What Happens When The Itch You Scratch Is Digital?

[Lone_Twin]

Yes- but they could be. All Facebook need do is announce tommorow that they will be imposing a 5 dollar charge per year for access and this would net them nearly 5 billion a year in additional revenue!

Are you saying this thought has not occurred to them? Or is the reality that they lack the pricing power to impose such a charge?

So why not convert those unpaid employees into paying customers?

Would you leave billions sitting on the table if you had a choice? No- neither would Facebook.

So it's not in any way contentious to point out that as far as their users are concerned Facebook has no pricing power- if it did it would use it.

<snip>

Its not contentious, its just irrelevant, and your persistence in repeating it as though it somehow backs up your pages of nonsense verbiage shows the holes in your logic and the bizarre debating position you have backed yourself in to.

In a real world example that you can understand, we can say that facebook is a bit like a large shopping centre (let's say blue water in Kent). Their job is to get as many punters through the doors as possible to service their clients the retail tenants.

To say that Blue Water is somehow failing by being unable to charge punters £10 at the door would be madness. Of course they might like to be able to but it would impact their actual customers.

That they cannot charge at the door tells us NOTHING about the value they are creating either for their users or their customers.

We cannot know yet long term if facebook’s business model is sustainable, that's business, they invested their money let's find out via the market.

[Guest eight]

As an artist selling original works I enjoy an automatic scarcity- there can be only one original- it was for this precise reason I moved away from being a digital content creator into working on canvas with real paint.

So while it's true to say that the Web has expanded my market- it has not expanded the supply of my product.

Just the same as musicians have had to adapt to earning their money from playing live, with recordings being rendered little more than an advert for their product. The chance to retire off the back of one catchy single has gone, but those days were an aberration anyway.

[Guest eight]

Given the current state of that economy it's hard to argue that the digital revolution has brought about prosperity. To what extent can the growth of trends like financialization and outsourcing be laid at the door of digital technology? I would say quite a lot.

Perhaps the real question is why all this increase in efficiency has not led to a genuine economic nirvana- why are we almost all getting poorer in an age of technological wonders where information can travel the world in the blink of an eye at virtually zero cost?

It was not supposed to be this way.

It wasn't supposed to be anything. It just is.

[thecrashingisles]

The chance to retire off the back of one catchy single has gone, but those days were an aberration anyway.

I can think of a man from South Korea who might disagree with that.

[cybernoid]

I can think of a man from South Korea who might disagree with that.

There you go again, bringing observable facts into it. You're ruining their pseudo intellectual pontificating with your insistence on looking out of the window!

Their minds are mind up, don't confuse them with the facts.

[Injin]

The free stuff is fine- but you still need to eat, consume energy ect. So it's an issue if the exchange value of your labour is diluted to the point where you can't do those things because you lack the ability to pay for them.

Then learn new skills that actually have value.

Window cleaning, for example.

[Authoritarian]

Then learn new skills that actually have value.

Window cleaning, for example.

In this economy? Pah.

Don't try and add value, join the public sector* and seek to extract it. It's much more efficient.

*Including finance and landlordism ofc.

Edited November 18, 2012 by Authoritarian

[wonderpup]

That they cannot charge at the door tells us NOTHING about the value they are creating either for their users or their customers.

But the fact that they cannot charge for the value they create for their users does tell us something- it tells us that they lack the pricing power to charge for the value they create for their users.

Why you think this is anything but obvious is a mystery to me. Clearly if they believed they could get away with charging those users they would do so.

The significance being that a company with nearly a billion users that dominates the market in which it operates dare not impose a charge on those users. Why not?

Because they understand very well that the medium that made them could just as easily break them. Their lack of pricing power is a direct consequence of the low entry barriers and easy scalability of internet based services.

[thecrashingisles]

Their lack of pricing power is a direct consequence of the low entry barriers and easy scalability of internet based services.

How does this apply to Bluewater? There are very high barriers to entry and high capital costs in the mega-mall business and yet they have the same unwillingness to charge their users as Facebook. The fact that one is internet based is not important.

[cybernoid]

This is amazing. Time and time again you say the same thing, it has been explained to you many times now by me at least. Final time.

But the fact that they cannot charge for the value they create for their users

Not a fact. That they don't charge does not mean they can't.

does tell us something- it tells us that they lack the pricing power to charge for the value they create for their users.

No. They could charge, some users would pay, some would abandon the platform. How many abandon it would depend on the price. JUST BECAUSE THEY HAVEN'T DONE IT DOESN'T MEAN THEY CAN'T.

Clearly if they believed they could get away with charging those users they would do so.

No. Not 'clearly' at all. It is possible they can make more money per user via a different mechanism. It is possible that 1000 free users make them more money than 500 paid users. It is also possible that at this stage growing the network is their priority, even if that means leaving money on the table. YOU DON'T KNOW THEIR STRATEGY. YOU DON'T KNOW WHY THEY DON'T CHARGE. JUST BECAUSE THEY HAVEN'T DONE IT DOESN'T MEAN THEY CAN'T.

