Always New Mistakes

November 4, 2007

Radiohead and their bagels

Filed under: Business — Tags: , , , — Alex Barrera @ 9:52 pm

Hello everybody!

Finally I’ve decided to start my own blog, so if it’s your first time here I welcome you to my personal blog. Today I was watching episode 122 of Diggnation when Alex Albrecht talked about Radiohead’s newest album commerce scheme. For those of you that haven’t heard of it, Radiohead has ditched the music industry and is selling their latest album, “In Rainbows” on their website. The cool part is that if you want to download it, you are asked how much you want to pay for it (including $0 or free as in beer). Alex raised a very good question, why should you pay for the album? Why should people pay for it if they have the option of getting it for free? He gives an example of a friend that downloaded it for free the first time and after listening to it, he went and payed for it. When asked, he was fast to answer (as well as Kevin Rose did in the same situation), that although he had downloaded it for free, he was going to pay it.

So now you might be thinking, what the hell has this to do with bagels? Well, here it is. Currently I’m reading Freakonomics from Steven D. Levitt and there is a story about an economist called Paul Feldman and his bagel business. Mr. Feldman’s business model was quite unusual: “[...] he would deliver some bagels and cash a cash basket to a company’s snack room; he would return before lunch to pick up the money and the leftovers. It was an honor-system commerce scheme, and it worked. [...] “. Pretty amazing by it self, but the interesting point is that as an economist, he was able to analyze the percentage of customers that payed and the ones that stole from him. His conclusions where pretty staggering, the overall rate of paying customers was around 87% by the summer of 2001 and went 2% higher after 9/11. So, with these numbers at hand, we can say that humans are, in general, honest, which might go against what intuition tells us.

Nevertheless, I’ve been wondering if such a high rate was because of fear of being accused of theft by coworkers or because of innate human honesty. Now, back to Radiohead, Alex’s question reminded me of the bagel business. Do people pay for it because they are honest of because of another reason? I would love to see Radiohead’s numbers on their experiment. Would they yield the same rates as of Mr. Feldman or by contrary be far lower due to the anonymous nature of the Internet? Humans can do terrible things if they know no one is watching, so, do people pay because of fear of what friends might think about them or because they are really honest and value the album? It’s interesting that prior to downloading the album they ask you for all your personal details, including your country and zip code. So, not only are they getting free marketing, but they are also harvesting a pile of very valuable data. It could even be sold to other artists/bands willing to follow their path (like Madonna). Here you go, another way of making revenue with this experiment.

What do people think about this?

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