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January 05 2012

Strata Week: Unfortunately for some, Uber's dynamic pricing worked

Here are a few of the data stories that caught my attention this week.

Uber's dynamic pricing

Uber logoMany passengers using the luxury car service Uber on New Year's Eve suffered from sticker shock when they saw that a hefty surcharge had been added to their bills — a charge ranging from 3 to more than 6 times the regular cost of an Uber fare. Some patrons took to Twitter to complain about the pricing, and Uber responded with several blog posts and Quora answers, trying to explain the startup's usage of "dynamic pricing."

The idea, writes Uber engineer Dom Anthony Narducci, is that:

... when our utilization is approaching too high of levels to continue to provide low ETA's and good dispatches, we raise prices to reduce demand and increase supply. On New Year's Eve (and just after midnight), this system worked perfectly; demand was too high, so the price bumped up. Over and over and over and over again.

In other words, in order to maintain the service that Uber is known for — reliability — the company adjusted prices based on the supply and demand for transportation. And on New Year's Eve, says Narducci, "As for how the prices got that high, at a super simplistic level, it was because things went right."

TechCrunch contributor Semil Shah points to other examples of dynamic pricing, such as for airfares and hotels, and argues that we might see more of this in the future. "Starting now, consumers should also prepare to experience the underbelly of this phenomenon, a world where prices for goods and services that are in demand, either in quantity or at a certain time, aren't the same price for each of us."

But Reuters' Felix Salmon argues that this sort of algorithmic and dynamic pricing might not work well for most customers. It isn't simply that the prices for Uber car rides are high (they are always higher than a taxi anyway). He contends that the human brain really can't — or perhaps doesn't want to — handle this sort of complicated cost/benefit analysis for a decision like "should I take a cab or call Uber or just walk home." As such, he calls Uber:

... a car service for computers, who always do their sums every time they have to make a calculation. Humans don't work that way. And the way that Uber is currently priced, it's always going to find itself in a cognitive zone of discomfort as far as its passengers are concerned.

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Apache Hadoop reaches v1.0

Hadoop logoThe Apache Software Foundation announced that Apache Hadoop has reached v1.0, an indication that the big data tool has achieved a certain level of stability and enterprise-readiness.

V1.0 "reflects six years of development, production experience, extensive testing, and feedback from hundreds of knowledgeable users, data scientists, and systems engineers, bringing a highly stable, enterprise-ready release of the fastest-growing big data platform," said the ASF in its announcement.

The designation by the Apache Software Foundation reaffirms the interest in and development of Hadoop, a major trend in 2011 and likely to be such again in 2012.

Proposed bill would repeal open access for federal-funded research

What's the future for open data, open science, and open access in 2012? Hopefully, a bill introduced late last month isn't a harbinger of what's to come.

The Research Works Act (HR 3699) is a proposed piece of legislation that would repeal the open-access policy at the National Institutes of Health (NIH) and prohibit similar policies from being introduced at other federal agencies. HR 3699 has been referred to the Committee on Oversight and Government Reform.

The main section of the bill is quite short:

"No Federal agency may adopt, implement, maintain, continue, or otherwise engage in any policy, program, or other activity that

  • causes, permits, or authorizes network dissemination of any private-sector research work without the prior consent of the publisher of such work; or
  • requires that any actual or prospective author, or the employer of such an actual or prospective author, assent to network dissemination of a private-sector research work."

The bill would prohibit the NIH and other federal agencies from requiring that grant recipients publish in open-access journals.

Got data news?

Feel free to email me.

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April 28 2011

Strata Week: Overcharging algorithms

Here are a few of the data stories that caught my eye this week.

