nPost Blog

You Knew What I Was When You Picked Me Up

See original post at BRYCE DOT VC:

There’s a native American tale of an old rattlesnake who asks a passing young boy to carry him to the mountain top to see one last sunset before he dies. The boy was hesitant, but the rattlesnake promised not to bite him in exchange for the ride. After that concession, the boy carried the snake to the top of the mountain where they watched the sunset together.

Upon carrying the snake back down to the valley floor, the boy prepares him a meal and a bed for the night. In the morning the snake asks:

“Please little boy, will you take me back to my home now? It is time for me to leave this world, and I would like to be at my home now.” The little boy felt he had been safe all this time and the snake had kept his word, so he would take it home as asked.

He carefully picked up the snake, took it close to his chest, and carried him back to the woods, to his home to die. Just before he laid the rattlesnake down, the rattlesnake turned and bit him in the chest. The little boy cried out and threw the snake upon the ground. “Mr. Snake, why did you do that? Now I will surely die!” The rattlesnake looked up at him and grinned:

“You knew what I was when you picked me up.”

Slate has an interesting piece peeking behind the post-Page Google M&A machine. Amidst the talk of new found focus and well defined business units, there’s a noted shift in their approach to the technologies and teams they’re pursuing. In years past Google has had a voracious appetite for talented startup teams, but that focus is turning, in large part, because those teams have often not had the effect on Google products that they’d hope. 

From the article:

Larry Page wants results. This is perhaps the most important change since Page took over: Gone are the days when Google would buy a company only to have it disappear without ever producing a product. Page now expects direct, regular reports from Google’s acquisitions team on how recently purchased companies are performing.

The problem with these acquisitions is that both the acquiring company and the founders are rattlesnakes.

Pre-acquisition founders promise that they’re committed to their vision and see the acquiring company as the perfect platform to realize it. Acquiring companies promise to get companies the resources they need to scale and not mess with what’s working.

But founders are founders, and even with the best of intentions their systems largely reject big company culture. And big companies are big companies, they just can’t help but bury startups in political overhead and unkept promises of scalable resources.

Which leaves many founders and big companies turning to each other with bite marks in their chests asking “why did you do that”?

To which neither should be all that surprised when the other answers back, “you knew what I was when you picked me up”.

The Upside of High Unemployment

See original post at BRYCE DOT VC:

To most founder’s parents, especially to those outside of technology hubs, starting a company is indistinguishable from being unemployed.

So I was intrigued by an insight shared by a founder friend over lunch yesterday. He said that he was getting calls from his childhood friends from around the country asking for advice on how they can get ideas out of their heads and sketchbooks and into real life businesses.

We talked about some of the whys around this mainstreaming of startup culture. His insight that struck me was that the last few years of massive unemployment has made it much more socially acceptable for talented and qualified people to not have a job. Given everyone knows someone who’s been laid off or unemployed for an extended period of time, there’s a deeper sense of empathy and understanding from a generation who’s careers were optimized for stability and lauded for company loyalty. 

Of course the mainstreaming of angel investing and massive amounts of press coverage make the “glamorous” startup life irresistible to many. But, I do think there’s merit to his larger cultural observation around the impact that this current wave unemployment will play in reshaping the definitions of work and jobs for the generations who’se lives these times have touched. 

Photo

See original post at BRYCE DOT VC:

Photo

See original post at BRYCE DOT VC:

We Don’t Die, We Multiply

See original post at BRYCE DOT VC:

You know that scene in a movie or video game when the little aliens begin attacking their target? Generally they start by sending one to scope things out, which promptly gets killed. Then a few more, they usually get killed too. As confidence in the defender builds, more and more come at an increasingly rapid fire pace until they become overwhelmed and defeated by the sheer volume of attackers.

That’s what yesterday’s YC Demo Day felt like to me.