The significance being that a company with nearly a billion users that dominates the market in which it operates dare not impose a charge on those users. Why not?

YOU DONT KNOW THAT THEY 'DARE NOT'. YOU.... DON'T...... KNOW.

Because they understand very well that the medium that made them could just as easily break them. Their lack of pricing power is a direct consequence of the low entry barriers and easy scalability of internet based services.

They have pricing power. They have pricing power to the users, to advertisers, to companies running businesses on the facebook network itself, to app developers, to websites with integrated facebook functionality, etc.

You haven't got the faintest clue what you are talking about.

This is my last message in this thread.

[aa3]

As I understand one sides points all of the net job loss.. actually lets not say jobs because I agree with the point that eventually capitalism will create a society where no one is forced to do any labour.. lets say all the growth of those who have no income and rely on the state for their sustenance.. is entirely down to the growth of the state and the deleterious impact that has on the economy such as the growth of rentierism and outlawing of so many opportunities.

While the wonderpupian arguments says that all of the rise of those people reliant on the state for their sustenance is from technological obselesence. Both the direct impact of productivity needing less net workers, and the secondary impact of pricing power erosion lowering the amount of commerce taking place.

Perhaps these trends are feeding on each other. Like we saw the industrial heartland of America in the great lakes region, clearly went for Obama and his greater government assistance, even as Romney argued for easing up on regulations, such as the excellent jobs and business opportunities in the coal industry.

Sadly my own personal beliefs of getting rid of so many of these regulations, and providing greater government assistance (which is easy as taxing the same percantage of a much bigger pie brings more revenues).. seems unpopular with both right and left.

[Guest eight]

I can think of a man from South Korea who might disagree with that.

If anybody actually paid money for the thing, rather than just watching it on Youtube. How do you compare Mr. Gangnam's long term financial prospects to those of the members of Muse, say, or Coldplay?

[CrashedOutAndBurned]

Look at the insurance on any decent sized car for a young person.

Add in fuel and road tax costs.

And there's your answer. No massive analysis required.

Right. 15+ years ago and a yoof could run a Mini Metro for pocket money prices. Now so now.

[Lone_Twin]

But the fact that they cannot charge for the value they create for their users does tell us something- it tells us that they lack the pricing power to charge for the value they create for their users.

Why you think this is anything but obvious is a mystery to me. Clearly if they believed they could get away with charging those users they would do so.

The significance being that a company with nearly a billion users that dominates the market in which it operates dare not impose a charge on those users. Why not?

Because they understand very well that the medium that made them could just as easily break them. Their lack of pricing power is a direct consequence of the low entry barriers and easy scalability of internet based services.

Thank you for studiously not answering an extract of my post.

As I have previously (very patiently I might add) pointed out:

1) It would actually be much harder for me (and most users) to move social network platform than almost any hard product except a house. Assuming price parity I could swap my Volkswagon Golf for a Ford focus tomorrow with literally zero effort or impact. To move properly from Facebook to Google+ would take about a week of concerted toil (and no other bugger would be on there!)

2) You must explain your assertion that digital business models are somehow value destructive in a way that is not exactly like the two examples you have not addressed in this thread. (a) Free newspapers ( Mega-Malls e.g. Bluewater.

[wonderpup]

How does this apply to Bluewater? There are very high barriers to entry and high capital costs in the mega-mall business and yet they have the same unwillingness to charge their users as Facebook. The fact that one is internet based is not important.

Well the jumble sale at the local church does not charge it's users an entry fee either- and they have very low costs.

The point about Facebook is that they are a multinational corporation that dominates the space in which they operate yet despite this cannot-dare not- attempt to monetise this advantage. So comparing them to a single retail outlet in country awash with retail space tells us nothing.

A more honest comparison would be taking on GM in the US. Compare and contrast the capital and labour costs of setting up in competition to GM and those involved in setting up a rival platform for Facebook. The reality is that Facebook was set up with very little capital by two guys in college.

Put it this way- if a multinational corporation like facebook can't levy a charge for the service it provides to nearly a billion users all over the world then good luck to anyone smaller trying to do so. How big-how dominant- would facebook have to be in order for them to be able to charge for their service-? I think we both know the answer to that question- they will never be able to charge for their service no matter how big they become.

And if this is true-what does that mean? How is it that having a massive market share and nearly a billion satisfied users no longer confers pricing power?

[thecrashingisles]

Well the jumble sale at the local church does not charge it's users an entry fee either- and they have very low costs.

The point about Facebook is that they are a multinational corporation that dominates the space in which they operate yet despite this cannot-dare not- attempt to monetise this advantage. So comparing them to a single retail outlet in country awash with retail space tells us nothing.

Westfield is also a multinational corporation that dominates the space they are in and yet they have the same free access policy towards users of their malls.