When algorithms overcharge on Amazon

A postdoc in Michael Eisen's lab at UC Berkeley logged in to Amazon a couple of weeks ago in order to purchase a copy of Peter Lawrence's "The Making of a Fly." Although out of print, the book is a classic in the field of evolutionary biology, and there were several copies available, both new and used. The used copies were on sale for roughly $35. The two new copies were priced a bit higher: $1.7 and $2.1 million. Although he assumed at first it was a mistake, when Eisen returned to the page the next day, he found the price had gone up, with both books for sale around $2.8 million. By the end of the day, the price of one was raised again, to more than $3.5 million.

Making of a Fly review
Some folks got creative in response to the multi-million-dollar price tag attached to "The Making of a Fly."

Eisen worked out that once a day, one of the sellers was setting his price to be .9983 times the price of the copy offered by the other. The price of that seller's book was increasing at 1.270589 times the other's. Both were using algorithmic pricing, a common practice with vendors on Amazon and with Amazon itself, in order to automatically change the prices based on a competitor's.

It's obvious why one vendor would establish an algorithm to perpetually undercut the competition. Less clear, why the other would choose to always price higher. It's possible that the vendor was hoping that high ratings would compel customers to pay the higher price. But Eisen thinks it's more likely that the vendor didn't actually own a copy of the book, and set the algorithm to aim for a higher price so as to cover acquisition costs.

Eisen wrote:

What's fascinating about all this is both the seemingly endless possibilities for both chaos and mischief. It seems impossible that we stumbled onto the only example of this kind of upward pricing spiral — all it took were two sellers adjusting their prices in response to each other by factors whose products were greater than 1. And while it might have been more difficult to deconstruct, one can easily see how even more bizarre things could happen when more than two sellers are in the game. And as soon as it was clear what was going on here, I and the people I talked to about this couldn't help but start thinking about ways to exploit our ability to predict how others would price their books down to the 5th significant digit — especially when they were clearly not paying careful attention to what their algorithms were doing.

Eventually someone noticed, and the price dropped to around $150.

White hot Hadoop

HadoopYahoo is considering spinning off its Hadoop engineering unit into a new company, according to a story this week in The Wall Street Journal. Yahoo didin't comment for that story, but the piece cites Benchmark Capital partner Rob Bearden as saying that the venture capital firm has spoken to Yahoo about how it might form a separate Hadoop-oriented company.

The article posits that the Hadoop market is a multi-billion dollar one and that the opportunity is huge for Yahoo, something that GigaOm's Derrick Harris examines with a more nuanced eye to the market. "For Hadoop users and startups building tools atop Hadoop, though," Harris concludes, "more competition among distributions is only good news."

U.S. Supreme Court weighs legality of data mining

The U.S. Supreme Court heard oral arguments this week in "Sorrel v IMS Health," a case that will determine the constitutionality of a Vermont law restricting the commercial distribution of a physician's prescription records. The outcome could set important precedents in privacy and data issues.

In 2007, Vermont's legislature passed the Prescription Confidentiality Law, giving doctors the ability to deny pharmacies the option of selling their prescription information to data-mining companies. IMS Health, along with two other data-collection companies and PhRMA, a pharmaceutical industry association, challenged the constitutionality of the law, arguing it would make it more difficult for drugmakers to identify doctors for potential sales.

SCOTUSblog's Lyle Denniston reports that the justices grilled the Vermont Attorney General about the law, questioning whether it was written too narrowly — targeting only the pharmacies and not insurance companies, for example — or whether it served to protect doctors' privacy.

Denniston wrote:

... it became very clear that the Justices — perhaps more than a simple majority — see this first test case as one about corporate free speech. That might not turn out to be true in every case of data-mining that comes along, but it would certainly seem so when a legislature blatantly sets out to curb the use of that technology to convey a commercial message, made up of truthful information.

The Supreme Court is expected to announce its decision this summer.

Got data news?

Feel free to email me.



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March 25 2011

Publishing News: Week in Review

Here are some highlights of what grabbed my attention in publishing news this week. (Note: These stories were published here on Radar throughout the week.)

