Pay what you want experiments. From Stephen King to Kickstarter

Back in 2000, Stephen King tried something new in selling a novel, The Plant. He decided to offer it exclusively online — in digital format — knowing that there was effectively no protection against copying. Of course, King was well aware that selfishness may be against him and so decided to offer his book in installments. He would only offer the next installment if 75 percent of those who downloaded the first one actually paid. The book passed through several rounds but in the end was never completed.

We will never know if readers didn’t like the book or the economics. On the latter, King probably made some errors. First, if you chose not to pirate, you had to pay for each installment even if King never finished the novel, so people had no insurance if things didn’t work out. Second, King didn’t provide information about to how close to the download target readers were. He possibly was hoping to exceed it, but at the same time no one could tell if the group was falling short.

Yet King’s failed experiment might actually help you figure out how and when to give your customers an option to pay.

Consider how Kickstarter gets it done. Kickstarter is a platform that allows people with projects that need funding to get it from crowds. A typical example is one like this one from two singers, Kim Stern and Deidre Goodwin. They have an idea for a vocal “warm-up” program and intend to develop and market computer programs and videos to effectively coach aspiring performers. This is not a mass market idea and is likely to appeal to a select few (for me, it was of purely academic interest as my voice is more equipped for a Stephen King novel than a Broadway production). But they needed some funding and so turned to Kickstarter.

Of course, they didn’t have the product to sell — that would come after they had some funding — but they did have their own complementary talents as vocal teachers. And so, they set a target of $20,000 on Kickstarter with differing pledges getting you free classes, private tutoring and, of course, a supply of the eventual product. Stern and Goodwin easily met their goal, with most backers choosing an intermediate option, although almost a quarter of the funds came from one person who wanted the whole package (short of actually being in the video).

Kickstarter’s model was the same as Stephen King’s, but with a safety net (you only pay if the project is going ahead: funds were pledged, not handed over) and information (you could see how close the project was to being funded). In this case, though, you were either part of it or not. There would be no free-riding, as there was for King’s novel.

Interestingly, if a concern about free-riding was the constraint, then the case of The Cosmonautchallenges that. In that Kickstarter project, Dan Provost and Tom Gerhardt had an idea for an iPad stylus based on a white-board marker. Look at their video: there is an interesting logic to it. They intend to retail this at $25 a pop if there is enough interest. So you could imagine that they could just have offered backers a free stylus if they pledged $20. Backers get a discount, but everybody pays, and that was that.

Instead, they decided not to set a price for obtaining a stylus but offered it to the first 3,000 who pledged a dollar or more — as long, that is, if they hit their funding goal of $50,000. If you do the math, that would require those 3,000 to donate on average $16.67. They did, and the project was funded.

There’s a clear distribution of pledges for The Cosmonaut. By my calculations 3000 people pledged a “below-retail” amount of less than $25, averaging around $14.50 each. So had everyone wanted a “below-retail” price (if everyone chose to be a free rider, or nearly so), the project would not have been funded. In other words, there were some real winners and losers here. (The winners are The Cosmonaut’s best customers, so I wonder what they have achieved. To be sure, these payment-optional models grab attention which is something they were looking for. But, on the other hand, did they do themselves long-term reputational harm but not simply offering a discount. Let’s face it, iPad users aren’t exactly the neediest in society, requiring a cheap option.)

The broader lesson, though, is that Kickstarter is more than just a site for coordinating individuals into a crowd. It is a site that has enough flexibility to offer experimentation, and a chance to allow your customers to interact with you and your goods in a different way. I suspect that had it been around in 2000, we may have finally learned what happened at the end of The Plant.

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