8
GAWKERS

The male bowerbird is a peculiar creature.

Bowerbirds are medium to large passerines, a type of bird that is about the size of a Eurasian blackbird or perhaps a small crow. Their most significant distinguishing feature, at least as far as evolutionary biologists are concerned, is their habit of constructing a large ‘bower’ as part of the courtship ritual. For example, the male satin bowerbird, native to eastern Australia, builds a structure of sticks and twigs which he decorates with objects that he has collected, many of which are blue, yellow or shiny. Life became a lot easier for bowerbirds when the plastics industry began to manufacture blue clothes pegs and disposable pens with blue caps.

Female bowerbirds visit the bowers to inspect their quality. They will return to some of them to see the male’s dancing display as well. Eventually, females will pick a mate, usually just one. That is the end of the male’s involvement in the process of creating the next generation, so biologists have had to come up with an explanation for why male bowerbirds expend so much energy in building a bower that has no practical purpose – it doesn’t protect from the elements, it doesn’t protect from predators, it’s not even a nest, the female has to build that on her own – and why the females use the quality of the bower, and the attendant dancing courtship ritual, to determine which suitor wins.

In 1975 biologist Amotz Zahavi put forward a theory to explain the profligacy of the male bowerbirds’ behaviour. Zahavi proposed that certain traits that biologists struggled to understand – the bowers of the bowerbird, the tail feathers of a peacock – could be best explained by considering them as ‘handicaps’, signalling the ability to squander a resource simply by actually squandering it. In essence, the bowerbird is saying, ‘Look at this lovely structure I have built. Look at the effort I have spent in building it. Look at the energy I have squandered flying across the land seeking out shiny pebbles and blue plastic gewgaws. I must have oodles and oodles of surplus energy to be able to feed myself and protect myself from predators while also doing this totally pointless thing. Wouldn’t you love my genes to be passed on to your chicks, rather than the genes of my pathetic rival in the next bower who has only five sticks and a clothes peg to his name?’

Zahavi’s handicap principle was initially controversial, although it has been influential in changing mainstream biological thinking. Geoffrey Miller, an evolutionary psychologist, has developed the idea of the handicap principle to how they affect sexual selection amongst humans. At the more positive end of this interpretation, Miller sees the human mind as having developed, for reasons more than simply for survival, a step beyond the simplistic understanding of Darwin’s selection theories. He argues that those elements of the human mind that seem unhelpful for escaping predators and finding food – art, literature, altruism, creativity and so on – can be best understood as being about sexual selection. The human mind has evolved as a tool for aiding mate-choice by advertising intelligence, creativity or a number of other desirable characteristics.

The best of our species – our capacity for art, for charity, for love and for altruism – are sexual selection displays, used to display both the capacity of our brains and as fitness indicators using Zahavi’s handicap principle. Anthropologists have identified other potential explanations for why humans are compelled to display their consumption or adopt certain behaviours, ranging from sexual selection to creating mutual obligations, cementing the alliance between groups or demonstrating status through waste. Miller sees conspicuous consumption as humans spending to prove that we have surplus energy to squander. The more we squander, the more energy we must have had in the first place, making us more attractive as potential mates. Marketing departments have leaped on this fundamental of human nature – that we need to use signals to evaluate the quality of potential mates – to convince us that the best way to display our sexual attractiveness is through the consumption choices that we make.

Miller’s work builds on the work of Thorstein Veblen, a Norwegian-American economist who was one of the first to investigate the theory of conspicuous consumption in his 1899 work The Theory of the Leisure Class. Veblen gave his name to Veblen goods, a group of commodities for which people’s preference for buying them increases as their price increases (because a higher price suggests a greater status) instead of decreasing as the economic law of demand would suggest. Common examples of Veblen goods are luxury wines and spirits, high-end cars, designer clothes and jewellery.