I posed an open question about the complexity of ereaders

War and Peace on the Kindle app
Screenshot of "War and Peace" from the Kindle iPad app
In a recent post for Gear Diary, Douglas Moran bemoaned the direction technological "advancements" are taking ereader apps and devices. As examples, he compared the original Barnes & Noble eReader (which he liked) to its replacement, the Nook app (which "kinda stinks").

On a personal level, functionality is an ereader obstacle that turns me into an ebook curmudgeon. I recently was gifted a Kindle and I nearly threw it across the room trying to read "War and Peace" (as part of a year-long book club; I'm way behind).

Moran and others noted the simplicity of the Kindle and how its fewer features might make for a more straightforward reading experience. But perhaps the Kindle isn't quite simple enough. In the end, I bought the print version of "War and Peace" and gave up on the device. Trying to toggle around links to read book notes was so clunky as to make that feature completely useless. Why not put the notes at the bottom of the page? Having links is great if 1. they're easy and quick to access, and 2. you can return to your place in the book in some obvious, speedy fashion. Otherwise, just give me the content.

All this led me to questions regarding functionality and user experience in ereading:

  • Are ereader developers focusing too much on technological possibilities and losing sight of reader behavior?
  • For those of you who embrace ereading: What features on your reader(s) are extraneous or obtrusive to your reading experience?
  • For developers: When working on a new app or an update, how do you incorporate the end-user into development?

Please share your thoughts in this comment area here.

Pricing vs. value — Todd Sattersten broke it down

Much discussion (and some dismay) surrounds the current upheaval in the ebook pricing model. As $0.99 ebooks sit "shelved" next to $19.99 ebooks (whose print counterparts might be discounted to $11.99), one of the larger issues surrounding the pricing problem is the perception of value from customers.

EbookPricing.png

Jane Litte at Dear Author argued in a recent post that value is based on the reader's "willingness and ability to pay":

Every reader has a different price they are willing and able to pay for a book. I believe that price represents the value a reader places on a book at the time of purchase. However, value can vary over the course of time from when the reader first becomes aware of the book to after the book is read, increasing and decreasing based on different variables. When readers speak about price, they are talking about the amount that they are willing and able to pay at the particular time that they are expressing the opinion about price. Willingness includes the measurement of time.

I asked Todd Sattersten, author and owner of BizBookLab, to chime in on the pricing issue. In an email interview, he argued that print book pricing actually is the larger contributing problem to the perceived value of ebooks (mainly, ala Amazon) and suggested that serialization might be the right model for ebooks.

How are customer perceptions of ebook value influenced?

Todd Sattersten: There is only one factor that matters right now — what print books cost. Customers compare ebooks to their paper-based ancestors, and they long ago concluded they should be cheaper because everything else in their digital lives is cheaper than their physical lives.

Publishers don't want this to be true and, with the power to control ebook pricing through the agency arrangements, are pricing the vast majority of ebooks like they are print books. I co-wrote a book two years ago called "The 100 Best Business Books of All Time." The hardcover retail price is $25.95. On Amazon, you can buy that version for $16.61 or a remaindered edition for $10.38, while the Kindle edition is $18.99. That creates a short circuit in customers' brains. You don't pay more for things that are more convenient. You pay less.

What's interesting is that Amazon is actively discounting books in the 40% to 50% range, and in many cases putting the price of the print book very close to the price of the ebook. There can't be any margin left at those prices. Amazon, having lost the ability to control ebook pricing, is saying to customers "ebooks and print books are the same." This drives more people to ebooks (who doesn't want to download their book now?), sells more Kindles, and further cements their place in publishing's future — both provider of new and destroyer of old (what bookstore can compete with 49% off?). Also, notice how Amazon is redefining short writings with their Singles program. Fewer words, lower prices and, most importantly, a new (not very good) term to attach to the new value proposition.

See the rest of the interview here.

