Marco Arment started The Magazine a few months back. By all accounts, it’s a resounding success, despite initial content and authorship disappointments from cranky jerks like myself. The financial success of it wasn’t well-known until very recently, when Arment gave interviews to NPR and Ben Brooks.
There are some eye-popping numbers there: $35000/month revenue, 25000 subscribers, and a handsome rate of $800 to the freelance writers to boot. But I’m not interested in those. Instead, I’m most interested in one of Arment’s insights that was lost on many others, including me.
How much are people willing to pay for a bottle of wine? You might think that the answer depends on how good the wine is, or on how much people like wine. You wouldn’t be completely wrong, but you also wouldn’t be completely right. In a striking experiment, behavioral economist Dan Ariely asked MBA students at MIT how much they’d pay for a bottle of 1998 Cotes du Rhone. However, and here’s the trick, he also asked them to write down the last two digits of their social security number before bidding on the wine. It turns out that those who have higher social security numbers (e.g. 99) bid higher for the bottle of wine.
What the experiment demonstrates is the anchoring bias, where our judgments are influenced by factors that we first encounter, even if these factors turn out to be highly irrelevant. It is a fundamental, and unfortunately rather incurable, human cognitive condition. It has been well studied by behavioral economists since Daniel Kahneman & Amos Tversky. And of course, the basic idea is well-known to street vendors of the world for centuries before that. Yet, surprisingly, there is little talk about anchoring bias when it comes to app ecosystems. Even more rare is the person who sees an opportunity in it.
Arment is that person, as it turns out. The most ingenious aspect of The Magazine is its exploitation of anchoring bias.
Magazines are a fluke on iOS: they have different price expectations. Big-name iOS magazines can easily charge $5 per month. The New York Times charges about $15 per month. So for The Magazine to be $2 per month sounds extremely inexpensive in the magazine world, yet that’s $24 per year — far more than I could earn per customer with a traditional app.
That quote is from Arment to Brooks. But it could also be a textbook illustration of the anchoring bias. Bravo, Marco, for seeing this manifestation of the human cognitive condition before others, and for seizing the opportunity that it presents.
[Editor's postscript: Obviously the post title is a bit tongue-in-cheek. No doubt there are other reasons for The Magazine's success. This is just what I thought was the most psychologically interesting one.]
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