Tag Archives: economics

The Dudes Do ATIA 2015: Day 1 – Of Wealth and Water

Economics, when all is said and done, is based on some pretty simple principles, which we can summarize as follows:

1. People want/need stuff.
2. There is only so much stuff available.
3. Rare stuff has more value than common stuff.
4. Economics is about how stuff gets moved around from person to person.

I’m not sure why it took Adam Smith over 1000 pages to explain this in his canonical Wealth of Nations in 1776, or Thomas Picketty close to 700 pages in his 2014 Capital in the Twenty-First Century. I guess one paragraph with 4 bullet points wouldn’t sell as a book,

But if you want an example of simple economics, you need look no further than the price of a humble bottle of water. Here’s your “Dudes Economics 101” courtesy of our trip to the 2015 Assistive Technology Industry Association (ATIA) conference in Orlando, Florida.

Bottles of water

$4.98 and $5.00 water: which is which?

1. People Want/Need Stuff

Water is one of those commodities that folks need in order to live. You might think your life would come to a screeching halt if your smart phone disappeared, but surprisingly it wouldn’t because a phone is a “want” not a “need.”

When you stay at a hotel, you need water, and often not just the water contained in a beer. Typically hotels provide a coffee machine in your room so you can make a hot beverage but from experience, many hotels have faucet water that tastes of chlorine, sulfur [1], metal, or anything other than the standard watery taste of “nothing.” In fact, the stuff that comes out of the tap is only “water” in the sense that it’s wet and clear (although the latter is not always the case.) Which leads us to the notion that…

2. There Is Only So Much Stuff Available.

Gold, diamonds, platinum, tigers, honest politicians; these are all examples of things that, on a global basis, are in short supply.  And in the tiny world that is the Caribe Royale Hotel in Florida, when it’s 11:00 PM and you’re thirsty, water is also in short supply. Given that the tap water is undrinkable, this means the bottle of filtered artesian Norwegian spring water [2]  lovingly provided by the hotel becomes an example of “only so much stuff is available.” And because your alternative is to go to the all-night on site store or get in a car and drive “somewhere else,” the next lesson in economics is that…

3. Rare Stuff Has More Value Than Common Stuff

If something is in short supply, it can be very expensive. Being rare in of itself doesn’t mean something is valuable – it has to be desired or necessary in order to be worth something. Diamonds are only valuable so long as someone, somewhere wants them, otherwise they are just highly compressed pieces of coal; a Rolex is worth several thousand dollars – if you like Rolexes; and a Starbucks grande non-fat latte is worth on average $3.80 – if you like coffee.

So when your mouth is as dry as the bottom of a bird-cage, $5.00 for a bottle of water seems like a bargain. In other places and at other times, you’d sooner shoot yourself in the foot than spend $5.00 for just water but in this place and at this time, the value of that colorless, odorless, tasteless liquid can be jacked up to near obscene levels.

You are probably aware of the phrase “location, location, location” as the answer to the question “What’s the most significant factor to take into account when opening a store?” or “Which factor will play a critical part in determining the price of a house?” but the same phrase applies to all economic transactions at some level. This is because…

4. Economics Is About How Stuff Gets Moved Around From Person To Person

The hotel can charge $5.00 for a bottle of water because it’s sitting there in the room so you don’t have to go anywhere or do anything other than twist off the cap. What they include in the price is the shifting of the stuff (water) from one person (themselves) to another (you).

Purely as an exercise in Economics (well, and perhaps as a demonstration of how cheap the Dudes are) on our way back from dinner at the Dakshin, a wonderful Indian restaurant, we stopped off at a Wal-Mart store and found, to our fiscal delight, that there was a special sale of Aquafina bottled water – $4.98 for a pack of 32 bottles. That’s 15 cents a bottle, and a significant saving when compared to the $5.00 hotel water – sorry, “filtered Norwegian Spring Water.” On that basis, we reckoned that if we drank ONE bottle each and threw away the other 30, we’d still be $5.02 ahead of the game! In terms of the “Dudes 4-Point Model of Economics,” we’d moved stuff ourselves (point 4) and bought from a place where stuff wasn’t rare (point 2) and so was not a premium price (point 3).

Image of economic axes

So there you have it. Proof that attending a conference can be an educational event above and beyond the overt content. Other bloggers will have details about the sessions and the exhibition and all that stuff, but only the Dudes will create a complete fiscal model based on having to spend $5.00 for water. Pedants and doryphores [5] might want to quibble with some details regarding our admittedly simple 4-Point Model of Universal Economics but we like to think that it’s in its naked simplicity where the value of the model lies. “A thing of beauty is a joy forever.”