Marcin Wichary explained what HTML5 can do for publishers

As technology makes the publishing space more and more geek-oriented, understanding how particular technologies can apply and how existing products or content can be adapted might seem to require a computer science degree.

In a recent interview, Google senior user experience designer Marcin Wichary brought one of those technologies — HTML5 — into perspective, explaining how it applies to publishers.

In design and layout, there's a lot of things that HTML5 now does natively, without you having to hold its hand. Things like multimedia are native to HTML5 — you don't need extensions or plug-ins; they're integrated really well.

We have new devices like the iPad that require new input methods like multitouch or shaking the device. All of this is or will soon be supported by HTML5. So you can imagine delivering an experience through your application or your website or your publication that rivals that of a native application on any of the platforms you want to put it on.

On top of that, it's the web. Al of the things that have been available on the web you also have as well. All the social networking, all the APIs, all the integration with other surfaces — you can just plug it in the way you want.

Wichary also explained how publishers can monetize the opportunities HTML5 brings to the table, and how it might even save money in the long run.

It's very important to recognize that HTML5 fits all the devices you can think of, from the iPhone in your pocket to Google TV to the tablets to small screens and big screens. It's very easy to take the content you already have and through the "magic" of HTML5, refine it so it works very well within a given context. You don't have to do your work over and over again. Of course, all of these different means come with different monetization opportunities, like ads on the web or on mobile devices.

In the interview, Wichary also addressed how publishing workflows might be affected by HTML5 implementation and he outlined specific advantages HTML5 can bring to digital reading. The full interview is available in the following video:

Got news?

Suggestions are always welcome, so feel free to send along your news scoops and ideas.


Keep up with Radar's latest publishing news and interviews with our publishing RSS feed.

March 22 2011

Ebook pricing power is undermined by perceived value

Much discussion (and some dismay) surrounds the current upheaval in the ebook pricing model. As $0.99 ebooks sit "shelved" next to $19.99 ebooks (whose print counterparts might be discounted to $11.99), one of the larger issues surrounding the pricing problem is the perception of value from customers.

EbookPricing.png

Jane Litte at Dear Author argued in a recent post that value is based on the reader's "willingness and ability to pay":

Every reader has a different price they are willing and able to pay for a book. I believe that price represents the value a reader places on a book at the time of purchase. However, value can vary over the course of time from when the reader first becomes aware of the book to after the book is read, increasing and decreasing based on different variables. When readers speak about price, they are talking about the amount that they are willing and able to pay at the particular time that they are expressing the opinion about price. Willingness includes the measurement of time.

I asked Todd Sattersten, author and owner of BizBookLab, to chime in on the pricing issue. In an email interview, he argued that print book pricing actually is the larger contributing problem to the perceived value of ebooks (mainly, ala Amazon) and suggested that serialization might be the right model for ebooks.

How are customer perceptions of ebook value influenced?

Todd Sattersten: There is only one factor that matters right now — what print books cost. Customers compare ebooks to their paper-based ancestors, and they long ago concluded they should be cheaper because everything else in their digital lives is cheaper than their physical lives.

Publishers don't want this to be true and, with the power to control ebook pricing through the agency arrangements, are pricing the vast majority of ebooks like they are print books. I co-wrote a book two years ago called "The 100 Best Business Books of All Time." The hardcover retail price is $25.95. On Amazon, you can buy that version for $16.61 or a remaindered edition for $10.38, while the Kindle edition is $18.99. That creates a short circuit in customers' brains. You don't pay more for things that are more convenient. You pay less.

What's interesting is that Amazon is actively discounting books in the 40% to 50% range, and in many cases putting the price of the print book very close to the price of the ebook. There can't be any margin left at those prices. Amazon, having lost the ability to control ebook pricing, is saying to customers "ebooks and print books are the same." This drives more people to ebooks (who doesn't want to download their book now?), sells more Kindles, and further cements their place in publishing's future — both provider of new and destroyer of old (what bookstore can compete with 49% off?). Also, notice how Amazon is redefining short writings with their Singles program. Fewer words, lower prices and, most importantly, a new (not very good) term to attach to the new value proposition.

