On Selling To Consumers

The software industry is a funny thing. For all of our heroic examples (Gates, Jobs, Page, Zuckerberg etc), it is difficult to tell whether we worship them because they are software-y types like us or whether we only do so because they are also famous to everyone else. Pop quiz! Who founded MicroStrategy?

Here’s the thing. Your Gates archetype is famous because of selling into the mass consumer market. Journalists have heard of their product because they too are part of the mass consumer market. So they are famous because they happen, by coincidence, to sell a product that many people buy.

Selling a mass market product is really, really hard to turn a seriously juicy buck on. For two big reasons.

First: it’s hard. Every business is hard. Selling into a mass market is just the same sort of hard multiplied by hundreds of millions of people who have no rational explanation for why they will happily pay $4.30 daily for a coffee but who will refuse to pay $5 monthly for random-app.example.com.

Second: the consumer market’s importance is vastly overstated. This really in-hindsight-blindingly-obvious-fact comes to me courtesy of Hayek in his lecture, The Conditions of Equilibrium between the Production of Consumers’ Goods and the Production of Producers’ Goods, originally published in Prices and Production.

Most of the actual stock of capital in the economy is not in the hands of consumers. It is tied up in the “structure of production”.

Any one product might be seen as the output of a complicated graph which is its “structure of production”. But at any one point of time, most of the value of the structure is not in the consumer product. It’s in the rest of the structure in various stages of digestion.

That is, almost all the money and value and machinery and work in progress and untransformed goods ad infinitum are not on the shelf at Wal-Mart. They are distributed across the economy.

So. Why are you, the software entrepreneur, trying to sell a mass market product, at what will probably be a low-per-unit gross profit, when almost all the easily-available money is flowing between businesses? Especially if you tot up the hit-driven nature of consumer software versus the very high opportunity cost of not doing freelancing or taking employment.

Because of sample bias. You want to be rich, and all the rich software-y people you’ve heard of are involved in the mass market. Try reading a Rich List some time (from any country). Count how many in the top 100 you’ve ever heard of. Notice how few of them made their zillions selling directly to consumers.

That is not a coincidence.

Today’s rant inspired tangentially by this blog post and this story about selling a mass consumer product.

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Books I Read on Holidays

January 2, 2013

My busted shoulder did me a single favour over the Christmas-New Years period. It excused me from being useful at my sister’s new home, where she and my brother-in-law are frantically working to fix the place up before moving in. … Continue reading

Fancying, part 2.

For a long time I’ve linked from my book reviews to Amazon, giving both affiliate and direct links.


I’m still doing it, but now I’m adding nice little visual callouts. To the right you can see an example. The concept of having such callouts — and having affiliate and direct links — is something I have pinched from Mark Jason Dominus. The callouts are powered by a small plugin, turning a simple “shortcode” into the box you see.

The thinking is that a visual callout, including the cover image, will attract more clicks than the inline links (I learnt from Tested Advertising Methods that having a picture outperforms any headline).

As before, the font I’ve used is Dijkstra. Don’t like it? Think it looks too much like SimCity 2000-plus-obnoxious-web-2.0-linear-blending? Too bad. Dijkstra was a legend and SC2k was great.

I don’t expect to retire on Amazon affiliate clickthrough money (I’ve made $18 in the past 6 months), but insofar as it offsets my book buying habit, it’s a nice thing.

I’ve gone back through my archive and added callouts for books that I’ve reviewed, as well as any mentioned in passing.

Lastly, I’ve removed the “Book Review” badge from individual reviews, I think the callouts will show what’s what.

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Fancying up the place

Book reviews have steadily crowded out other posts on my blog. So I’ve fiddled with my theme to make them both visually distinct and, at the same time, stink the place up a bit less.

It took more fiddling than I had expected. I’ve created customised files for the index page, the Book Reviews page and for individual blog post pages (which inserts a “Book Review” badge on the title). There’s also some custom CSS to tie it all together.