[1] I have to work hard to be able to spell sulfur like this, rather than sulphur, which is what I learned in school when I was a lad in England. The latter gets flagged as “wrong” on WordPress, and Microsoft words also gently scolds me with it little red line. It derives from the Latin sulfur(em) or sulphur(em) and is found in Middle English with a number spellings, such as sulphre, sulphure, sulfur, sulphur, soulphre, solfre, sulphyr, and others. The sulphur spelling appears to have become the more common by the end of the 17th century but other European languages opted for using an “f” (Spanish azufre, German schwefel, French soufre, and Italian zolfo). Even the American Lexicographer in Chief, Noah Webster, used sulphur, with the switch to sulfur occurring in the US relatively recently – the early 20th century. It has now become one of those US/UK differences that folks love to talk about. In a 1988 article, Mitchie and Langslow note that, “Together with driving on the left, the use of ph in sulphur, be it in acid rain or human metabolism, has remained an English prerogative.” Michie, C. A., & Langslow, D. R. (1988). Sulphur or sulfur? A tale of two spellings. BMJ : British Medical Journal, 297(6664), 1697-1699.

[2] In the world of Marketing, adjectives are important. If you want to sell a product, you can’t just offer “water” or “beer,” you have to  stick some lipstick on that pig by using adjectives. “Spring Water” sounds better than just “water,” but “Crystal-clear, Fresh Spring Water” sounds even better. “Crisp, Cold-Filtered Beer” invites you to part with more money than just “Cold Beer.” Restaurants teach their wait staff to use “suggestive selling,” which is simply having them to use adjectives whenever they recommend food; “Would you like some of our fresh, crispy fries with that?” or “We have a delicious, spicy chili that’s popular with all our diners.” Adjectives make money – and so does providing lists of these for copywriters, the best of whom will have Richard Bayan’s popular Words That Sell on their bookshelf. Actually, I would recommend this book to educators and Speechies who are teaching vocabulary because it’s chock-a-block with synonyms for many words, and the “Key Word Index” makes it easy to find them.

[3] I’ve posted this definition before but it’s worth repeating because it’s interesting: A doryphore is defined by the OED as “A person who draws attention to the minor errors made by others, esp. in a pestering manner; a pedantic gadfly.” It comes from the Greek δορυϕόρος, which means “spear carrier,” (a δορο is a “spear” and ϕόρος means “to bear or carry”) and it was originally used in the US as a name for the Colorado beetle – a notable pest. This beetle was known as “the ten-striped spearman,” hence the allusion to a spear carrier.  To then take the noun and turn it into an adjective by adding the -ic suffix meaning “to have the nature of” was a piece of cake – and a great example of using affixation to change a word’s part of speech. As always, you leave a Speech Dudes’ post far smarter than you entered it!

There’s no such thing as a “free” app, so get over it and pony up!

In this article, I’m, not just on a proverbial hobby-horse but whipping it frantically as I gallop wildly into the Valley of Death. I may even end up offending some readers but hopefully make some new friends along the way. So saddle up and join the posse!

One boy and his horse

Imagine getting the following e-mail from someone who wants you to provide therapy services for their child.

Dear Therapist

I am the parent of a child who cannot speak and really needs help. I saw that you offer therapy services to people like my child and I’d love to have access to them. However, I am really surprised that your therapy services are so expensive and think that you should provide them free of charge. Other people provide free therapy services and there are also many people who are not therapists who provide free therapy services in their spare time.

I’d be happy to provide a recommendation of your therapy services to other people if you were to provide them to me for free. Otherwise, I am afraid I will just have to blog about how expensive your therapy services are and go somewhere else. It seems so sad that children in desperate need of help are denied access to therapy services because of people wanting to make a profit from their disability.

Now I’m guessing that your response is likely to be along the lines of “no,” based on the notion that at the end of the day, you’d like to be able to eat, stay warm, and maybe feed your family. You might also be wanting to pay off the huge loan  you took out to train for years to become a therapist in the first place – because those greedy folks at the college expected you to pay for your education! And if you were to give free therapy to this client, the “recommendation” would result in everyone else wanting free help, and that’s not usually a sustainable business model.

OK, so why not copy the email into a document and do a search-and-replace that changes every instance of “therapy services” to “apps.” Hell, why don’t I make it even easier and do that for you below:

I am the parent of a child who cannot speak and really needs help. I saw that you offer apps to people like my child and I’d love to have access to them. However, I am really surprised that your apps are so expensive and think that you should provide them free of charge. Other people provide free apps and there are also many people who are not therapists who provide free apps in their spare time.

