Saturday, August 20, 2016

The Pragmatarian Model For Inkl

Reply to: Would you pay for news by Gautam Mishra (CEO of inkl)


Nicely written! But I’m pretty sure though that one-price-fits-all (OPFA) is not the future. On the one hand, like you mentioned, it’s pretty easy for consumers. But on the other hand, consumers don’t equally value articles.

When you charge a dime for every article, you’ll be able to see “breadth”… but you’ll barely be able to see any “depth”. By this I mean… you’ll be able to quickly see how many people like an article (breadth)… but you won’t be able to truly see how much they like it (depth). Unless a reader experiences buyers remorse, you’ll know that their valuation of an article will be at least a dime… but you won’t know how much more highly they will truly value the article. For all you know they might value the article at $5 dollars. That would be some decent depth. All that consumer surplus might seem like a really good deal for the reader… but is it really?

Since you can’t see depth, it’s only logical for your company to focus on maximizing revenue by maximizing breadth. So you end up serving content that lots of people like… but few people truly love.

Think of your favorite movie and book. How much did you pay for them? Did the amount you pay accurately communicate your love for them? Probably not. But if you don’t communicate your love to content creators, and I don’t communicate my love to content creators, and nobody else communicates their love to content creators… then how can we expect them to create a large supply of content that we truly love? Content creators aren’t mind-readers. They aren’t omniscient… they can’t see inside our heart of hearts. So, if we don’t communicate our true love to them… then the logical result will be a shortage of content that we truly love… and a surplus of content that we merely like.

I think of this as a “superficial skew”. The way our system is set up… we can see breadth but we can’t see depth so most of the content is superficial rather than substantial. It’s not impossible to find substantial content… but you really have to dig for it. My Medium home page is filled with stories that I might like to read (usually not)…. but I rarely find anything that I truly value. This isn’t because most people are superficial… it’s simply because our system doesn’t give them the opportunity to accurately communicate their love.

What comes to mind is the old commercial where Tony the Tiger says that some cereal isn’t good… it’s great!!! We need consumers to effectively communicate the difference between… ok… good… great… wonderful. These differences can only be effectively communicated by consumers’ willingness to pay. The more a consumer is willing to pay for content… the higher their valuation of it (the greater the depth).

It should be pretty straightforward that consumers can only know their true valuation of content after they’ve consumed it.

One possible approach would be to add money buttons below a story. Using Medium for example…

While you’re reading my story you’re automatically valuating it. You’re thinking to yourself… ughhh… this guy’s story is incoherent crazy talk! Or… yeah, this makes a lot of sense. Or… wow, this is super solid feedback!

When you finished reading my story… you’d see some coin buttons and dollar buttons. They would allow you to easily, quickly and accurately communicate to me whether you thought my story was… ok… good… great… wonderful. Let’s say that you really liked my story. You’d click the $5 button and five dollars would be automatically withdrawn from your digital wallet and deposited into my digital wallet. The “You” amount to the right of the coin buttons would display “$5.00” and so would the “We” amount. In this case… since you were the only one to positively value my story… your valuation would be same as the total (we) valuation. If Bob read my story and clicked the $1 button… then the “We” amount would be “$6.00”.

Of course everybody would be able to see everybody who valued my story. The list of valuators would be sorted by their valuation so it would be easy to see that you valued my story the most. People could click on your name to see the stories that you value (sorted by your valuation). So, it would be super quick and easy to see which story you most valued. There would also be a tab on your page for recent valuations and another tab where people could see all your stories sorted by their value. So, it would be super quick and easy to see which of your stories was the most valuable.

When people searched for stories… the default sorting would be by value. The most valuable story would be the very first result. It would also be easy to find and read the most valuable story on the entire website. Think about that for a few seconds. It’s worth repeating with emphasis. It would be easy to find and read the most valuable story on the entire website. This is the story that would have the greatest breadth and depth. This is the story with the most substance. This is the most nutritious and delicious story. This is the story that readers loved the most. This is the story that readers were most willing to pay for. This is the story that was worth the community’s greatest sacrifice. With Medium’s current system… we don’t know which story this is. With your OPFA pricing system… we wouldn’t know which article was worth your community’s greatest sacrifice.

If Medium added money buttons… then I could certainly valuate my own story. But the money wouldn’t stay in my wallet… it would be automatically withdrawn and deposited into Medium’s wallet. I’m guessing that people valuating their own stories in order to improve their ranking in the search results would provide Medium with pretty decent revenue. But perhaps Medium could take a fair and reasonable cut when people cashed out.

