music less valuable?

yellow submarine
yeah yeah yeah

Okay, as you may know I really dig music. I want all my favourite bands to become huge and conquer the hearts of millions.  And one of the big ways to do that is by using free. A concept that the music industry ignored in the beginning of the past decade

What happened was they continued with its rigid thinking, which led to traditional revenue sources evaporating, disappearing. They weren’t thinking of new sources. There wasn’t a fluidity in there thinking.  Basically they wanted fight with free, instead working with it. The prevailing attitude was that free is less valuable. Not so in the case of music.

There are kids now listening to the Beatles, all the glorious albums downloaded for free, and guess what? They love the Beatles. Some of them are viewing all the demo takes from the Anthology albums and leaving reviews, questioning why didn’t McCartney use take 1 of Ob-La-Di, Ob-La-Da instead of the studio version on the White Album? (click here to check for yourself).   A Liverpool band from 40 years ago has their complete time and attention. The original human currency. So the fact that these viewers can get something for free  doesn’t mean they’re less “valuable”, far from it.

See I fit into the demographic that many studies have shown to be true: the biggest downloaders are also the most loyal fans. I sometimes get the pricey, limited edition specials with all the extras from my favourite bands. I go to the major music festivals yearly.  I have stopped buying all the t-shirts though, trying to class up the look.

tame impala's debut album- innerspeaker - one of my favourites of 2010

This is why I feel the business model we use to calculate success of a band  is completely outdated and has been for awhile. There is limitless choice of music nowadays online and from all that choice I choose music from all that is blasting at me. I mean the rise of free streaming music by companies like Pandora Radio and news that Apple buying Lala show were living in a attention economy.

At the same time I like to still “own” my music. So I do have problem overcompensating record companies that put encoded music on plastic, mass-production in cd format, but I have no problem paying top dollar for bands that I love. See the conflict?

A better model for today’s band is for their album creations be rewarded 100% by the fans. Meaning the band receives close to 100% of the proceeds from sale of the album or single.  They create their own label, they do there own promotion – by using free, and outsource some responsibility to a manager. I say this because new technology is making this easier. And its great that its happening, because basically bands should be mostly  rewarded, instead of the hierarchy being rewarded.  They are the creators,  that turn nothing into magic. Everything hinges on the artist and they aren’t being compensated enough for it. I mean I find it disgusting that Michael Jackson was only making 12 million in royalties per year from his recordings. The biggest pop star ever only making that from his recordings? That means the rest of the money was making his label super rich, that used those funds to promote shit like Britney, Nicki Minaj, etc.  I mean he was an 1 billion empire. Think how nonsensical that is.

This again refers to my post on making less, selling less. Lots of exposure,  less customers, but monetizing on that less. Imagine if its 90 cents of that 99 cent itune  goes toward the artist?  How about a private gig to hardcore fans that bought limited edition albums? Allowing fans to remix the tunes? Hardcore fans would love that.   All through the power of free music.

imagine a free gym

It’s funny after reading a book on a topic, you then seem to focus on that aspect on  everything else you see in the world. Recently, for me, its been the free concept.

Free by Chris Anderson gives an awesome explanation of economics and marketing in 19th and 20th century and then about how companies can make money from things that are free.

One of the cool ideas he mentions in passing is a free gym chain in Denmark. Imagine if a gym charged you for not showing up? Otherwise was free as long as you went every day. Punishes you for not being healthy, and basically rewards by not paying at all! Sounds like something from realm of behavioural economics (well guess what? it is!). Chris Anderson explains the psychology behind it:

When you go every week, you feel great about yourself and the gym. But eventually you’ll get busy and miss a week, you’ll pay, but you’ll blame yourself alone. Unlike the usual situation where you pay for a gym you’re not going to, your instinct is not to cancel your membership; instead it’s to redouble your commitment.

What else can you do?  You charge  for the strength training classes,  since the kind of people who go everyday love being healthy, so probably be willing to pay to make stronger muscles! Put a juice bar in there to also monetize on the freemium you used to market to these gym loving fanatics.

If they fail to make the 2 times a week schedule (got busy) you ding them 60 dollars for that month. So in reality if say you missed just 2-3 times a year, you would still be paying less than a full year membership! Why? Because  most gyms today actually make money on you NOT using it. The pricing depends on the particular costs of setting up the gym, etc, but this is the gist of this radical idea.

less is more!!

be like water

Less is more. Less is More.

Its getting quite scary how this philosophy rings true in so many facets of life. I was flipping through the awesome Paradox of Choice recently, which basically explains we feel worse when given too many choices.

For example, when given free samples of jams in a store, 30% of people exposed to 6 jams bought a jar.  Only 3% of people exposed to 24 jams bought a jar.