I’d be happy to provide a recommendation of your apps to other people if you were to provide them to me for free. Otherwise, I am afraid I will just have to blog about how expensive your apps are and go somewhere else. It seems so sad that children in desperate need of help are denied access to apps because of people wanting to make a profit from their disability.

Sounds familiar?

So how about another stark contrast just to hammer home a little more how ridiculous we all are – and we’re all guilty – when it comes to value and pricing with apps.

Hands up anyone who buys at least one coffee per week from a local coffee store.

Hands down.

The nice people at Statistic Brain estimate that the average price on an espresso-based coffee in 2012 was $2.45, and a brewed one was $1.34. So if you drink an espresso-based coffee each week for a year, you are out-of-pocket by $127.40. More sobering is that there’s a good chance you drink more than one a week, and just having two takes you up to $255 and tax.

So remind me again; why do we whine about paying 99 cents for an app? Why do we jump through hoops to badger, harass, cajole, and even blackmail app developers into giving us freebies? If I’m happy to spend $250 per year on something as trivial as a cup of non-essential coffee, why will I not spend $1 on an app that is apparently “essential” for a child’s education? Is coffee more valuable than education?

Our sense of “value” and “worth” has gone totally to pot when it comes to apps. It defies belief that consumers somehow believe that either it costs nothing to create an app or that app creators are making money out of the wazoo from their yachts just off of Miami Beach. We are, in fact, victims of Crapponomics, the naive misunderstanding of how apps work from an economic standpoint.

Why did this happen? Why is it that when an app developer asks $1.99 for something that took weeks of work we are shocked at the effrontery to ask such an outrageous price and invent some form of “special case” as to why we deserve a freebie?  Let’s take a look at Crapponomics 101.

Crapponomics graphic

1. The apps “anchor” was originally free.
In Economics, there’s a concept known as the “Anchor Point.” As the name suggests, it’s the selling price at which you drop your anchor when you bring a new product or service to market. Once an anchor is set, new folks tend to cluster around your safe harbor and drop similar anchors. And when people start purchasing products, this anchor becomes the standard against all other similar products are measured. The average price of an app in 2012 was $1.58, which is 87 cents cheaper than a cup of espresso-based coffee.

The best anchor point for a consumer is usually free. If I want stuff, and the stuff costs me nothing, how bad can that be? Well, the obvious thing is that there’s a little thing called quality that gets factored into the equation, but you’d be surprised (or not) how much quality will be sacrificed on the altar of Free.  And in the early days of iPhones and iPads, the majority of apps were free – which became, and remains, the anchor.

2. Most apps are for marketing, not profit.
In his seminal work, The Selfish Gene, Richard Dawkins argued that human beings are basically the gene’s way of making new genes. We are, in fact, merely hosts for DNA, and the name of the game of Life is for DNA to exist. In a similar fashion, apps are just the tablet device’s way of creating more tablet devices. Apple, Samsung, and even Microsoft, don’t need to write apps because what they want is to sell tablets [1]. The purpose of the free Angry Birds games is to sell angrier and more expensive birds; the purpose of the free United Airlines app is to get you to buy tickets on United Airlines; the purpose of the free Pandora app is to get you to subscribe to the full Pandora service. Folks will pay for more birds, better airline seats, and more music but still begrudge the 99 cents for an app designed by a professional clinician and software engineer to help a client improve. And that’s because we mix up the free app with the for-profit app, and forget the value of expertise and quality.

3. We see apps as “things” and not a piece of intellectual property.
Ask yourself why you want an app in the first place. Usually it’s because it offers you something that would take you a long time to develop yourself (if at all) and will in some way help your clients succeed. So why are you reluctant to pay someone for taking the time to do all that work for you? Is 99 cents really too much to ask for the hours and hours a developer has put into it?

The problem is that most folks look at apps the same way they look at cans of beans on a shelf; you find the ones you like, stick ’em in your basket, and pay at the counter. But many apps – particularly those for therapy and education – have taken someone a long time to create. What you are buying is their years of experience in their field of expertise, their time designing the content, their cost to employ a programmer, and any royalties they in turn might be paying “behind the scenes” for things within the app [2].

4. Apple are not a charity and take their cut.
Folks who create apps know that despite the image that St. Stephen of Jobs carefully crafted to portray Apple as a caring, sharing, warm-and-fuzzy group of lovable kooks sticking it to “the Man,” they want 30% of everything that goes out via iTunes. Everything. If you write an app for an Apple device, you cannot sell it other than via iTunes – and that’ll cost you 30% of your selling price. Every 99 cent app that we begrudgingly pay for nets the developer 66 cents. Does anyone think to harass Apple because they get 33 cents for distributing? Nope, the developer gets the blame.

