Comparison shopping

Let me make one thing perfectly clear: I’m no economist. Which is why, when I first started shopping at the iTunes Music Store, I couldn’t understand why every song cost 99 cents.

I mean, if I was shopping at my local record store (or at Amazon.com) (and if I still bought singles—do they still make singles anymore?), I’d expect to pay less for, say, Billy Swan’s mid-70s chestnut “I Can Help,” than I would for Kelly Clarkson’s latest. But, on iTunes, each will cost that same 99 cents.

So I wasn’t particularly surprised to read that the music labels were trying to get Apple to budge on the one-price-fits-all system. But that effort may not be just about charging customers more for the latest hits. It may also be about charging them less for the non-hits.

That’s Chris Anderson’s theory, anyway. Anderson is editor in chief at Wired magazine. He’s also the author of an excellent blog (and forthcoming book) called The Long Tail. The way he explains the whole iTunes pricing thing makes sense to me.

The idea of the long tail is simple. Most markets follow the famous 80/20 rule: 20 percent of the products produce 80 percent of the revenue, while the remaining 80 percent of the products produce the remaining 20 percent of the revenue.

Traditional retailers focus on that top 20 percent—the hits. They don’t stock the other 80 percent because the revenues they generate don’t justify the shelf space. But the Internet makes it economically efficient to sell even the laggards (hello, Amazon).

What’s that have to do with iTunes? Variable pricing means the labels could charge premium prices for the latest hits. But, Anderson argues, it’d also mean they could sell the non-hits for less than 99 cents. It means market forces start to assert themselves, which (in theory) means more optimal pricing. In other words, the Billy Swans of the record world cost less, and I buy more Billy Swans.

Apple may not like variable pricing because it makes the user experience more complicated (and Apple doesn’t like complicated user experiences). But, in this case, I think it should let the labels have their way. I know I’d be buying even more of the nichey stuff I love if it cost less. And the labels (and Apple) would still make out like bandits on Ms. Clarkson et al.

Sounds like a hit to me.

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