Photo credit: Matt Callow.

I have been mulling about whether or not I should renew my subscription to the Wall Street Journal. Don’t get me wrong, I think the WSJ is the best newspaper produced today. So, my dilemma has nothing to do with the quality of their product, my dilemma has to do with the cost. Get this: for me to renew daily delivery and online access, the cost is $441 per year. Granted the demographic for WSJ subscribers is affluence, but come-on, I’m not an AIG executive.

Information should be priced using open contracts.

This got me thinking about a creative music label that I’ve recently discovered: Magnatune. (Stick with me; I’ll circle back to the WSJ in a moment). Magnatune’s tagline and business philosophy is, “We are not evil”. All of their music catalog can be played in their entirety (no lame 30 second samples) at 128 Kbps, contains no DRM, 50% of the cost of their music goes directly to the artist, and most importantly they use an open contract or variable pricing model for the music. Users are allowed to pay what they feel is a fair price for the album as long as the payment is within a given price range.

The suggested price of each album in the 700 album catalog for Magnatune is $8. Users can choose to pay as little as $5 or as much as $18. Without peeking below, can you guess the average sale price of an album?

Tobias Regner and Javier A. Barria studied 18 months worth of transactions on the Magnatune website and found that the average payment was $8.20 per album, much more than the $5 minimum payment and higher than the $8 suggested payment. Surprised? Regner and Barria explain:

Information goods are experience goods. Consumers do not know what they are worth to them until they experience them (Shapiro and Varian (1999)). Their exact value to the consumer is quite unknown ex ante. The valuation rather develops until the good has been experienced often enough and the true worth has been established.

When customers have full pre-purchase access to songs they are interested in, they can experience the information good long enough to determine how much it is worth to them and decide whether they really want to buy it.

Regner and Barria’s conclusion is that “social preferences are the likely motivation of the customers that make voluntary payments.”

I suspect that they would make far more money than they do with their fixed subscription model.

And that brings us back to the Wall Street Journal specifically and newspapers in general. It seems that many newspapers around the country have severe financial problems. Rather than rely on either a fixed subscription price, ala the WSJ, or an online advertising model, ala the WashingtonPost.com; they should allow their readers to pay via a variable pricing model for subscriptions.

If the Wall Street Journal offered me a range of prices based on my perceived value of their information, they would undoubtedly receive my renewal. In fact, I suspect that they would make far more money than they do with their fixed subscription model.

The world is changing. Information is valued differently by each consumer. If information providers were flexible in their content pricing they would find that social preferences are the motivation of customers that make voluntary payments. Reciprocity is the source of social preferences in the model of information content valuation.

IdeaFactory screenshot

It started as an experiment.
TSA Administrator Kip Hawley had sent a brief email to his senior leadership team saying, “This is almost exactly what I have been talking about. Very simple, digg-like, truly interactive…” Administrator Hawley, a tech savvy executive if there ever was one, had come across the Dell IdeaStorm website the night before and thought that TSA could use this technology to give a voice to his large and geographically dispersed workforce.

Don’t be afraid to fail. Call the initiative an experiment in order to manage expectations and to streamline the deployment process.

Ultimately, the “KW” (Kip Wants) filtered down to my boss Kevin and my ninja-coder colleague, Jack. After brief inquires to find that the IdeaStorm website was built by a company called, “Crispy Ideas” and they were not taking any new clients as they were being acquired by Salesforce.com, we decided that the three of us (all feds) could build the web application on our own. 

From the time we decided to build the tool ourselves to the day we launched the application was six weeks. Administrator Hawley and Deputy Administrator Gale Rossides launched the TSA IdeaFactory via a webcast to all TSA employees on April 25, 2007. We seeded the IdeaFactory with a few ideas just before the webcast as we did not know if anyone would use the site or want to post ideas. It could have been a huge flop – and we were OK with that outcome. Our position all along was that the IdeaFactory was just an experiment.

Innovation Lesson 1: Don’t be afraid to fail. Call the initiative an experiment in order to manage expectations and to streamline the deployment process.

Take Action: Create a formal internal process that permits an initiative to be designated as “fast track”. Create a streamlined process and Rapid Application Development (RAD) team that allows for rapid development and deployment.

Fast forward two and a half years later, the IdeaFactory has become an ingrained program within TSA. As of September, we passed a notable milestone; the IdeaFactory has generated 10,000 ideas (including 290,000 ratings and 80,000 comments).

10,000 ideas "built" by TSA's employees and contractors.

The success of the IdeaFactory program has drawn the attention of The White House and they have featured the IdeaFactory as part of the Open Government Innovation Gallery. We have participated in several meetings with the White House Office of Science and Technology Policy (Innovation Tools Subgroup of the White House Innovation and Information Policy Group) and they have produced a document on sharing software innovation programs within the US Government.

The IdeaFactory is featured on the White House website

Towards that end, TSA and the Department of Housing and Urban Development (HUD) are about to complete an agreement which will allow us to transfer the IdeaFactory software and program guides to HUD.  The first of perhaps many such agreements.

At the request of the DHS Secretary Janet Napolitano, we are working with DHS to roll-out IdeaFactory to all of the DHS component organizations. By the end of this year, all of the DHS employees will be able to post ideas for improving the organization.

IdeaFactory was the first of several efforts within TSA to engage internal and external audiences. In the near future I will write about the TSA Blog which is widely considered the best example of a federal agency blog. Our blog also passed a major milestone; in September we reached one million page views. With close to 200 posts, we continue to engage the public in meaningful dialogue.

I’ll also discuss how we have created an internal collaboration platform (iShare) to facilitate information sharing and how to manage “unstructured data”.  And in November, I’ll blog about our most ambitious “Gov 2.0” effort at citizen engagement. Just in time for the Thanksgiving travel rush.