-
Website
http://techliberation.com/ -
Original page
http://techliberation.com/2007/08/20/measuring-the-value-of-digital-goods/ -
Subscribe
All Comments -
Community
-
-
Top Commenters
-
Popular Threads
All Comments
Actually, the idea that price equals value is one that bugs me whenever anyone brings it up. It's simply not true, and never has been (and, in fact, this is an area that Adam Smith runs into trouble in Wealth of Nations).
There's a really simple way to demonstrate this (which I've tried to do a few times on Techdirt). People value air a tremendous amount -- but you don't pay for it. People who believe that price is indicative of value are easily proven wrong with that simple point.
Price is simply what the market will bear, based on the interaction of supply and demand. *Value* plays into the demand side of the equation, but is not indicated by price at all. Assuming price equals value is to not understand supply and demand.
Separately, though, I'd disagree that economics hasn't addressed measuring the value of digital goods that are not limited under traditional IP... I'd agree that they may not have done so explicitly, but there's plenty of data out there in the research, much of it I've been gathering for a coming project you may hear about soon...
And, oops, I've said too much. :)
1. To follow-up a bit on Mike's comments, the sale of Program A for $1,000,0000 does NOT add any value to the economy versus the $10,000 that program B brought in. There are several components to this.
First, the value added to the economy is derived by the productivity the customer derives from using the software. In theory giving the product away free to millions of people will create more wealth for the economy then selling the product to only a few people. (I acknowledge that this not plausible, since we all need to earn money.)
Second, when software is sold the buyer must first earn the money to pay for the product, so selling the product is simply a transfer in wealth from the customer (who created the wealth through work) to the seller. Now, if the product is distributed free of charge, the customer is free to spend his/her money on other other products. In terms of the overall economy it is irrelevant if the customer buys a beer or buys Program A. Again, wealth creation (to the overall economy) comes from the productivity enhancements the product creates for the consumer - not the actual sale of the product.
Third, If Program B is given away for free, but only brings in $10,000 in revenue through advertising - you would also need to ask the question as to whether or not the advertising generated additional sales of other products. While the owner of Program B may only see $10,000 a bunch of his/her friends may also be profiting. Finally, you need to ask the question as to whether Program A could even be sold.
2. You bring up the phrase "traditional intellectual property protections". I would advocate that there is no such thing. Based on what I have been reading the content producers are creating rights by taking away the rights of consumers. For example, I can take a book that I am reading here. If I go to England, I can still read it, but I can't do that with my DVD because of region encoding. Also Google just left many of its customers high and dry when it abandoned Google Video (TLF August 13, 2007 post).
Calculating the True Price of Software" -- much of software's price, even proprietary software's, can be considered an option on future support.
Markets demand that we equate price and value as much as possible. When we can't, we have a market failure that invites government regulation. But price is just one component of value. One of the arguments cable companies make about why cable TV prices haven't fallen is to show how consumers have more channels and better quality digital (or even HD) reception. The same is true with software. Features have been increasingly bundled together while prices have been flat.
Steve, you say: Now, if the product is distributed free of charge, the customer is free to spend his/her money on other other products..
You lambaste Jim for bias in favor of a "traditional sales model" by which I assume you mean licensing. But you fail to recognize (as Don mentioned) the services model, a proven model that has existed for years now. A company like Red Hat (or any other company that has a business model based on services) gives its software "for free" and then the customer is more likely to spend his/her money on support services from the company that provided the software "for free"!
And maybe this is too much of a quibble (for I like beer as much as the next guy) but it does matter to the overall economy how people spend their money. Think of it this way - consumer spending rewards the investment in the current generation of products and helps fund the next generation. This has up/downstream effects on the kinds of jobs, research, etc. that exist in your community/state/nation.