And how about that “freebie” thing? Well, Apple are kind enough to offer developers some free codes that they can use for promotion purposes, but after that, if the developer wants to give one away, they have to pay for their own app – and Apple still gets the 33 cents! That “free” app you are so adamantly demanding costs the developer (a) 66 cents in lost income and (b) 33 cents real money to Apple [3].

5. You have to sell millions of 99 cent apps to buy a boat.
Another basic rule of Economics is that to make a profit you can either sell millions of very cheap things at a small margin, or a few very expensive things at a large one. The Crapponomics assumption by consumers is that app developers make money by following the former route; millions of apps at 99 cents = sun-kissed beaches and mojitos in Hawaii.

But there are two underlying assumptions here that are inaccurate. The first is that the sort of apps being developed for therapy and education do not sell in millions. Not even close. The second is that there are not significant profits to be made from an app; simple math soon whittles down the margins. For a 99 cent app, Apple takes 33 cents, leaving 66 cents. Of that 66 cents, there’s usually at least two people to pay – author and developer – so that takes it to 33 cents each. Take out something for the IRS (like Apple, tax folks want their pound of flesh and you stand no chance of getting a “freebie” from them!), maybe a little for marketing, and that “dollar an app” profit has shrunk down smaller than a guy’s nuts on an Alaskan winter’s morning.

Think of the value, not the anchor
So do you still think paying 99 cents is too expensive? Or $1.99? Maybe even $4.99? Remember, that 99 cent app is supposed to make it easier for you to provide a service – for which you WILL be charging substantially more than 99 cents.

If a “life-changing” app costs $4.99, who in their right mind would quibble with that? Has the value of education and therapy reached the point where folks will pay more for a couple of pints at the bar than they will for their child’s future? I suppose that 60-inch LCD TV from  Best Buy is a “good investment” but the $99.99 for an AAC app isn’t? Where has our sense of value gone? I suppose paying Verizon Wireless $40.00 every  month for a data plan is normal for our wired life but hounding the developer of a $2.99 app  for a free copy balances that out.

We need to realize that when we buy an app we are not paying for the virtual equivalent of a can of beans but the skills, knowledge, and time of an experienced educator or clinician. Only then we will begin to stop the decline in the undervaluing of therapy and education as a whole.

Sometimes, there just isn’t an app for that.

[1] From Apple’s perspective, even the sale of the tablets isn’t where the big money resides; that’s coming from their greatest invention; iTunes. Although most folks would suggest that the iPod, iPhone, and iPad are Apple’s best inventions, it’s their delivery system that was their masterstroke. In order to get anything into your iDevice you need to download from iTunes, and Apple makes money on every download. Every app, book, song, movie, or video earns them cash, and that’s pure genius.

[2] Most app authors are in the true sense “authors” and not “writers.” They don’t actually write programming code for a device, and often have no idea about how code works. In a similar fashion, when Snooki claims to have “authored a book” she is being truthful; someone else actually “wrote” it based on Snooki’s ideas (whatever those may have been.) What this means is that the “99 cents” you pay  is now starting to get split many ways, and the author isn’t getting anything near 99 cents.

The average cost to develop and app has been estimated to be anywhere between $8000 and $200,000.  Here’s a good article called The Cost of Building an iPad App. Ideas for apps are cheap – we all have them – but software engineers are not, neither is your time. You might think that if you are designing an app in your “spare time” then it’s free, but the only reason you have “spare time” is that you’re already being paid for a job! The real test of the cost is to quit your real job and then go to the bank to see how much they will lend you to design an app.

[3] My standard disclaimer here is that I have no problem with any company making a profit. Apple developed the iTunes distribution system and have every right to recoup their development efforts by charging people to use the system. Although I may not want to say, “Greed is Good,” I’m OK with saying, “Making a profit is just fine.” My beef is more that for some reason, people seem to see Apple as the good guy and app developers as trying to gouge customers by charging for their apps. Folks seem happy to demand free 99 cent apps but don’t expect apple to give them a $700 iPad. Why is that? And Apple are the ones who force up app prices by asking for 30% of the selling price and only providing a limited number of free codes. So why don’t people rail on Apple about this? It seems that the richest company on the planet gets a “pass” but struggling app developers get the hassle. If Apple doesn’t give free $700 iPads, Verizon doesn’t offer free $40 monthly data plans, and Best Buy doesn’t let you walk off with a free 60-inch TV, why should an app seller give away a free 99 cent piece of software? Stop picking on the little guys!