Saturday, January 21, 2006

Digital Media Marketplaces

A marketplace for digital media has intrigue me for a while. A place where digital media price is set by the value placed on the media by the market. Google Video Store with its variable pricing is a pale immitation of the a marketplace and will remain that way until the price of the digtial media is set by the marketplace and not by the seller. Variable pricing a market does not make. It is however, a step in the right direction.

One question that has bugged me is how would a marketplace determine the value of digital media. The pricing mechanism lies at the heart of any marketplace. For the marketplace to function properly the market needs to method to effectively set the value (and consequently price) of digital media. If the pricing mechanism is faulty then the market wont operate smoothly.

Stockmarkets prices are set by the interaction of the amount of a company's shares available for sale and the demand for the shares. The price is primarily determined by the scarcity of supply. Digital media doesn't have a finite supply. It has an inifinite supply of perfect copies. Scarcity of supply is not going to work in a digital media market as a pricing mechanism.

The Logistics Equation could be used to provide "pricing" variability that is determined by the market. Not really a very good system. Artifical constraints are placed on the market and prices only go up and never down. Not really a dynamic market with variable pricing.

A better pricing mechanism is to use demand per unit time. The price is then determined by the scarcity of demand. As the demand per unit time goes up the price rises, as the demand per unit time goes down the price falls. The beauty of this system is that the price is set by the operation of the market. It also produces a dynamic market with variable pricing with little or not artifical constraints.

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