The sheer breadth of markets the companies in this class are attacking was refreshing. Architecture, Design and Manufacturing, Hiring and Work, Healthcare, Crowdfunding, Enterprise, Gaming, Security, Real Estate, Cloud Computing, Payments, Mobile Infrastructure and Applications, Financial Services, Farming, Auto and Device repair, Online Shopping, Search, Big Data, Education and Social Networking (I’m sure I’ve missed some too).

And with a class of 66 there were generally a couple companies attacking these markets from different angles.

Whether you’re a fan of YC or not, really doesn’t matter. We’re at a cultural inflection point where legacy companies are built on a crumbling foundation of infrastructure, processes and business models. Their modes of defense are still relatively effective- scale and favorable legislation. But, like in the movie or video game, their attackers are accelerating and multiplying with each new attacker learning from the missteps of it’s predecessor.  Soon the incumbents will either fall to their startup attackers, or adapt to their new environs.

Either way, we as consumers of these services will ultimately benefit from the accelerating onslaught of entrepreneurial attackers. And we as a startup culture will have a more direct impact on global culture as a whole.

As an aside- I don’t think YC has even scratched the surface on how much more they can scale their model.

I remember attending the first demo day. The room was about three quarters full, with founders like Aaron Schwartz and Alexis Ohanian lining the walls to make it feel more full than it actually was. There were probably 10-12 companies all of whom gave actual demos of products that kinda worked.

Fast forward to yesterday with 66 companies and a standing room only crowd of investors at the Computer History Museum. No need for founders lining the wall to make it appear full nor were there any live demos as part of the presentations (ok, maybe 1 live demo). At this point the actual presentations feel like an unneccesary relic of classes past.

If YC can attract the talent, I don’t think there’s any reason they couldn’t scale well beyond where they are today. By surrounding himself with capable partners and advisors PG has removed himself as a single point of failure in the model. Most founders I’ve spoken to in this class and in others note that the YC network does far more to magnetize applications than access to PG. And that network lends to scale. I can also see Demo Day evolving from a single threaded conference format to an expo format with booths and more one to one interaction with actual demos making a comeback. 

Look, I’m not saying YC is for everyone. Far from it. But if observers think they’re hitting a ceiling on the number of companies they can crank out, I say they’re just getting started.

We Don’t Die, We Multiply

See original post at BRYCE DOT VC:

You know that scene in a movie or video game when the little aliens begin attacking their target? Generally they start by sending one to scope things out, which promptly gets killed. Then a few more, they usually get killed too. As confidence in the defender builds, more and more come at an increasingly rapid fire pace until they become overwhelmed and defeated by the sheer volume of attackers.

That’s what yesterday’s YC Demo Day felt like to me.

The sheer breadth of markets the companies in this class are attacking was refreshing. Architecture, Design and Manufacturing, Hiring and Work, Healthcare, Crowdfunding, Enterprise, Gaming, Security, Real Estate, Cloud Computing, Payments, Mobile Infrastructure and Applications, Financial Services, Farming, Auto and Device repair, Online Shopping, Search, Big Data, Education and Social Networking (I’m sure I’ve missed some too).

And with a class of 66 there were generally a couple companies attacking these markets from different angles.

Whether you’re a fan of YC or not, really doesn’t matter. We’re at a cultural inflection point where legacy companies are built on a crumbling foundation of infrastructure, processes and business models. Their modes of defense are still relatively effective- scale and favorable legislation. But, like in the movie or video game, their attackers are accelerating and multiplying with each new attacker learning from the missteps of it’s predecessor.  Soon the incumbents will either fall to their startup attackers, or adapt to their new environs.

Either way, we as consumers of these services will ultimately benefit from the accelerating onslaught of entrepreneurial attackers. And we as a startup culture will have a more direct impact on global culture as a whole.

As an aside- I don’t think YC has even scratched the surface on how much more they can scale their model.

I remember attending the first demo day. The room was about three quarters full, with founders like Aaron Schwartz and Alexis Ohanian lining the walls to make it feel more full than it actually was. There were probably 10-12 companies all of whom gave actual demos of products that kinda worked.