The Gawkers for whom this chapter is named are important players in a conspicuous consumption display. The purpose of conspicuous consumption, or indeed any sexual selection display, is to distinguish between individuals. Those choosing need to have something to see, while those displaying need to have an audience to which to display. In the context of the Curve, sexual selection theory suggests that many of the behaviours attributed to evolution by sexual selection involve a social context. An audience. Gawkers.

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Robert Cialdini is one of my two favourite writers on how we perceive price and value. (The other is Dan Ariely.) Cialdini is a professor of both marketing and psychology at Arizona State University. His book Influence: The Psychology of Persuasion is a masterpiece that will help you understand how and why you buy things, and how to sell them.

Cialdini opens his book with an anecdote of the experience of a friend who ran a Native American jewellery store in Arizona. She had a collection of good-quality turquoise pieces that she just could not sell. It was not a problem of footfall: it was peak tourist season and the shop was full of customers, but the turquoise jewellery stubbornly stayed on the shelves. She moved them to a more prominent location. No luck. She told her staff to recommend them. Nothing.

Finally, as she went out of town on a buying trip, she left a note for her head saleswoman. ‘Everything in this display case, price × ¹⁄₂’, with the intention of clearing the stock, even if it meant she took a loss. When she returned, she was pleased that all the stock was gone. She was even more pleased to discover that the saleswoman had misread the note. Instead of selling the turquoise pieces at half the usual price, she had priced them at double the usual price.

Cialdini explains it like this. We all use shortcuts in our lives. Mother turkeys will nurture anything that makes the cheep, cheep of a baby turkey, even if the thing going cheep, cheep is a stuffed polecat with a tape recorder playing the sounds of a chick where its intestines used to be. Male robins will let a perfect stuffed replica of a robin with no red breast feathers stay unmolested in its territory while it will vigorously attack nothing more than a clump of red-breast feathers placed there. These behaviours are called fixed-action patterns, and tend to be repeated in the same way every time when activated by a trigger-feature, something like the cheep of a turkey chick or the red breast feathers of a male robin.

In the case of the turquoise-buying tourists, the fixed-action pattern was a way of thinking, a cognitive shortcut that equated ‘expensive’ with ‘good’. Most of the time, it is a good guide. On this occasion, the turquoise jewellery in Cialdini’s friend’s store seemed to be more valuable and more desirable when the only thing that changed about it was the price. It turns out that Native American jewellery is a Veblen good.

Cialdini goes on to comment that although the tourists made a wrong decision on this occasion, due to the pricing mistake made by the salesperson, they are probably, on balance, better off following the shortcut ‘expensive = good’ than not. Since the alternative is to become an expert valuer of everything that we might want to buy, from jewellery to wine to cheese to clothes, it makes rational sense to use the shortcut to avoid that effort, even if on occasion it fails us.

We’ve seen that conspicuous consumption may be a way of signalling surplus energy, something that is likely to be attractive to a mate (of either sex). Conspicuous consumption doesn’t have to be confined to ostentatious displays of wealth, though. After all, the purpose of the consumption is to show that we have surplus energy, that we are able to feed, clothe, house and protect ourselves from predators while still splashing cash on Cristal champagne or Dolce & Gabbana clothes. Miller argues that marketers ‘still believe that premium products are bought to display wealth, status, and taste, and they miss the deeper mental traits that people are actually wired to display – traits such as kindness, intelligence, and creativity’.¹

There are many ways to signal a surplus of energy. People with three degrees are demonstrating that they can afford to spend their time in full- or part-time education while still feeding, clothing and housing themselves. My deep knowledge of the extended Star Wars universe or PC games of the 1990s is highly unlikely to have increased my sexual attractiveness, except through the handicap principle. People pursuing the 100 Thing Challenge, trying to live their lives with fewer than one hundred possessions, are demonstrating that they don’t need the accoutrements that many of us take for granted in our lives.² For different people, they may harness the handicap principle through their charity work, through acquiring esoteric knowledge of fine wines, of football, of cooking, through an individual dress sense, through making their own jewellery. You can argue that almost everything we do can be traced back to the display of consumption in different forms.

