Move aside Black Swan, we just found out not all penguins have white feathers either!
Victor Wong
“ Ultimately, I decided to commit $1 billion to the Peter G. Peterson foundation—the vast majority of my net proceeds from Blackstone. Why so much? Kurt Vonnegut once told a story about seeing Joseph Heller at a wealthy hedge-fund manager’s party at a beach house in the Hamptons. Casting his eye around the luxurious setting, Vonnegut said, “Joe, doesn’t it bother you that this guy makes more in a day than you ever made from Catch-22?” “No, not really,” Heller said. “I have something that he doesn’t have: I know the meaning of enough.
Pete Peterson (founder of Blackstone), whose book I’m reading now
“Entrepreneurs can change the world” is an inspiring video I had seen a while ago but recently rediscovered it due to the growing popular of its sister video by Grasshopper.com called “Entrepreneur State of Mind.” I highly recommend watching both.
[Flash 9 is required to listen to audio.]
Audio Podcast: Panel of Young Entrepreneurs at Stanford
Even though there isn’t a minimum age for starting a company, young entrepreneurs like myself tend to face different problems than older or more experienced ones. Stanford put together an interesting panel to discuss these issues and solutions.
“ You can’t change the past, but every day is an opportunity to rewrite your future.
Tony Hsieh, CEO of Zappos.com
Interesting insights about how implementing gaming elements into the real world and online applications increases enjoyment and adoption.
I’ve always wondered why companies don’t implement point systems in a more fun way — imagine you got points from American Airlines or Jetblue for simply traveling certain routes and then you get badges for completing a series of trips.
How to Save $148 On an iPod Touch - Economics in Pictures
- Kanye (tip of the hat to brycedotvc)
Seth Godin on Self-Determinism
“today at Yale. As I drove through the amazingly beautiful campus, I passed the center for Asian Studies. It reminded me of my days as an undergrad (at a lesser school, natch), browsing through the catalog, realizing I could learn whatever I wanted…The best part of college is that you could become whatever you wanted to become, but most people just do what they think they must.”
Amazon Pricing Scheme: E-books and Old-books
Pricing strategy fascinates me because when you look at a menu of prices, you are seeing a story. The question is, “what is the author trying to saying in this story?”
The New York Times yesterday dissected the economics of book publishing in digital and print. The list price is what publishers want the public to think a book should cost, but there is a wholesale price booksellers pay to publishers and then mark up to generate a profit.
The other week, I went to Amazon to purchase Marc Benioff’s Behind the Cloud: The Untold Story of How Salesforce.com Went from Idea to Billion-Dollar Company and Revolutionized an Industry. That’s where the story of the e-book really began for me.
I was planning to buy the print copy as I normally do so the first thing I noticed was the price — a reasonable $18.45 for a hearty tome of knowledge. While no chump change, I consoled myself with the fact it was 34% off the list price.
Like many users, I considered myself getting a good deal whenever I shop at Amazon and I only need to look at how much “You Save” to confirm what I already thought about Amazon as a low-price seller of books. This is a natural tendency known as the confirmation bias, and Amazon is smartly taking advantage of this ingrained tendency of its customers.
Of course, I wasn’t running the actual analysis like the New York Times which points out the $27.95 figure is rather imaginary to begin with and Amazon is probably only paying for about half that figure — everything above that contributes to Amazon’s bottom line which is great for them but shows how arbitrary my point of reference is. Amazon is making use of another cognitive bias known as anchoring.
(For behavioral econ nerds out there, I wonder whether framing a necesary purchase with the “savings” plays to people’s huge fear of loss or smaller desire for gain)
At this point, I realized that I could buy the Kindle edition now that I have a Kindle e-reader (from Christmas). The pricing starts to make the purchase even more interesting:
Clearly, buying a Kindle Edition represents a huge savings — perceived as 50% less than the hardcover by most consumers (mind you this is before Amazon began raising Kindle prices for some titles).
So now I was wondering why would I be a sucker and ever pay the list price of $27.95 or even the discounted $18.45 hardcover price. So of course I took the plunge and bought the Kindle version.
So why would any book publisher let Amazon do this if everyone would spend less money? Why would Amazon pay a wholesale price of $13.95 and sell me a digital copy for $9.99?
The answer turns out to be pretty simple. Amazon is trying to drive people to buy the Kindle e-reader and purchase e-books through them. They are willing to eat the loss per book because they make something from the device. Users want Kindles to get to cheaper books and Amazon wants these users to start on its platform because the switching costs will be too high for users to leave. Convenience, being a huge driver in consumer action, will lock users in.
Meanwhile, publishers aren’t happy because consumers like me start to see through the list prices and question anything above $9.99. Since the time I bought the book, select large publishers have begun to force Amazon to raise prices, but it may be too late.
Amazon continues to mark whatever books its can at $9.99 which will make those digital titles more popular than competing ones marked higher by large publishers. Smaller publishers seeking to drive sales numbers can choose not to cooperate with large publishers and continue allowing books to be priced at the $9.99 rate which will only help drive adoption of the Kindle.
In case you were wondering, Behind the Cloud is a book about moving software usage to the Internet. Fittingly, its pricing is an interesting story about how Amazon is moving reading onto e-readers. It’s a fascinating example of modern economics — COGS, behavioral economics, and game theory.