Fast forward to yesterday with 66 companies and a standing room only crowd of investors at the Computer History Museum. No need for founders lining the wall to make it appear full nor were there any live demos as part of the presentations (ok, maybe 1 live demo). At this point the actual presentations feel like an unneccesary relic of classes past.

If YC can attract the talent, I don’t think there’s any reason they couldn’t scale well beyond where they are today. By surrounding himself with capable partners and advisors PG has removed himself as a single point of failure in the model. Most founders I’ve spoken to in this class and in others note that the YC network does far more to magnetize applications than access to PG. And that network lends to scale. I can also see Demo Day evolving from a single threaded conference format to an expo format with booths and more one to one interaction with actual demos making a comeback. 

Look, I’m not saying YC is for everyone. Far from it. But if observers think they’re hitting a ceiling on the number of companies they can crank out, I say they’re just getting started.

A Different Kind of Robot Uprising

See original post at BRYCE DOT VC:

A few weeks back I walked by a table where my to oldest daughters were supposed to be doing their homework. As I passed I saw they were both looking into the screen of an iPhone and trying their hardest to giggle without me noticing. As you might expect I was equal parts bugged and intrigued. 

When pressed, they told me they were txting with their favorite robot. I had no idea what they were talking about so they explained.

As a family we use Kik as our group txt’ing app and ad hoc social network. Turns out “Kik Team” is an account the kids all followed that is a bot on their network. They’d discovered that if they txt’d Kik Team questions, the bot would reply. And often those replies contained funny or snarky or just totally off the wall commentary. Apparently, they’d taken a study break to get some laughs from the bot. As I walked away from them my second daughter proclaimed “Kik Team is my favorite friend to txt on Kik”.

Given that I’m her friend on Kik I tried not to take offense.

Depending on what generation we’re a part of, robots illicit wildly different imagery. From Rosie on the Jetsons to the tireless warehouse workers stealing human jobs described in Nick Bilton’s piece over the weekend. We don’t often think of them as invisible or simply software, but these types of digitally disembodied robots are playing an increasingly prominent role in the evolution of our digital lives.

Why just today I retweeted  a robot.

Its name is @Horse_ebooks. For those unfamiliar, @Horse_ebooks is a twitter spambot that tweets random snippets from digital books it’s trying to hawk online. But to his (or is it her?) 10s of thousands of twitter followers @Horse_ebooks is steady stream of automated insights, obscurity, inanity and mystery. Whether for entertainment or enlightenment, the followers of @Horse_ebooks knowingly and unabashedly forge a relationship with a robot.

For more practical pursuits we’re seeing the rise of robots like Siri enter into our every day lives. It’s taken me a while to get the hang of my use cases for Siri, but I find my usage of it for setting alarms, sending txts, initiating calls and drafting short emails rising every day. The more I use it the better I get at understanding it’s limitations, and I can’t help but feel that it’s getting a better sense of mine.

There are more and more services like Siri hitting our radar every day. For instance, a new company called Alohar has visions of robots gaining an even more intimate understanding of our lives and circumstances:

Imagine you’re driving to your doctor’s appointment. You get the green to pull through an intersection, but another driver–late to his lunch meeting–runs a red light and smashes into your driver-side door. Now imagine that your phone, registering that you were driving and that you were hit through its motion sensors, predicts you were possibly injured and signals an ambulance through a 911 dispatcher.

Utilizing all the phone’s sensory data–from motion detection to Wi-Fi signals to temperature–Alohar has developed what it calls “persistent sensing,” allowing a user’s phone to constantly gather data on a person’s whereabouts and habits.

I can’t help but think this robot uprising that we’re seeing will touch even more industries than than their mechanical counterparts. With computers in every pocket sensing, responding and reporting in realtime we’re on the cusp of what feels like a pretty fundamental shift. Our relationship with these bots will move them from the novelty of my kids study breaks to more fully augmented versions that reshape our reality.

