A strange entry on slashdot today with a company, AmieStreet.com, announcing a partner ship which Amazon where they want to introduce a demand based pricing model. They are proposing that the price of an mp3 goes up the more popular it is, to a capped value of $0.98. This on the face of it is an interesting concept.
However those of us that lived through the first internet bubble might recognise this as the nonsense that pervaded before the bust (gardens.com was my favourite loser). Surprisingly enough this model exists already in different operator sectors. Some toll operators of tunnels and roads will change at different parts of the day. This however is not to generate revenue (though a lot of them are in the business to do this), it is also to act as a deterrent and give people an added incentive to avoid the tolled section unless you really have to.
Secondly this deterrent is required due to the physical nature of the non digital world. It is more preferable to find ways for people to use the resources more efficiently that to build new roads or power stations. I grew up in the Ireland, the ESB (the national electrical supply board) were always putting out ads for energy saving lagging jackets and power saving heaters. Why would a power company go out of its way to help you use less electricity (and thus save you money)? It’s simple when it is that or build a brand new power station, they ain’t cheap!
The digital world is not as constrained. A few years ago you may want to deter the download of a popular song because you server and/or bandwidth couldn’t keep up. This has pretty much been resolved, the rise of Flickr and YouTube are example of this.
However I think that there may be something in dynamic pricing, but the opposite of what AmieStreet.com are suggesting, the more popular the song the cheaper it gets. You start at $0.50 and the price decreases at $0.05 at sales increase you decrease it on some logarithmic scale. $0.05 decrease after the first 100 sales, then another $0.05 after a 1000, and so on.
That means the is stil a premium for music that exists in the long tail, which is reasonable it does cost money at some point to track it down, rip it, host it and make it available. If Amazon want to enter into a pricing deal with me, given me a call.