The reason, that you so obstinately refuse to grasp, is that all these businesses are a numbers game. They could charge for access but some people would not be willing to pay which would reduce the number of users and hence the value of the business. They earn more by maximising their user base than by charging for access.

[wonderpup]

YOU DONT KNOW THAT THEY 'DARE NOT'. YOU.... DON'T...... KNOW.

You seem under the impression that I am expressing an opinion on this matter-I'm not.

When I point out that Facebook have zero pricing power over their users I base this on the clear empirical evidence that they charge their users a price of zero.

This is not speculation on my part- it's Facebook's openly declared policy.

So if you don't believe me when I say that Facebook are not in a position to charge for their service maybe you will believe them?

You are right to point out that neither you or I are in a position to know if Facebook have the pricing power to charge- but I think it's safe to say that Facebook themselves are able to make this determination-so all we need do is look at the price they charge- which is zero.

The only assumption I do make regarding this matter is that Facebook as a profit maximising corporation would charge for their services if they believed they had the pricing power to do so. The only other interpretation is that they have chosen to let billions of potential revenue remain uncollected for no reason.

You keep saying to me that imposing a charge is not compatible with their business model- which is exactly the point I am making- their business model gives them a pricing power of zero in relation to their users-so in fact we agree.

[wonderpup]

Thank you for studiously not answering an extract of my post.

As I have previously (very patiently I might add) pointed out:

1) It would actually be much harder for me (and most users) to move social network platform than almost any hard product except a house. Assuming price parity I could swap my Volkswagon Golf for a Ford focus tomorrow with literally zero effort or impact. To move properly from Facebook to Google+ would take about a week of concerted toil (and no other bugger would be on there!)

If that is true then Facebook have a captive market of nearly a billion people who they could charge with impunity- why don't they?

As I have repeatedly pointed out Facebooks lack of pricing power over it's user base is not speculation-it's empirical fact- they charge a price of zero- so we know that their assessment of their pricing power is zero.

2) You must explain your assertion that digital business models are somehow value destructive in a way that is not exactly like the two examples you have not addressed in this thread. (a) Free newspapers ( Mega-Malls e.g. Bluewater.

What makes digital products and services value destroying is the ability of many players to operate in the digital space on very low margins- resulting in margin compression.

So more people can more easily join the party- and they can stay there on very slim margins because their operating costs are so low.

And this is before we include the impact of the growing number of free alternatives to commercial products and services that those low costs are spawning.

I don't really see why any of this is shocking to anyone- surely the great virtue claimed for the free market is the way that it compresses margins through competition - leading to lower prices for the consumer.

All the digital realm has done is amplify this margin compression effect by creating a space where set up, production and distribution costs are near zero. You could say that in this space the market has been democratised- now almost anyone can get into the game and compete for very little capital investment-great!

But to deny that this will lead to a rapid erosion of margins is wishful thinking. So I would argue that all this digital abundance is actually reducing the overall amount of trade value due to the way it amplifies margin compression. And we can add to this the fact that as people seek their entertainment and social fulfilment more in the digital space the returns to the wider economy of the offline space will decline.

[wonderpup]

The reason, that you so obstinately refuse to grasp, is that all these businesses are a numbers game. They could charge for access but some people would not be willing to pay which would reduce the number of users and hence the value of the business. They earn more by maximising their user base than by charging for access.

I do get this point- but it does not in any way negate my point.

Suppose Facebook could charge for access and make more-not less- money- then they would charge-obviously.

So when you tell me that Facebook can't charge because if they did they would make less money- this is the same as me telling you that they have zero pricing power.

Not being able to increase their profit by imposing a charge on their users= zero pricing power over their users.

It's really a very simple idea. If they could, they would- but they can't-so they don't.

No speculation or mental telepathy required- just the understanding that they give their service away free because they feel they have no choice- not because they are nice guys or too dumb to pick up money just laying on the table.

[thecrashingisles]

It's really a very simple idea. If they could, they would- but they can't-so they don't.

If Heinz could charge £10 for a tin of beans, they would - but they can't so they don't. Does this fact also keep you awake at night?

[thecrashingisles]

No speculation or mental telepathy required- just the understanding that they give their service away free because they feel they have no choice- not because they are nice guys or too dumb to pick up money just laying on the table.

They had a choice - charge a subscription fee and become a minor business like Friends Reunited, or sign up millions of users for free and become a multi billion dollar business which had turned its founders into billionaires. I guess they're kicking themselves that they don't dare pick up that money lying on the table.

[Guest eight]

They had a choice - charge a subscription fee and become a minor business like Friends Reunited, or sign up millions of users for free and become a multi billion dollar business which had turned its founders into billionaires. I guess they're kicking themselves that they don't dare pick up that money lying on the table.

I wouldn't bother. I do respect Wonderpup as a poster and agree with a lot of what he says but on this matter he is barking so far up the wrong tree that he's somehow managed to drag himself in to the upper branches and is refusing to come down .