Siri for education? Alohar for health? @Horse_ebooks for President? The last one may be a stretch, but I don’t imagine the others are that far off.

How Perfect Pricing got me 1500 Sales in 2 Days

See original post at A Smart Bear: Startups and Marketing for Geeks:

This is a guest post by Sacha Greif – a designer and entrepreneur who recently sold thousands of copies of a self-published eBook that shows how to design a user interface step by step. He’s worked with multiple startups and is also the founder of Folyo, a service that helps companies find vetted freelance designers. Here, Sacha explains how he set the pricing for his eBook — a critical step in its success.

My Dad recently chided me for buying cheap, store-brand brown bread. Since we also happened to have fancy imported Danish bread in the pantry, I challenged him to a blind taste test. Sure enough, he couldn’t tell the difference, despite one kind of bread costing twice as much as the other.

Intuitively, we tend to see prices as a consequence of a product’s inherent worth, and marketers everywhere want to keep it that way. But psychologists know that prices have a lot more power than that: the right pricing can greatly contribute to a product’s perceived worth, or even make the entirety of it (ever heard of diamonds?).

I’ve always been fascinated by the power of pricing, as demonstrated by stories like the jeweler who doubled her sales by trippling her prices. So when I recently wrote an eBook to show people how to design user interfaces, I knew how important setting the right price would be.

Why charge at all? Isn’t fame and glory and RSS subscribers enough? Besides the obvious answer (to make money), I believe the Internet is already overrun with free stuff. I personally download tens of free fonts, icons, books, and videos every week and use none of them for lack of time.

So by charging hard cash for my product, I was doing two things: I was signaling that it was better than the content you can find for free, and I was also increasing the chance people would actually read the book after they downloaded it since they had paid good money for it (thus using the sunk costs fallacy to my own advantage).

The first step was doing some basic market research to see how much people were willing to pay. I asked on Twitter, and got answers in the $5-$10 range.

I also looked up existing questions on Quora, and asked if it’s better to start low and increase prices, or start high and lower them. (Short answer: “it depends.”)

I also considered the fact that thanks to the App Store, people are now used to paying out small, “less-than-a-coffee-at-Starbucks‚” amounts. But I also knew anything over $10 would trigger different psychological mechanisms. (In a minute you’ll see proof/disproof of this hypothesis.) Since my goal was to go for as many sales as possible to create a readership and potentially pave the way for future books, I settled on the $1-$10 price range.

After deciding on the approximate price, the next step was focusing on market segmentation. I had somewhat of an epiphany after reading this article by Joel Spolsky about segmentation (seriously, this is probably one of the top ten posts about sales on the web), and realized that this complex-sounding term actually covered a very familiar concept.

To simplify things, segmenting means charging each person as much as they’re willing to pay. This is exactly what happens when you haggle in a market in Beijing or a suk in Jerusalem: the seller starts outrageously high, and the sale is made when you’ve succeeded in bringing his price down to the highest possible price that you’re willing to pay (thus maximizing his profits).

Since it’s much harder to find out how much someone is willing to pay on the web, you simply offer different price points and let people self-select the one that best fits their needs.

Of course you can’t just offer the same product for two different prices. So you need to find a differentiator; in my case, I decided the Deluxe edition of the eBook would also include the original Photoshop sources.

The last pricing tactic I employed was a lower introductory price. This does two things: first, increase the number of people who buy the product early, which will make for a bigger launch and help achieve critical mass (the more people have bought the book, the more people will buy it. Social proof 101).

But it’s also a way to reward early adopters. They’re the ones taking all the risk to find out if the book is worth reading. They’re also the people who follow you most closely, and who care about you most. They’re a special cohort and should be treated as such. (Seth Godin harps on this a lot.)

So let’s review our pricing constraints:

  • There must be two price points.
  • They should be high enough to permit an introductory discount.
  • They need to be around $1-$10.