There’s one “minor” detail with this system…

Suppose the government pays for the mosquito spray through taxes. The efficient approach would be to impose a tax on each resident equal to his or her marginal valuation. Simple enough, but there are at least two problems with this. First, once people realize that their taxes are based on government estimates of how much they value the good, people tend to understate their true valuation. Why admit you really value the good if, as a result, you get socked with a higher tax bill? After all, people in the neighborhood can enjoy mosquito abatement whether or not they pay for it. So taxpayers tend to understate their true valuation of public goods. This creates the free-rider problem, which occurs because people try to benefit from the public good without paying for it. — William A. McEachern, Economics: A Contemporary Introduction

Why buy the cow when you can get the milk for free? Clearly, if Medium added money buttons then people would have an incentive to understate their true valuations of stories. In other words, readers would have an incentive to lie. However, it’s really important to note that adding money buttons would reduce the free-rider problem by eliminating “payment costs”.

With Medium’s current system, if you do genuinely value my story at 10 cents… nothing would technically stop you from paying me 10 cents. I’m not sure if paypal would allow you to send me such a small amount of money… but you could ask for my address and mail me a dime. Of course it would be silly to buy a 47 cent stamp and spend quite a bit of time to only send me 10 cents. In other words… the payment and opportunity costs would be too high.

If Medium added money buttons… then this would eliminate the payment costs. Once valuing a story is as easy as “Liking” it… then I’m sure lots of people will be happy to do so. This would reduce the size of the free-rider problem… but it wouldn’t eliminate it. It would certainly eliminate the forced-free-rider problem… the problem of people who would be happy to pay some money but don’t do so because the payment costs are too high. In any case, it should be pretty intuitive that it’s beneficial to make it easier for people to give each other money.

So how can we eliminate the free-rider problem? How can we eliminate people’s incentive to lie? Well… what about the subscription model? With Netflix… subscribers pay around $10 dollars per month and they have unlimited access to a large supply of content. There’s no free-rider problem because only subscribers have access to the content. There is a communication problem though. Subscribers can use the star rating system to communicate whether some content is good… or great… but this system isn’t very accurate. Just because you give a bunch of content 5 stars… really doesn’t mean that you value all that content equally. So giving a movie 5 stars really doesn’t allow you to accurately communicate your true valuation of that movie.

In order to facilitate accurate valuation of the content… subscribers could be given the option to divvy up their $10 dollar fees however they wanted among all the content. Would subscribers have an incentive to understate their valuation of the content? Of course not. Understating your valuation of the content really wouldn’t reduce your monthly fee. I refer to this model as the pragmatarian model.

Let’s apply the pragmatarian model to your company… inkl. You could charge subscribers a dollar a month. Each month they could use their 100 pennies to communicate their valuation of your content. This would allow you, and your readers, to see the breadth and depth of your content. Subscribers would be able to quickly and easily find, read and valuate the most valuable content on your site. Knowing the true value of your content would allow you to put the most valuable content on your homepage. Everybody would know and understand that it was the most valuable content because they would see that subscribers were willing to spend the most money on it. It would probably be a good idea to have tabs on your homepage so subscribers could see the most valuable content that has been added in the past 24 hours, week, month, year and all time.

Let’s say that most subscribers allocated all their pennies half-way through the month. This would be a good sign. It would mean that you could raise the fee to $2 dollars per month. But what if most subscribers did not allocate all their pennies by the end of the month? This would be a bad sign. You would have to lower the fee and/or add more valuable content. However, it wouldn’t be too difficult to add valuable content because subscribers would be using their pennies to communicate which type of content they most valued.

As far as I can tell… your current model sounds pretty similar to blendle’s model. Both models are OPFA. But is reality OPFA? Nope. In reality, one price really does not fit all. So reality is not OPFA. This is why I’m pretty sure that OPFA is not the future. I’m writing this story because I really don’t want the future to be OPFA. If you implement the pragmatarian model… then you’ll definitely beat blendle. Blendle will have a large supply of superficial content and you’ll have a large supply of substantial content. Who truly wants a large supply of superficial content? We already have Medium for that. And Facebook. And Twitter. And Reddit. And Youtube. The entire internet suffers from a super superficial skew. Your company can be the very first one to help fight the superficial skew. Your company can start the revolution against popularity.

To be clear… my motivation in sharing this info with you isn’t purely altruistic. If you implement my model then I will expect fair and reasonable compensation. However, my motivation isn’t purely financial either. It’s also ideological. Once there’s a successful example of the pragmatarian model… then it will be easier for people to see how and why the same model can and should be applied to the government.

Please let me know if you have any questions!

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