Place of Refuge I

Place of Refuge I, originally uploaded by Unsettler.

Ghost Lake

Ghost lake, originally uploaded by Unsettler.

Actually Blue Lake on the SW slope of St. Helens, and in fact Blue Lake is more of a lovely emerald green, rudely forced into grayscale by my morbid desire to bring out its inner ghostliness.

North Face of Hood

North Face of Hood, originally uploaded by Unsettler.

Vantage point is the Cloud Cap Trail right at the treeline.

This photo excursion seemed cursed -- I blew a tire on the jeep on the road up, and Hood was shrouded in mist when I got to this spot. But I set up the tripod anyway, and within a few minutes, the wind chased the mist up the valley, and there she was, big as the world.

How Netflix Killed Itself with Kindness

During the dot-com boom of the early oughts, the New Yorker magazine’s financial columnist  James Surowiecki wrote a piece called “How Kozmo is Getting Killed By Its Customers.” He explained the plight of dotcom delivery service Kozmo.com, which lost millions of dollars because its customers took advantage of its low delivery fees to purchase one-off items, like a pint of ice cream. This caused Kosmo’s delivery costs to outpace its revenue at rate of almost two to one. Surowiecki railed not against Kosmo’s flawed business model but against the bad behavior of its customers; he called them “little terrors” and claimed that their profound sense of entitlement required a  “New Economy mantra: Know when to fire your customers.”

I wonder if anyone at Netflix had occasion to read Surowiecki’s piece in the last month. Right now the once-beloved dotcom, if not exactly being killed by its customers, is at least being taken behind the woodshed for a serious thrashing. Netflix’s former business model – a single low price for streaming and DVD rentals – was simply unsustainable. The company couldn’t pay the licensing fees demanded by studios, win the rights to new streaming content, and continue to ship DVDs at the same price it once charged for DVDs alone. But Netflix was in a precarious position precisely because it had provided its customers with something that was too good to be true – an excessively dangerous position that has sunk many more dotcoms than Kozmo. In game theory terms, Netflix’s predicament was the patsy position, in which the customer has very little incentive to continue the relationship if the brand does anything to upset the delicate balance of cost vs. services. When Netflix defected by raising their fees for the combined services, did their customers happily agree to it, reasoning that a price increase should be expected? Um, no. Naturally, they voted with their feet and left in droves; more than 800,000 customers have given the brand the boot in the last quarter alone.

Netflix was missing a core insight than any behavioral economist could have given them: when pricing models in a given market – in this case, the streaming content market – aren’t well established, you’re entirely at the mercy of your customers’ own perceptions, however irrational. Since Netflix customers had been given streaming content for absolutely nothing for several years, their perception was that the streaming content is worth, well, absolutely nothing. If Netflix had never provided that streaming service before, but instead introduced it in August for an additional six bucks a month, they would not have lost customers, and their streaming service would have taken off like gangbusters. Exact same price, vastly different price perception. In the latter scenario, Netflix’s price increase would have been seen as a form of cooperation, not defection – another triumph for a brand known for delivering great service at low cost.

So what’s the lesson here?  Online business models that keep prices low in order to fuel growth have to pay attention to the end-game. Consumer perception accrues quickly to the status quo; that’s why it’s easy to sell taxpayers on the idea that letting a tax cut expire on schedule is actually a “tax hike.” Above all, know what your content is worth and charge accordingly. Believe it or not, your customers will thank you.

First frost

First frost, originally uploaded by Unsettler.

Probably *not* the first frost of the year at this spot, 5,000 feet up in the Blue Mountains in Central Oregon. Just the first one I've been around for. It's a pretty area, lots of big mountain meadows, for which I am a sucker. This had all burned off an hour later, and I was fishing in shirt sleeves.

Mazama framed by clouds

Mazama framed by clouds, originally uploaded by Unsettler.

Near the Hellroaring viewpoint on Mount Adams, Mazama Glacier visible in the center of the cloud frame.

Yep, that is a couple of inches of snow, there. A month ago in that same spot, I was shooting wildflowers.

What Digital Media Could Teach NPR About Pledge Drives

I’m a little grouchy this week. Morning is not my friend on the best days, and the worst days are the ones in which the soothing warble of NPR’s Steve Inskeep on my clock radio has been replaced by the screechy aural assault of an NPR station manager exhorting me to pledge. The pledge drive concept appears to be modeled after a dog whistle – it emits a shrill blast that only certain species can hear, and it draws us in not because we like it but because we desperately need it to friggin’ stop.