That is not to say that all of these displays are purely self-interested, or designed solely to win a mate. They have become part of the fabric of our society. They are how we construct our identity and sense of self. They are part of how we create friendship groups and become part of a community. It is not necessary to believe that everything we do is done because others are watching; thousands of years of social evolution mean that these behaviours have become part of what it means to be human.

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The handicap principle, signalling of social status, the desire for conspicuous consumption; these are all ways of thinking about our behaviours from an evolutionary biological point of view. It is also worth thinking about how these translate into everyday behaviours, and the language we use to describe them.

Much of what we do, consciously or unconsciously, is self-expression. We craft our own identities through the clothes we wear, the friends we choose, the objects we covet, the music we listen to, the books we read, the knowledge we seek out and the events we attend. We display that identity, consciously or unconsciously, as part of our daily lives.

My house is full of books. About a quarter of the wall space of my living room consists of floor-to-ceiling white-painted shelves filled end to end with them. About half of my living room collection is history. Braudel’s The Mediterranean jostles against Andrew Lambert’s Admirals and Ian Kershaw’s masterful biography of Hitler. The other half is business books – Taleb’s Black Swan, Chris Anderson’s Free, Seth Godin’s Tribes, Nicholas Carr’s The Shallows, William Goldman’s Adventures in the Screen Trade. These are the books I want people to know that I read when they first visit my house.

Upstairs, I keep my geekier books – Star Wars, Car Wars, the complete sets of the Sharpe novels by Bernard Cornwell and the Aubrey–Maturin books by Patrick O’Brian. Only people to whom I’m happy to reveal my inner geek get to see them. Increasingly, I find that when I buy genre fiction, crime, airport thrillers, and so on, I do so on my Kindle first, particularly if I am not sure whether I like the author enough yet to make them part of my displayed identity.

For me, what I read and, more importantly, what I choose to display that I read, are an important part of my self-identity. I am sure you will have noticed that the preceding two paragraphs are a conspicuous display of the breadth of my knowledge and erudition (and geekiness). It’s about telling other people who I am.

Jonah Peretti, the founder of BuzzFeed, suggests that conspicuous displays are not limited to possessions. Many people pause to think before they share an article or a video on an online site. They pause to ponder what the fact of sharing says about them. ‘Social sharing is about your identity. You want to say, “Look, I’m smart, or charitable, or funny.”’³

Self-expression. Status. Identity. Friendship. Relationships. Mate selection. These elements are all intimately linked. They are also key to understanding how the Curve works in an online world. Before we can get there, though, we need to think about how the world has changed such that value is no longer only contained in the place that some people misleadingly call the real world.

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‘To understand why Zynga Inc. is among the tech industry’s hottest companies, consider how it gets people to buy things that don’t exist,’ wrote Nick Wingfield of the Wall Street Journal in September 2011.⁴ ‘Marketing Fanciful Items in the Lands of Make Believe’ was the headline above an article on virtual goods in The New York Times by Elisabeth Olsen in September 2010.⁵ In 2009, Claire Cain Miller and Brad Stone wrote in The New York Times, ‘Silicon Valley may have discovered the perfect business: charging real money for products that do not exist.’⁶ It’s like newspapers think that what readers value is the dead tree, not the words, thoughts, ideas and intellectual property that the dead tree pages contain…

The emergence of virtual goods as viable business models in the games industry took many traditional media commentators by surprise. They could understand a $50-billion global business for long-form games purchased on shiny gold DVDs and played on dedicated console hardware or high-end PCs. They could even understand when that same long-form experience was distributed via a fibre-optic cable to someone’s home, using a service such as Steam or Xbox Live, rather than on a disc. What they found hard to understand was the consumers who would play a game entirely for free yet choose to spend $10 on a virtual farmhouse in Zynga’s seminal title, Farmville.