When you lay things out like this, it becomes pretty clear that there aren’t a ton of choices. I settled on:

  • Normal edition: $5.99 discounted to $2.99
  • Deluxe edition: $12.99 discounted to $5.99

The Deluxe edition is twice the price of the Normal edition, and the discount is also 50%, which keeps the math simple.

So here’s the part you’ve all been waiting for: how did it go?

Amazingly well.

I submitted the eBook’s landing page to Hacker News, and it quickly shot up the rankings, amassing more than 300 votes, and even reaching second place on the front page for a while.

This huge surge of traffic (22,000 visitors in one day!) translated into amazing sales: in the first 48 hours, I sold the book 1,476 times, for a total of $6,663 in revenue.

So it looks like my pricing scheme was a success. But why exactly? Luckily, Hacker News commenters gave me some insight into their thought process:

I just want to say, the 2.99 was an awesome price point – from an incentive to buy stand point. With 5.99 including PSDs it seemed like a no brainer. — samstave

For me the pricing model is perfect for something like this. $2.99? thats right in my ‘don’t even think about it’ impulse range. $5.99 for additional features? I’m already paying $2.99, its not much more AND I get more stuff. Bravo! — jwarzech

I love the way this is structured, and the pricing model was absolutely perfect. TAKE MY MONEY — christiangenco

So two things are at play here. First of all, the lower $2.99 price point was low enough that it constituted an impulse buy and didn’t trigger people’s anti-spending defense mechanisms.

Second, the higher $5.99 price point was close enough to the first one that people felt that as long as they were going to buy the book anyway, they might as well get the better version.

And the stats agree: unlike what I expected, more people bought the Deluxe version (758 sales, vs 718 sales for the regular edition).

This is price anchoring at work. Marketers often give premium options an artificially high price point to make the normal option seem more attractive in comparison (think of all these pricing plans table with a $1000/month “enterprise‚” option right next to the $10/month consumer option).

But in our case, the reverse happened: the proximity of both pricing points made the high-end option seem like a bargain.

I thus give you this pricing theorem: if two prices are far away, the lower one will be more attractive. But if they’re close, the higher one becomes the better choice.

It’s of course hard to say exactly just how big a part pricing played into the success of the book. And of course, I might have earned even more if the eBook had cost $0.99 or even $49.99!

But I’m already extremely happy with the sales and feedback I got, so I will resist the temptation to ask “what if?” After all, if I really want to find out I can always write another book!

So I hope next time you’re ready to sign up for a monthly software plan or doing your grocery shopping, you’ll take a moment to consider the prices in front of you. Maybe you’ll be able to find out the hidden reasoning behind the numbers!


Sign up for AppSumo‘s daily deals specifically for web geeks & entrepreneurs.

How Perfect Pricing got me 1500 Sales in 2 Days

See original post at A Smart Bear: Startups and Marketing for Geeks:

This is a guest post by Sacha Greif – a designer and entrepreneur who recently sold thousands of copies of a self-published eBook that shows how to design a user interface step by step. He’s worked with multiple startups and is also the founder of Folyo, a service that helps companies find vetted freelance designers. Here, Sacha explains how he set the pricing for his eBook — a critical step in its success.

My Dad recently chided me for buying cheap, store-brand brown bread. Since we also happened to have fancy imported Danish bread in the pantry, I challenged him to a blind taste test. Sure enough, he couldn’t tell the difference, despite one kind of bread costing twice as much as the other.

Intuitively, we tend to see prices as a consequence of a product’s inherent worth, and marketers everywhere want to keep it that way. But psychologists know that prices have a lot more power than that: the right pricing can greatly contribute to a product’s perceived worth, or even make the entirety of it (ever heard of diamonds?).

I’ve always been fascinated by the power of pricing, as demonstrated by stories like the jeweler who doubled her sales by trippling her prices. So when I recently wrote an eBook to show people how to design user interfaces, I knew how important setting the right price would be.