If you’re wondering about the font in the badges, it’s called “Dijkstra”. It’s based on the handwriting of the famous computer scientist, E.W. Dijkstra, who wrote all his manuscripts with pen and paper. The Dijkstra font was created by Luca Cardelli.

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Picturing the Uncertain World

December 24, 2012

Part of my current development project is conveying to people that estimates are uncertain. Every estimate comes with unforeseeable risks (and many foreseeable ones that nobody takes the time to foresee). But how best to represent this graphically? For some … Continue reading

Tested Advertising Methods

December 15, 2012

I’m not sure where I got the recommendation for Tested Advertising Methods (5th Edition) by John Caples and edited by Fred E. Hahn. It might have been a comment on Hacker News or possibly one of the fine recommendations that … Continue reading

In April I wrote a long, winding review of Drift into Failure. I was very proud of it: in the space of several thousand words I visited complex systems, fuzzy logic and the usefulness of positivistic thinking. It met with … Continue reading

As I said in my last review, I’m currently working up a tool to make it easier to create estimates. As part of my work I’ve been reading various bits of literature. Today Amazon delivered two books. At around 100 … Continue reading

My current focus is to develop an estimation tool. Not just for software, but for a wide range of industries. Software estimation is, of course, closest to my heart, given that my line of work is software. This is where … Continue reading

A thought bubble about reciprocation

Here’s a classic scene: a weary traveller walks through an airport. A flower is pushed into his hands by a religious adherent, who then hints that a contribution to the religious order would be welcome — but no obligation, of course, the flower was a gift.

Yet the traveller cannot shake the nagging guilt arising from reciprocity and begrudgingly throws some coins into a bowl.

Reciprocity is a powerful human instinct (see Robert Cialdini’s Influence for an entertaining discussion). I can only suppose, in the usual hand-wavy way one must when such situations arise, that it favoured our ancestors. “Tit for tat” strategies have long been recognised as the “best” performers in many game theoretic situations. If you cooperate, everyone comes out ahead. So reciprocity would be inborn.

Now imagine this also-classic scene: a pretty young lady is sitting at a bar. A young man, full of confidence, walks up and offers to buy her a drink, which she accepts.

Does she “owe” the young man anything? It is a matter of political and social dispute whether, because of the sexual undertones, she does. If our analysis was purely concerned with reciprocity, then yes — she “owes”.

But what does she owe?

Here a strange thing occurs. If reciprocity is to mean anything, then the value of goods or services exchanged ought to be more or less “equal” in the eyes of the parties, or else it won’t happen.

But in a reciprocity situation, one party has placed the other under obligation. In a normal market exchange you can simply choose not to come to agreement; in a reciprocity scenario one party has already committed the pair to have some of transaction.

How to value the repayment? It seems to me to turn largely on each party’s marginal value for the original gift.

Say, for example, that the young man is poor. To him that purchased drink might represent a painful fraction of his weekly income. He probably expects that it is worth a high-value reciprocation — to the point that some men think they are “owed” sexual favours, after which things can go dreadfully wrong.

Contrariwise, to a wealthy man, the drink might merely be worth a brief conversation. He places less value on the drink, so he expects less reciprocation.

But the woman may not see it that way. If to her the drink is expensive, she may feel that a greater reciprocal obligation has been created than the man does.

Isn’t that odd? The reciprocating party has substituted their own valuation of the gift for the giver’s valuation. The only moves left are to reciprocate at one’s own valuation, to feel guilt by failing to reciprocate at one’s own valuation, or to refuse to accept the gift in the first place.

This might also explain why many couples where one partner is rich and the other isn’t may break up: the wealthy partner feels no sting at being generous, the poorer partner feels that they are under an ever-escalating obligation which cannot be repaid.

(Before you ask: no, I have not been cruising the bars buying drinks for young ladies — I’ve been reading essays by FA Hayek…)

Posted in Economics and public policy, Thought Bubbles | 2 Comments