Business modelsfree

The difference between price and value

By October 1, 2009 12 Comments

Mike Masnick at Techdirt has a post up lambasting Dean Singleton, MediaNews CEO and Chairman of Associated Press for the saying the following whilst defending his decision to make one of his papers start charging for online news:

“When you give it away for free it has no value. When you begin charging for it it has some value.”

Now, as Mike says it is nuts to think that sticking a price on something gives it value, and I agree that in this instance Dean is misguided.  That said, I can understand where the thought originates.  It is a common, and I think accurate refrain, in business that if you start giving something away for free people value it less – largely for psychological reasons.  Dean’s mistake is to not spot that this causality is only one way – i.e. just because giving something away lessens the perception of value doesn’t mean that charging for it increases the perception of value.

To get theoretical about it – utility determines value whilst supply and demand determine price.

Mike explains this point in more detail in his post from Jan 2008 News Is Valuable, But Value and Price are Two Separate Things in which one of the commenters points out that oxygen is perhaps the best example of something which is free but has value.

All this is important, critical even, for the news industry as it grapples with its future business models.  All to often the arguments in defence of charging for news focus on the fact it has value rather than the price it can command when supply is abundant.  Much the same logic applies to music, film and games as well.