In the final days of the pledge drive, the reporters and station managers start getting punchy from endless hours of pimping tote bags for cash, and their rationales for why you should pledge come unhinged: “You wouldn’t walk into a book store and steal books, then expect the other customers to pick up the tab for your stolen books, would you? Well, that’s what you’re doing when you don’t help pay for all the great content on NPR.”

I admit to getting perverse enjoyment from listening to these weird, caffeine-fueled analogies, because they’re actually probing some hard truths about how we get people to pay for things they might otherwise get for free. The subject is of great interest to me because it’s one of many areas of human behavior that can be illuminated by game theory, which concerns itself with the incentives and disincentives that drive cooperation.

From a game theory perspective, you’d be hard-pressed to devise a worse system of incentives than the NPR pledge drive. Its fatal flaw is that it rewards contributors and non-contributors equally – with free content – and punishes them both equally with jarringly interrupted programming. In game theory, this is known as the volunteer’s dilemma: all NPR listeners have a collective interest in keeping NPR on the air over the long term, but in the short term, you can contribute nothing and enjoy exactly the same benefits – minus the tote bag – with very little risk that your personal failure to contribute will doom NPR. It’s a system that encourages freeloaders, and it gets them; only 1 in 10 NPR listeners is also a contributor.

I have a friend who runs fundraising for public broadcasting in central California, and on a recent visit, I subjected him to my pledge drive critique. He listened patiently, then said, “That’s a good point. So how would you fix it?”

Um, OK, you got me there. NPR is part of a broadcast medium, and all my ideas about incentives and access to content are based on digital media, which can be as narrowcast as you want it to be. And of course, as a taxpayer-funded entity, NPR is legally obliged to provide open access to contributors and non-contributors alike. So any system of incentives would have to start with that premise.

But in my fantasy pledge drive world, NPR could construct its incentives around whether I’d be subjected to their soul-deadening pledge breaks. They would give me a strong incentive to make my contribution at the start of the pledge drive, because immediately upon doing so I would receive a code I could punch into my clock radio or car radio to shut off the pledge drive pleadings and return me to my regularly scheduled programming. It sounds sci-fi in practice, but in principle, it’s not much different than me subscribing to Salon.com so I can shut off the ads.

The increase in consumption of “traditional” content via digital media offers the potential to solve classic problems like the volunteer’s dilemma: in digital media, we have the ability to construct finely tuned incentives and pricing tiers because content can be distributed one-to-one.  In short, we can allow people to decide how much hassle they want to go through for access to content, and we can allow them to pay their way out of the hassle. This means we can reward subscribers without completely shutting out non-subscribers, who can accept the trade-off of inconvenience for access. It’s taken us a decade to figure out how to do this well, but successful models like the New York Times’ new paywall system reflect a growing understanding of the behavioral economics governing content consumption.

That’s one of many reasons I’m excited about the amount of content delivery converging around the mobile medium. Convenience is a big incentive in getting consumers to pay for content, and mobile is all about convenience (or at least it should be). NPR may not have figured out how to crack this code, but some of their shows have.

I’m a fan of This American Life, but I’m never near my radio during its scheduled airtimes. The TAL mobile app solves that for me, and it offers finely calibrated levels of convenience based on what I’m willing to pay. If I’m willing to pay nothing, I get an ad-supported app that streams the latest episode. If I fork over three bucks, I get access to the episode archive, but I can only have one episode downloaded at a time. If I want more, I can purchase individual episodes via Amazon through the app.

That’s a smart content strategy, and it deftly avoids the volunteer’s dilemma by giving me the short-term rewards of greater choice and convenience in exchange for my cooperation. (Although I should acknowledge that Ira Glass still works a pledge pitch into his intro, and the app is prone to crash. Nothing’s perfect.)

We may be a long way from NPR being able to unshackle its loyal contributors from the ear-manacles of the pledge drive, but I think we’re heading in the right direction in digital. In game theory terms, a state of equilibrium exists when content producers are getting paid (or funded), and consumers are getting the content they want at a reasonable price.  An equilibrium is a stable marketplace: customers tend to stick around, until the content producer does something to upset the balance. Sound familiar, Netflix?  Nope, I’m not even going to touch that can of worms yet – I’ll save it for next week, when the pledge drive is over and my mood improves.