Is there a disconnect between publishers and readers that's influencing the developing price model?

Todd Sattersten: The biggest disconnect is that mainstream publishing's $9.99 to $19.99 ebooks are now sitting next to Amanda Hocking and J.A. Konraths' $0.99 ebooks. There was never that risk in the bookstore channel because of the cost of scaling atoms. The wide range of pricing destroys pricing power.

Are ebooks destined to be priced at $0.99?

Todd Sattersten: Yes, they already are. Is everything going to be $0.99? No.

What do publisher need to do to take control of the perceived value of ebooks?

Todd Sattersten: I am not sure we've figured out what the reader should get for $0.99.

The biggest play for publishers in digital is to shorten book length. Everyone will admit that books both in fiction and non-fiction are driven by a page count rather than what is the appropriate length for material. I would like to see more experiments with serialization on the fiction side and an "album" of chapters on the non-fiction.

Here is an example of what I mean from the app space: 1337 Game Design released a game app for the App Store called Dark Nebula. It was $0.99 and had a light narrative that pushed you into Episode 2. So, rather than putting a bazillion levels in a single $0.99 game, ala Angry Birds or Cut The Rope, they divided 35 levels across two $0.99 apps.

Adapt the product to match what pricing will support. Every other industry does it. Why not publishing?

Our biggest problem is that we keep hanging onto the idea of a book. The word itself is laden with 500 years of meaning. In my world, a book is made of paper, bound on one side and it does an awesome job of delivering words and images. We need some new terminology for electronic products so we can get more creative about what publishing creates and what we can offer readers.



Related:


March 16 2011

Piracy isn't just about price

Manifesto.pngLast week, the Social Science Research Council published the results of a three-year study on piracy in the "Media Piracy in Emerging Economies" report. The report concluded that price was the overwhelming issue contributing to piracy around the world. In a post for thinq_ summing up the study results, James Nixon described an example from the report:

They cite the example of Russia, where legal versions of the film "The Dark Knight" sold for $15 — roughly the same price that consumers would pay in the US. But with wages much lower in Russia, that price represents a much higher percentage of consumers' income — the equivalent of a US buyer shelling out something like $75 on the film. Pirate versions, says the report, can be obtained for less than a third of the price.

In February, a group of contributors got together at a workshop and came up with piracy guidelines. Of the five points outlined in the "Don't Make Me Steal" manifesto, only one addresses the price issue.

At my request, Magellan Media founder Brian O'Leary, who has done extensive research on piracy and P2P file sharing, reviewed the report summary and the manifesto website. He offered his take, and his preference, in an email response:

I strongly prefer the approach taken in the "Don't Make Me Steal" manifesto. Although higher prices can encourage more people to pirate content, the debate is about more than just prices. Concerns about convenience, availability and usability (the absence of onerous rights restrictions) factor into individual decisions about what and whether to pirate media products.

This doesn't refute the Social Science Research Council's claim that higher prices in lower-wealth countries can lead to piracy. It does suggest that it may not be enough to just lower prices. I do agree fully with the SSRC's conclusion that enforcement has limited impact. Content producers are better off looking at a mixture of localized prices as well as widespread efforts to make their products convenient, widely available and interoperable.

Related:


May 05 2010

Actually, half of all iPad Books are Fiction

Suggestions to my previous post inspired me to normalize our metadata1 for titles available through the U.S. iBooks app. A comment prompted me to rollup iBooks publishers into publishing conglomerates2:



pathint


Comments from other readers gave me the idea to map the 100+ iBooks categories to the more familiar BISAC categories. Doing so means over half of all iBooks titles are Fiction3:



pathint


The distribution of titles across the BISAC categories varies by publisher. For example 64% of Macmillan's titles are Fiction, while 19% of HarperCollins are in the Religion category:



[Click HERE to enlarge.]


pathint


I also computed the MEAN price per paid title within a (BISAC) category4, for each of the major publishers. Click HERE for details.

