Wednesday, March 24, 2010

One Million Screwdrivers: Ripple Effects (Part 3 of 5)

This is an article in a series called One Million Screwdrivers. You may read all the articles in this series by clicking here.

Year Eight. Of course, you're now public enemy #1 to all screwdriver manufacturers. As predicted, some of those screwdriver manufacturers have indeed gone out of business, while others immediately stopped making screwdrivers and switched over to making other tools. The market adapted—some companies became extinct, some companies struggled, and other companies thrived by completely refocusing their business model on selling complimentary products... like screws.

But your seven year experiment has yielded unanticipated benefits. Your massive giveaway captured the attention of a local newspaper reporter who interviews you about this "seven year pricing experiment". The 1,000 word article—entitled "1 Million Screwdrivers"—is aggregated into sister newspapers, re-run in a national newspaper, goes online and gets indexed by Google.

Of the tens of thousands of people who read the widely distributed article, one is an influential Fortune 500 company executive. He tracks you down and asks you if you'd be willing to give a short presentation about your pricing experiments at his company's upcoming think tank retreat. Flattered, you accept and suddenly find yourself addressing a room of very wealthy people. After your presentation, one of the wealthy people in the audience approaches you and asks if you'll be a consultant for his fledging pet startup.

Word gets around town fast—you're quickly approached by many more people to be their consultants, too. Not long after that, someone in the media refers to you as a "resident expert on product pricing". Calls start coming in with offers for you to speak at more blue chip luncheons, and most people who call assume you charge a speaker's fee for your presentations. And a good thing, too—your time is so scarce now that you have to give priority to only the paid speaking engagements.

And then something really bizarre happens. A few geeky (but talented) no-name musicians read your story and write a hilarious song called "1 Million Screwdrivers" and post it on their blog. A few days go by and the song gets posted on I Am Bored. From there, it gets posted to Digg, then Myspace, Facebook, and Twitter. Some Lucasarts movie animators in between movie gigs create a jaw-dropping machinima video to accompany the song and they post it on YouTube. A month goes by and then—wham!—the song gets a million plays around the world. Someone on Facebook feels compelled to create a Facebook fan page called, "1 Million Fans for 1 Million Screwdrivers" and it charges ahead gathering fans like crazy. Like all things that go viral, you have—quite unintentionally—hit a tipping point. None of this has been done with your permission, but you make no move to stop the fervor, either. There seems to be no stopping the public's fixation about your story—or for your overtly banal screwdrivers—but all the unexpected publicity has put you increasingly in demand on the lecture circuit.

Eventually, someone realizes the screwdriver they own is actually one of these famous "1 Million Screwdrivers in that weird YouTube song", so they sell it on Ebay. Though they got the original screwdriver for free, that same screwdriver fetches an auction price of $10, far beyond the price of any comparable screwdriver on the market. Then, more people start selling their screwdrivers on Ebay, and this Ebay trading craze becomes a sub-culture thing. Someone creates their own T-shirts on Cafe Press with pictures of your screwdrivers on them. A software programmer writes a game mod for a popular first person shooter with your screwdriver as a weapon. Fan films sprout up with your screwdriver as their main plot element. Finally, a Hollywood producer sniffs around to see if you're open to having your story made into a movie... on and on it goes.

You return to your old warehouse. It's empty. Every last screwdriver has been sold or given away. You're about to turn out the lights...

...when you see one lonely screwdriver nestled in a crack between the floor and the wall.

As a final test, you tweet to your 100,000 followers (which you didn't have seven years ago) that you've found your last authentic screwdriver and you'd like to sell it for $1,000. The last time you sold these screwdrivers for $1,000—seven years ago—nobody bought them. This time, people scramble over themselves to buy it.

And then you get a phone call. It's that first wealthy executive who invited you to his think tank retreat which started this whole thing. You reminisce about the crazy rollercoaster ride it's been. He tells you he's setting up his own company based on your concept of giving away product for free—he'd very much like to buy your last screwdriver because of its sentimental to him and its historical value to his company. What's the name of his company? 1 Million Screwdrivers. Given the company's name, and this unique circumstance, he's prepared to make the purchase a massive publicity stunt to help launch his company... he offers you $1 million for that screwdriver.

You hold the screwdriver in your hand. The more you look at it, you realize this single screwdriver is the last object you have to remind you of your deceased uncle. It took you seven years and hundreds of thousands of screwdrivers but you finally understand that this screwdriver—the very last one of its kind—isn't even worth $1 million, or even $10 million.

This 50¢ screwdriver is, quite literally, priceless.

This is an article in a series called One Million Screwdrivers. You may read all the articles in this series by clicking here, or the other articles here:

  1. Introduction
  2. The Experiment
  3. Ripple Effects
  4. Lessons Learned (Thursday 3/25 9:00 AM PST)
  5. The Bassinet Story (Friday 3/26 9:00 AM PST)

1 comment:

Luci Temple said...

Funny you should post this today...

I've been looking into virtual goods - trying to get my head around why there is a multibillion industry that involves people paying real dollars for something that isn't 'real.'

Why would someone pay something for nothing?

Anyway, read some interesting stuff this morning
http://virtual-economy.org/
http://info.tse.fi/julkaisut/vk/Ae11_2009.pdf

And, reading this post now - it's all a lot clearer:

* 'Value' is completely in the mind of the beholder. Different people have different notions of 'Value for Money': a person purchasing a virtual chair for their virtual apartment values that more than the money spent on it, while someone (like me!) values the money more than the virtual item.

* The perceived 'Value' of an item shifts over time. E.g. a dvd rental has one price when it is newly released, and another price once it goes to 'weekly'... even though it is the same dvd. The reverse price change can also occur - when concert tickets sell out, scalpers resell for a huge profit.

* Money itself is a 'virtual' currency: the value of one unit varies from country to country, goes up and down depending on the health of the 'economy', interest rates, stocks, shares, gold etc.

* While filmmakers have limited ability to minimise cost of production, we can ensure that what we create is of enough Value to our audience that they will pay above the cost to us - via one strategy or another.

This means we need to better understand what exactly it is audiences value, and our pricing strategies needs to reflect customer notion of 'value' over time.

For an unknown 'high risk' indie film, this may well mean having a low entry point initially, till positive word of mouth increases the perceived value of the film, then the price can go up.

In a digital world where the file itself is easily copied, it also means looking at additional revenue streams that are not so easily replicated.

Mind you, it's also important to note that the reason why the screwdrivers were considered a bargain when sold for 1 cent was in part because there was competition selling the same product for 50c.

If we drop our price for first entry, we need to make sure consumers realise this is a 'discount' price, so that they perceive the value of the deal.

Todd Sattersten wrote a great free ebook that looks at pricing strategies for the 21st century - well worth the read. http://toddsattersten.com/2010/02/fixed-to-flexible---the-ebook.html