Why charge at all? Isn’t fame and glory and RSS subscribers enough? Besides the obvious answer (to make money), I believe the Internet is already overrun with free stuff. I personally download tens of free fonts, icons, books, and videos every week and use none of them for lack of time.

So by charging hard cash for my product, I was doing two things: I was signaling that it was better than the content you can find for free, and I was also increasing the chance people would actually read the book after they downloaded it since they had paid good money for it (thus using the sunk costs fallacy to my own advantage).

The first step was doing some basic market research to see how much people were willing to pay. I asked on Twitter, and got answers in the $5-$10 range.

I also looked up existing questions on Quora, and asked if it’s better to start low and increase prices, or start high and lower them. (Short answer: “it depends.”)

I also considered the fact that thanks to the App Store, people are now used to paying out small, “less-than-a-coffee-at-Starbucks‚” amounts. But I also knew anything over $10 would trigger different psychological mechanisms. (In a minute you’ll see proof/disproof of this hypothesis.) Since my goal was to go for as many sales as possible to create a readership and potentially pave the way for future books, I settled on the $1-$10 price range.

After deciding on the approximate price, the next step was focusing on market segmentation. I had somewhat of an epiphany after reading this article by Joel Spolsky about segmentation (seriously, this is probably one of the top ten posts about sales on the web), and realized that this complex-sounding term actually covered a very familiar concept.

To simplify things, segmenting means charging each person as much as they’re willing to pay. This is exactly what happens when you haggle in a market in Beijing or a suk in Jerusalem: the seller starts outrageously high, and the sale is made when you’ve succeeded in bringing his price down to the highest possible price that you’re willing to pay (thus maximizing his profits).

Since it’s much harder to find out how much someone is willing to pay on the web, you simply offer different price points and let people self-select the one that best fits their needs.

Of course you can’t just offer the same product for two different prices. So you need to find a differentiator; in my case, I decided the Deluxe edition of the eBook would also include the original Photoshop sources.

The last pricing tactic I employed was a lower introductory price. This does two things: first, increase the number of people who buy the product early, which will make for a bigger launch and help achieve critical mass (the more people have bought the book, the more people will buy it. Social proof 101).

But it’s also a way to reward early adopters. They’re the ones taking all the risk to find out if the book is worth reading. They’re also the people who follow you most closely, and who care about you most. They’re a special cohort and should be treated as such. (Seth Godin harps on this a lot.)

So let’s review our pricing constraints:

  • There must be two price points.
  • They should be high enough to permit an introductory discount.
  • They need to be around $1-$10.

When you lay things out like this, it becomes pretty clear that there aren’t a ton of choices. I settled on:

  • Normal edition: $5.99 discounted to $2.99
  • Deluxe edition: $12.99 discounted to $5.99

The Deluxe edition is twice the price of the Normal edition, and the discount is also 50%, which keeps the math simple.

So here’s the part you’ve all been waiting for: how did it go?

Amazingly well.

I submitted the eBook’s landing page to Hacker News, and it quickly shot up the rankings, amassing more than 300 votes, and even reaching second place on the front page for a while.

This huge surge of traffic (22,000 visitors in one day!) translated into amazing sales: in the first 48 hours, I sold the book 1,476 times, for a total of $6,663 in revenue.

So it looks like my pricing scheme was a success. But why exactly? Luckily, Hacker News commenters gave me some insight into their thought process:

I just want to say, the 2.99 was an awesome price point – from an incentive to buy stand point. With 5.99 including PSDs it seemed like a no brainer. — samstave

For me the pricing model is perfect for something like this. $2.99? thats right in my ‘don’t even think about it’ impulse range. $5.99 for additional features? I’m already paying $2.99, its not much more AND I get more stuff. Bravo! — jwarzech

I love the way this is structured, and the pricing model was absolutely perfect. TAKE MY MONEY — christiangenco

So two things are at play here. First of all, the lower $2.99 price point was low enough that it constituted an impulse buy and didn’t trigger people’s anti-spending defense mechanisms.