(1) Data for this post includes titles available through the U.S. iBooks app from 4/15 through 5/4/2010.
(2) In creating the equivalent chart for my previous post, I didn't include titles from Project Gutenberg.
(3) Share of the major FICTION categories can be found HERE.
(4) Even with the BISAC categorization, Cookbooks is one of the higher-priced categories.

April 21 2010

Cookbooks: The highest priced iPad book category

Just like the iTunes app store, the iBooks app on the iPad spotlights the Top Paid (and Top Free) books within each category. Here are some charts that compare the average price (by rank)1 across the major categories. The average price of the Top 50 titles across the major categories range from $7-$15. Cookbooks, History, Biographies are slightly higher priced, while Classics, Romance, Sci-Fi, and Children/Teens have lower average prices.



[Click HERE to enlarge.]


pathint


[The equivalent graph for MEDIAN prices can be found HERE.]




(1) Data for this post is from 4/15 through 4/20/2010. Average price is based on titles that appeared among the Top Paid apps for a given category during that period.

April 09 2010

Games & Entertaiment account for Half of all iPad apps

98% of apps in the U.S. iTunes app store label themselves as "iPad compatible", but most were written for iPhones or iPods. One week into its launch there are about 2,300 apps that run only on iPads. Measured in terms of number of unique apps, Games and Entertainment account for about half of all the iPad apps:


pathint


The number of iPhone apps in the Book category is inflated because many individual ebooks are counted as apps. In comparison, iBooks and other ebook readers are used to manage individual ebooks on an iPad so there are fewer (iPad-only) Book apps.


Unlike the iPhone and Android app ecosystems, the majority of Top 100 apps aren't Games. At least for now, other categories are much more represented in the Top 100 charts:


pathint


As expected, popular iPad apps are priced higher than popular iPhone apps. As an example, popular Productivity apps sell for over $10 on average; popular Games sell for $7. The chart below shows the average†† price of the Top 100 iPad apps:


pathint




(†) This post is limited to apps that run ONLY on iPads. Some apps are classified in several categories, so some double-counting occurs in the percentages shown in the charts.


(††) Just like the iPhone, there are three Top 100 Charts for the iPad: Top 100 Free, Paid, and Grossing. I took all the apps that appeared in the Top 100 Paid/Grossing charts and grouped them by category, then calculated the mean.

February 22 2010

Long Tail iTunes Book Apps Are More Expensive

In an earlier post, I examined the average price of the Top 100 PAID apps and noted that the relationship between price and popularity was somewhat dependent on the category. But in the Book category, I concluded that the Top 10 PAID apps were on average cheaper than those ranked 91-100. But what if we examine all Book apps, will the long tail apps be pricier?


The animated graphic below traces the evolution of prices in the iTunes Book category. In Q3-2009 the Book category exceeded 10,000 PAID apps, and since then long tail Book apps have (on average) tended to be much more expensive than their more popular counterparts.






Since there are far fewer FREE apps compared to other large categories, pricing is especially critical for Book apps. There are now over 28,000 Book apps, 92% of which are PAID apps††. Looking ahead, the iPad will be available in a few months and many publishers will need to learn how to price their apps for yet another device (see for example [1], [2]).


[For more on ebooks and electronic publishing, be sure to follow events at this week's TOC conference on twitter.]

(†) There is an upward trend in MEAN price from the more popular apps to the long tail, indicating that many more pricey book apps are in the long tail. The graphic also nicely shows the evolution of prices over time.
(††) The animated graph ends on 2/14/2010, at which point the chart represents the 26,000 PAID Book apps available in the U.S. iTunes App store during that week. In comparison, there were over 29,000 Game apps, 70% of which were PAID apps.

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