Something has been bugging me since I posted “InTech’s Past, Present, and Future.”  There were many thought provoking comments made on the post, and I was particularly intrigued with David Greenfield’s comments, in which he said (in part) “The fact that this online savvy audience is still highly interested in print underscores the comments made by others here that print is not dead.”  The reason this was “bugging” me was that I too subscribe to lots of free publications that I never read.  Does that sound irrational?  You better believe it does!

Free Stuff Makes Us Crazy

“Zero is not just another price, it turns out.  Zero is an emotional hot button – a source of irrational excitement.”

Dan Ariely is the James B. Duke Professor of Behavioral Economics at Duke University, founder of the Center for Advanced Hindsight at MIT’s Media Lab, and author of the book, “Predictably Irrational.”  In his book, Ariely describes several experiments he and his team conducted to test why it is that free stuff makes us crazy.

In one experiment, they sold two different kinds of chocolates at a large pubic building; Lindt truffles and Hershey kisses.  They priced the highly prized Lindt truffles at 15 cents (about half of the wholesale price) and the Hershey Kisses (considered perfectly delicious but a little lower quality) at one cent.  As you may expect, the buyers flocked to the truffles by a ratio of 73 percent to 27 percent, since it represented such a tremendous bargain.  Sounds perfectly rational.

Next, both prices were lowered by just one cent.  The truffles were still priced fourteen cents higher than the Kisses and now were an even slightly better bargain over their normal price.  However, suddenly the preference was almost completely reversed and the Kisses were chosen 69 percent of the time!  This experiment was reproduced in several other contexts and is demonstrable in many commercial case studies.   Ariely concludes, “When choosing between two products, then, we often overreact to the free one.”

Discontinuous Functions

There are other discussions in the book as well as Chris Anderson’s book, “Free,” that document the step function that occurs between zero and anything else.  In mathematical terms, then, there are two domains; the paid and the free.  The function that describes the paid is not the same as the function that describes the free.  This has profound implications for paid content of any kind, especially the concept of micropayments.

So how does this apply to InTech?  I return to David Greenfield’s observation that his “online savvy” audience is still interested in the print version, proving that print is not dead.  Can we be sure that this is indeed evidence that readers find value in the print version?  Or is it possible that it is simply another predictably irrational decision influenced by the fact that the subscription is free?  Before tackling those questions, let’s consider one more example.

Would You Like Fries With That?

Let’s say you visit your favorite fast food restaurant and are considering meal options.  One option is a serving of french fries for $0.50.  The second option is a burger for $1.50.  Finally, the third option is a burger and fries for $1.50.  What would you choose?  By the way that’s not a typo – the second and third options are the same price.  My guess is that approximately 84% of you would choose number three.

The reason for my prediction is based on a clever, real world example of this pricing model that Ariely recounts.  He was browsing the Internet and came across the following pricing options for a subscription to the Economist:

• Economist.com subscription: US $59.00
• Print subscription: US $125.00
• Print & web subscription: US $125.00

Being the scientist he is, Ariely was curious about this approach and decided to study how others would react.  He posed this same advertisement to students at MIT’s Sloan School of Management and asked them which they would choose.  84% of them chose the third option.  Next, Ariely offered the following to a second set of Sloan MBAs:

• Economist.com subscription: US $59.00
• Print & web subscription: US $125.00

Certainly by now, you’re suspicious and so you probably don’t expect a rational decision.  Indeed, without the decoy of the print-only option a mere 32% (a drop of almost 63%) chose the print and web option.  Once again, experiments confirm that this behavior is predictably irrational.  A detailed discussion is beyond the scope of this post, so you’ll need to read the book for a full accounting.  However, it is helpful in the context of this discussion, which is…

What Does This Mean to Free Publications?

The first conclusion I would draw is that one cannot draw conclusions from readers’ decisions to subscribe to something that is free.  It’s a demonstrably irrational decision with no down side risk.  The real proof would come if subscribers were asked to pay $1 per year and see if subscription rates changed (my expectation would be that they would drop by about two thirds).

Furthermore, it casts doubt on a frequently quoted result of ISA member surveys that indicated InTech as one of the most highly valued member benefits.  We’ve seen that our perceptions of value are highly skewed by the context in which they are presented.  I’m not saying the results of the survey are wrong, but rather that you cannot necessarily consider them to be rational answers.

Finally, I think the most important lesson is not to try to apply a paid paradigm to a free context.  We cannot assume that the rules are the same for both.  In one sense, I was guilty of doing so by asserting that declines in print subscriptions of newspapers and magazines directly relate to InTech subscriptions.  While I still think that there are many common factors, we must be careful and remember that there is a discontinuity between the worlds of paid and free.

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Tags: behavioral economics, Dan Ariely, Economist, free, free publications, InTech, micropayments, MIT, Predictably Irrational, subscriptions