Sounds totally count intuitive doesn’t it?  The fact that some choice is good doesn’t mean that more choice is better. More options you entertain makes every new option seem less and less attractive. There is beauty in good enough, instead of only seeking the best!  (people who constantly change tv channels are really annoying).

So why not make it easier for the customer and reduce the choices?

This would make a better shopping experience for the customer, because the decisions would require less effort, it would lessen making mistakes, and reduce this massive regret after buying it!

Making less, also allows you to change fast, market to the consumer again, show them you want to change, then change it and present to them again. Faster. Its about creating customers who want to pay for their solutions. And wow them with an amazing product that they want.

Of course how to convey why its so special is important, but a part of that relates to exclusivity. That feeling that there isn’t anywhere else you can find that product or service is very powerful.

This is also why small has the advantage in creating amazing niche products. Big Companies are too bureaucratic to act fast and just give the most choice (generic products).  Apple is the prime example of a small company that can make profits that dwarf the 20th century ‘factory business.

end of the super bands

kasabian may never be generation defining, despite how much they rock
Internet piracy changed the game. Lady Gaga, Bieber and Hannah Montana get media attention because their fans are too young to know about others or download free music. Country music thrives because their fans also buy CDs.
On the upside while there may no longer be supergroups like Oasis,  there may be a bunch of small groups catering to different tastes. I personally think it’s better to have more successful bands than an “all or nothing” system like the old school music industry.
I see the same thing happening in the business world.
In the future,  there ll be the fortune 500,000. Less big public companies, and huge number of small private companies.  A more robust system, not so dependent on the stock market. Why do I say this? I feel more people now want to be in control of their destiny. That idea is taking over the world. If you got an internet connection, you can see what successful people are doing and you have to be naive to believe others also don’t desire that as well.

the placebo effect

looks refreshing, so must be refreshing

Just finished reading Dan Ariely’s  Predictably Irrational, which talks about making better decisions and the mistakes we make without realizing. It’s on the field of behavioral economics and I love this stuff. The placebo effect in particular got me thinking.

Dan talks about surgeries that weren’t performed, yet the patients felt no pain as they were told they had surgery done. Simply being told by a doctor that something was fixed and thus they didn’t feel any pain! THIS IS NUTS.  This reminded me of the book Born To Run, that discusses everything doesn’t need to be fixed.  New running shoes don’t make you better at running. But they do an excellent job in making you feel like it will!

Obviously this whole placebo effect is quite effective in marketing products.  For example, when you pick up Vitamin Water,  you may read the label because it describes all the effects of the vitamins and minerals in such a manner that you just can’t wait to quench your thirst!  You’ve just convinced yourself that its gonna make you feel like super man. See I love that! I want to believe it will make me super healthy!

But the same thing doesn’t sit well with me when similar marketing is used for the sham that is bottled water. Watch the Story of Bottled Water by Annie Leonard to know why. Lots of people in Canada believe bottled water is better for you, more healthy, sadly in a country that has the best tap water in the world. Dan Ariely mentions there is ” blurry boundary between beliefs and reality.” This is the moral dilemma of placebos.  Marketers want to create perceived value, but should be wary of stretching the truth or outright lying. Not sure who makes the decisions of what crosses the line.

Highly recommend this book if your curious to learn more about human behaviour.

google vs yellow pages

This is probably a no-brainer to people in there 20’s, but watch this quick video survey done in Melbourne – questioning the merits of Yellow Pages:

Now I ask you… Why do all these companies still pay for advertising when NO ONE IS READING IT? Because it’s business as usual. Its worked for the past 30 years, and to suddenly stop it would mean to be not be part of the “club”. Yet all these people in this random video survey, young and old, are using google to find something, and they usually only look at the 1st page.

I wonder how long it will take until they phase yellow pages out altogether? Bill Gates famous quote in 2007:

“These things always take time, but Yellow Page usage amongst people in their, say, below 50, will drop to zero, near zero over the next five years.”

You may argue Bill Gates doesn’t have crystal ball by listing examples of when he was wrong before. Okay fine.  Someone is obviously still reading it. Perhaps a more engaged audience  is checking the add, and instead of calling the number, they’re copying the company url in there browser. Which gets me to ask, how do you measure that? “Half my advertising is wasted, but I don’t know which half.” The monopoly Yellow Pages used to have is over.

Online vs print – what to do in the short term?

If your a small business you should budget for both.  But you have to start  learning how google works. Its not about selling a scarce resource anymore – which is how print works. Information isn’t scarce online, its everywhere! Google sells peoples intentions, there expressed desires – and this is growing fast. Free information is the future. It’s more accessible and is the platform the next generation is most comfortable with.