Second, the higher $5.99 price point was close enough to the first one that people felt that as long as they were going to buy the book anyway, they might as well get the better version.

And the stats agree: unlike what I expected, more people bought the Deluxe version (758 sales, vs 718 sales for the regular edition).

This is price anchoring at work. Marketers often give premium options an artificially high price point to make the normal option seem more attractive in comparison (think of all these pricing plans table with a $1000/month “enterprise‚” option right next to the $10/month consumer option).

But in our case, the reverse happened: the proximity of both pricing points made the high-end option seem like a bargain.

I thus give you this pricing theorem: if two prices are far away, the lower one will be more attractive. But if they’re close, the higher one becomes the better choice.

It’s of course hard to say exactly just how big a part pricing played into the success of the book. And of course, I might have earned even more if the eBook had cost $0.99 or even $49.99!

But I’m already extremely happy with the sales and feedback I got, so I will resist the temptation to ask “what if?” After all, if I really want to find out I can always write another book!

So I hope next time you’re ready to sign up for a monthly software plan or doing your grocery shopping, you’ll take a moment to consider the prices in front of you. Maybe you’ll be able to find out the hidden reasoning behind the numbers!


Sign up for AppSumo‘s daily deals specifically for web geeks & entrepreneurs.

How Perfect Pricing got me 1500 Sales in 2 Days

See original post at A Smart Bear: Startups and Marketing for Geeks:

This is a guest post by Sacha Greif – a designer and entrepreneur who recently sold thousands of copies of a self-published eBook that shows how to design a user interface step by step. He’s worked with multiple startups and is also the founder of Folyo, a service that helps companies find vetted freelance designers. Here, Sacha explains how he set the pricing for his eBook — a critical step in its success.

My Dad recently chided me for buying cheap, store-brand brown bread. Since we also happened to have fancy imported Danish bread in the pantry, I challenged him to a blind taste test. Sure enough, he couldn’t tell the difference, despite one kind of bread costing twice as much as the other.

Intuitively, we tend to see prices as a consequence of a product’s inherent worth, and marketers everywhere want to keep it that way. But psychologists know that prices have a lot more power than that: the right pricing can greatly contribute to a product’s perceived worth, or even make the entirety of it (ever heard of diamonds?).

I’ve always been fascinated by the power of pricing, as demonstrated by stories like the jeweler who doubled her sales by trippling her prices. So when I recently wrote an eBook to show people how to design user interfaces, I knew how important setting the right price would be.

Why charge at all? Isn’t fame and glory and RSS subscribers enough? Besides the obvious answer (to make money), I believe the Internet is already overrun with free stuff. I personally download tens of free fonts, icons, books, and videos every week and use none of them for lack of time.

So by charging hard cash for my product, I was doing two things: I was signaling that it was better than the content you can find for free, and I was also increasing the chance people would actually read the book after they downloaded it since they had paid good money for it (thus using the sunk costs fallacy to my own advantage).

The first step was doing some basic market research to see how much people were willing to pay. I asked on Twitter, and got answers in the $5-$10 range.

I also looked up existing questions on Quora, and asked if it’s better to start low and increase prices, or start high and lower them. (Short answer: “it depends.”)

I also considered the fact that thanks to the App Store, people are now used to paying out small, “less-than-a-coffee-at-Starbucks‚” amounts. But I also knew anything over $10 would trigger different psychological mechanisms. (In a minute you’ll see proof/disproof of this hypothesis.) Since my goal was to go for as many sales as possible to create a readership and potentially pave the way for future books, I settled on the $1-$10 price range.

After deciding on the approximate price, the next step was focusing on market segmentation. I had somewhat of an epiphany after reading this article by Joel Spolsky about segmentation (seriously, this is probably one of the top ten posts about sales on the web), and realized that this complex-sounding term actually covered a very familiar concept.

