If you’ve ever had Economics 101, and even if you haven’t, you’ve probably heard about this ‘puzzle’ of sorts:

You and a stranger are offered 10 dollars. In order to receive it, you must propose a way to divide up this 10 dollars between you and the stranger. If the stranger rejects your division proposal, neither of you gets anything, otherwise it is divided as you directed. You won’t meet this stranger again and this game is only played once. What division do you propose?

Economists use this to explain the concept of economic rationality. Rationally speaking, the economically correct division is 9.99 for you, and 0.01 for the stranger. The stranger, if economically rational, will accept, because 1 cent is more than 0 cents. And thus, as you are also economically rational, you want to maximize your gains, so that’s what you propose.

These same economists will call Radiohead’s offering of their new album, In Rainbows, for ‘free’ (pay whatever you think it’s worth, including nothing), a sucker’s proposal. Clearly everyone would pay nothing — you get the same album regardless of how much you pay. And yet Radiohead is reported to have made to the tune of 10 million USD inside of a month. This wasn’t even expected; Radiohead’s bold move to release the album in this way was designed primarily to sell out concerts (which it has, all 21 of them). One might claim listeners are paying to ensure Radiohead will continue to make music, but Radiohead is not the kind of group that is pressed for cash, and I think they’ll keep making music even if they had to pay to do so. Thus, a rational economic human being truly has absolutely no reason to pay for this album.

So, how’s it work then? Are there are 10 million USD’s worth of idiots on this planet?

No. Human decency is simply an effective motivator. These album sales aren’t the first time the economists were wrong about humanity’s willingness to pay money just to be fair, instead of to optimize personal gain.

Reports that record labels are reconsidering this model abound, but I don’t think the record industry can afford it: This distribution model doesn’t NEED a record label. You can just record your complete song someplace, and pay some serious hosting provider to take care of distribution, and that’s all you need to do. Costs of renting studio time and bandwidth bills don’t amount to enough to require the vast pockets of a record label. The record industry’s clout with the radio can still help launch a successful music career. However, I don’t know about you, but I never listen to radio anymore. I might have a look at the iTunes top 100 from time to time, and I check Last.fm for song suggestions.

And thus we’ve come full circle, because in a world where music is distributed on a ‘pay what you think is fair’ model, with distributed recommendation engines, is economically far more efficient. It cuts out large swathes of middle men. Giving radiohead 10 million dollars was a smart move after all!

Hi, my name is Eelke Dekker, a fellow Starter since July. I will serve as your wake-up call from Berlin, writing about design and visual communication. This is my first post, I hope you enjoy it.

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I’m not really an expert on retail design, so the only possible way for me to approach this subject, is through the eyes of a consumer, which I happen to also be. While exploring the streets of Berlin, the ultimate designer metropole, my attention was drawn by a remarkable marketing strategy. The barbershop I passed by, had big, clear signs in front of the shop and on the windows with a very straightforward message:

Up until that day I had never ever been cut by a stranger, I mean, not even once. I always had friends and family around who could for better of worse do the job. Only once my hair was touched by a stranger, when a nurse washed it in the hospital.

I was not quite sure, why the concept that the shop owner had chosen six years earlier was so strong, that it got me entering the shop, sitting down, getting my hair washed and cut, paying the €10 bucks and heading off.

A simple Message

On my way home, I saw several other barbershop which had the same deal for the same price. But the same message didn’t appeal. What the previous owner had perfectly understood, was that in order to get me inside his shop he had to communicate one simple message: get a new cut fast and cheap. He used the complete display window to communicate this.

I noticed some other shops using the same technique.

When you are opening up a shop, realize that your façade is probably the cheapest and most effective advertisement that you have, so why not cut to the chase and get your message across?

I think the same thing goes for your website design. Sure you can complicate things by listing numerous advantages of your business compared to others, but often it is much more effective to focus on the one most important message. Consider your landing page as your shop window.

Running a business isn’t too difficult if you respect some basic rules. Rule number one: you have to offer potential customers something they need. If you do the math well, exploit your network, practice some good marketing and have a bit of luck, you will probably succeed.

Nevertheless, 99% of all web start-ups die before they fly. That figure is higher than in any other industry. Why is that? Because most web start-ups don’t offer something customers actually need. Many people in the web 2.0 scene seem to disregard this.

I can see why. It’s relatively cheap to build web sites and with a potential worldwide market the prospects are extremely positive. Entrepreneurs, investors and enthusiasts - they all get carried away by the figures.

But if you don’t manage to tap into that worldwide market, it’s a whole different game. It’s not just bad for investors; it might blow up the industry once more (remember bubble 1.0?).

That’s why I believe we all need to be a bit more critical. Virtual communities might be the future of the web, but this doesn’t mean that any community will stand a chance, let alone be profitable. In the end, thinking of a good business model first is cheaper than just building web sites. It will pay off in the long run.

As far as I know, you pay a network a set amount of money per second to air a given commercial in a given timeslot.

That doesn’t strike me as economically optimal, though.

People zap away during commercials, but I doubt people zap away during a funny or catchy commercial that they haven’t seen before. If it’s funny enough, they won’t zap away at all.

A very annoying commercial, like this one (turn your speakers off - some screaming zombielike thing pops up midway - people with a weak heart should probably not watch it at all) will immediatly get people diving for the remote to turn the volume down. And once you’re holding the remote, zapping is that much easier.

On the other hand, anytime an ‘apeldoorn’ advertisement (like this one) comes along, I’ll keep watching, even if I’ve seen them before.

Thus I’d argue the cost to run an ad on a tv network should be not just a function of duration and timeslot, but also of how long its been running (how boring it has become, basically), and how ‘funny’ it is, though how you’d rate that I’ll leave as an exercise for the reader.

Even without the networks creating incentives for companies to make funny or intriguing advertisements, the internet’s always a help: interesting ads tend to see lots of free publicity once the youtube video gets posted.

For example, I thought this mini pie catapult was so funny, I just had to write an article about it. Talk about viral!