Farmville was one of Zynga’s early big successes.* Released in 2009, it allowed players to manage a virtual farm. They could plant crops, collect wool from virtual sheep and lay out fields, fences, orchards and duck ponds. The game was on Facebook and, importantly, it was free. Anyone could click on a link or a story in a friend’s newsfeed and be taken straight into the game. At one point, Farmville was the most popular game on Facebook, with 60 million people playing it every month.⁷

Sixty million people. Other than massive sporting events like the Olympics or the Super Bowl, there isn’t a great deal that can claim the attention of 60 million people. Of course, Farmville was free. It was monetized by selling virtual goods, items that didn’t exist in the physical world but which enhanced the game. I bought a virtual farmhouse because my farm looked strangely empty without a focal point, and I was happy to spend $10 making my farm look better. Many critics scoffed at the foolishness of spending money on something that didn’t exist. Those critics seemed to believe that only the physical can have a value.

Is the value in a book the collection of dead trees, or is it in the ideas, thoughts and concepts contained therein? Is the value of a CD in the disc of shiny plastic or in the ability of the music it holds to absorb, entertain, or transport us? Is a DVD really a physical artefact, not merely a delivery device that contains the true value: the television series, the movie, the game software?

We have spent nearly 500 years understanding that books have value without realizing that they have two different elements of value. Books are an access device. Books are the content contained within that access device. For 490 of those years, this fine distinction has only been of interest to philosophers. That is suddenly no longer the case. The access device is becoming of less value to many consumers. The emergence of the ebook has shown a different, cheaper, more flexible way of getting access to the other valuable piece, the content. Similarly, the MP3 and other digital music formats have separated the CD into ‘access device’ and ‘the music the device contained’. There remains enormous value in the content of a book, an album, a movie, while the value of the physical media that contains it is collapsing as new, better, cheaper ways of accessing content emerge.

There is, of course, a third value of the physical object: that of status symbol.* Based on the handicap principle or Veblen’s ideas of conspicuous consumption, the book, the CD or vinyl LP and the DVD boxed set will continue to have value as means of self-expression and displaying status, knowledge or culture. This is part of the reason sales of vinyl LPs have been growing for the last five years, rising by 15 per cent in 2012 even as album sales fell by 11.2 per cent overall.⁸

Virtual goods such as my Farmville farmhouse have begun to fulfil the same roles that physical goods and experiences fulfil for many people. It’s not about transience: no one argues that paying for an expensive gig or a safari holiday or a celebratory meal at a Michelin-starred restaurant is paying for something that doesn’t exist, although it very quickly only exists in your memory. As we move towards an existence that intertwines the physical and the virtual, so our sense of what we value adapts to both realms.

*

Although that process of adaptation started many years ago, one development above any other allowed virtual goods to make the leap into the mainstream: social networking. It did that by transforming the nature of our friendships. On 14 September 2012, Facebook reached its billionth active user. A billion people, one-seventh of the global population, logged into Facebook in the thirty days before that date. That is a staggering statistic, but it is also one that has already transformed how we view friendships and, importantly for the Curve, virtual items.

Facebook has over 140 billion friend connections, implying that the average user has 140 friends.⁹ These friendships are not the same as physical-world friendships. Facebook has not replaced the need or desire for humans to come together in physical proximity, to share a drink or food or an atmosphere in a combined experience. What it has done is taught us that we can build, maintain or strengthen human relationships in purely virtual environments. If relationships can work virtually, then many of the behavioural traits we display in the physical world are likely to migrate to the virtual world too, including displays that enhance our status or provide signals for sexual selection. In other words, if we buy physical goods or invest time, money and effort in acquiring or displaying specific knowledge or expertise to physical people in physical space, when we move those relationships into the online sphere, it makes sense for us to desire to buy goods or to display our knowledge, expertise, status and wealth in an online environment too.