To simplify things, segmenting means charging each person as much as they’re willing to pay. This is exactly what happens when you haggle in a market in Beijing or a suk in Jerusalem: the seller starts outrageously high, and the sale is made when you’ve succeeded in bringing his price down to the highest possible price that you’re willing to pay (thus maximizing his profits).

Since it’s much harder to find out how much someone is willing to pay on the web, you simply offer different price points and let people self-select the one that best fits their needs.

Of course you can’t just offer the same product for two different prices. So you need to find a differentiator; in my case, I decided the Deluxe edition of the eBook would also include the original Photoshop sources.

The last pricing tactic I employed was a lower introductory price. This does two things: first, increase the number of people who buy the product early, which will make for a bigger launch and help achieve critical mass (the more people have bought the book, the more people will buy it. Social proof 101).

But it’s also a way to reward early adopters. They’re the ones taking all the risk to find out if the book is worth reading. They’re also the people who follow you most closely, and who care about you most. They’re a special cohort and should be treated as such. (Seth Godin harps on this a lot.)

So let’s review our pricing constraints:

  • There must be two price points.
  • They should be high enough to permit an introductory discount.
  • They need to be around $1-$10.

When you lay things out like this, it becomes pretty clear that there aren’t a ton of choices. I settled on:

  • Normal edition: $5.99 discounted to $2.99
  • Deluxe edition: $12.99 discounted to $5.99

The Deluxe edition is twice the price of the Normal edition, and the discount is also 50%, which keeps the math simple.

So here’s the part you’ve all been waiting for: how did it go?

Amazingly well.

I submitted the eBook’s landing page to Hacker News, and it quickly shot up the rankings, amassing more than 300 votes, and even reaching second place on the front page for a while.

This huge surge of traffic (22,000 visitors in one day!) translated into amazing sales: in the first 48 hours, I sold the book 1,476 times, for a total of $6,663 in revenue.

So it looks like my pricing scheme was a success. But why exactly? Luckily, Hacker News commenters gave me some insight into their thought process:

I just want to say, the 2.99 was an awesome price point – from an incentive to buy stand point. With 5.99 including PSDs it seemed like a no brainer. — samstave

For me the pricing model is perfect for something like this. $2.99? thats right in my ‘don’t even think about it’ impulse range. $5.99 for additional features? I’m already paying $2.99, its not much more AND I get more stuff. Bravo! — jwarzech

I love the way this is structured, and the pricing model was absolutely perfect. TAKE MY MONEY — christiangenco

So two things are at play here. First of all, the lower $2.99 price point was low enough that it constituted an impulse buy and didn’t trigger people’s anti-spending defense mechanisms.

Second, the higher $5.99 price point was close enough to the first one that people felt that as long as they were going to buy the book anyway, they might as well get the better version.

And the stats agree: unlike what I expected, more people bought the Deluxe version (758 sales, vs 718 sales for the regular edition).

This is price anchoring at work. Marketers often give premium options an artificially high price point to make the normal option seem more attractive in comparison (think of all these pricing plans table with a $1000/month “enterprise‚” option right next to the $10/month consumer option).

But in our case, the reverse happened: the proximity of both pricing points made the high-end option seem like a bargain.

I thus give you this pricing theorem: if two prices are far away, the lower one will be more attractive. But if they’re close, the higher one becomes the better choice.

It’s of course hard to say exactly just how big a part pricing played into the success of the book. And of course, I might have earned even more if the eBook had cost $0.99 or even $49.99!

But I’m already extremely happy with the sales and feedback I got, so I will resist the temptation to ask “what if?” After all, if I really want to find out I can always write another book!

So I hope next time you’re ready to sign up for a monthly software plan or doing your grocery shopping, you’ll take a moment to consider the prices in front of you. Maybe you’ll be able to find out the hidden reasoning behind the numbers!


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