Facebook took a billion users into a virtual space that was filled with human relationships. Along the way, it transformed our understanding of the distinction between the physical and the virtual, reducing its importance for many of us. That is not to say that there is no distinction. In fact, the physical is likely to have more value in the future, as it becomes more scarce and more important as a signal of our self-identity. It is to say that the migration of human relationships into an online space has made it possible for us to also see the value in spending money on things which exist only in that online space if they also, in some form, influence those human relationships.

Let me put it another way. A decade ago or more, my wife explained to me the significance of flowers, or indeed any similar small, non-event-specific gift. ‘It’s not about the flowers themselves, although they are lovely. It is about showing that you thought about me when I wasn’t there, that you bothered to spend the time, effort and money on me, that you wanted to express that you were thinking about me.’ The flowers are important, the gesture more so. (Virtual goods carry much of the same symbolism that my wife ascribed to flowers, or they can do in the right circumstances.)

I had a client who was designing a medieval virtual world in which users could buy virtual items to customize their avatar. Customers would be able to browse an online shop for greaves and breastplates, helmets and vambraces, new designs for their heraldic shields and pets to lie at their feet. I looked at the design and noted that there was no intention to allow users to look at each other’s avatars. The company thought that people would choose to customize their avatar just because they could, not because they were aware that other people were looking.

‘Let me ask you this,’ I said. ‘When you are at home, on your own, with no one looking, do you dress up in your finest clothes, or do you slob out in tracksuit trousers and an old T-shirt?’

Most of us don’t take much care of our appearance when we know that no one is looking. The same is true in an online environment. Zynga faced the same problem with Farmville. Despite the intensity of their notifications to users, which reached sufficiently spam-like levels that Facebook moved to shut down the viral channels that Zynga was using, users were not visiting each other’s farms. Zynga responded by adding a small, seemingly pointless minigame. While I was harvesting crops one day, a pop-up box appeared on the screen. ‘There are crows eating the crops of your friend, Leonie. Will you scare them away?’ I clicked yes (who wouldn’t want to help a friend in need?) and the image of my farm on my screen was replaced by the image of Leonie’s farm. Overlaid on top I saw a new pop-up screen congratulating me on scaring away the birds and granting me some virtual currency for my trouble.

Because it is my profession, I spent some time looking at the screen, thinking about what Zynga was trying to achieve with this process. It can’t have been to add challenge or a meaningful new layer of gameplay to the game. All I did was click on the button and turn up at Leonie’s farm and the birds were scared. It was a very passive experience. While I was thinking, I noticed that Leonie had a bigger farmhouse than I did. She had a duck pond. I scrolled around the map and looked at how she had arranged her fields. I admired her orchard.

Which was when it struck me. Zynga was strengthening my awareness that Farmville was a social game, with all the social consequences that entailed. Leonie was displaying her prowess as a Farmville player, her aesthetic choices, her personal style. I was looking at it, and I now knew that other people, going through the same process, would end up looking at my farm. I immediately clicked back to my farm and started improving it. When I know people are looking, I don’t wear tracksuit trousers and an old grubby T-shirt.

That is not to say that virtual goods only have value if other people are looking at them, in the same way that, in the physical world, we don’t only get satisfaction or validation from the way other people view our possessions or achievements. I use the example of people visiting each other’s farms to see their virtual possessions and achievements as an illustration of how our awareness of the social nature of online experiences has led to us having an understanding that the virtual has value. Once this idea has taken root, it is possible to buy virtual goods for personal satisfaction or self-expression, not simply for display. It is harder to market them without the idea that other people will see them, but not impossible.

Sociologist Nathan Jurgenson has a name for the artificial distinction between our physical self and our online self. He calls it digital dualism.¹⁰ To a digital dualist, the physical world is ‘real’ and the digital world is ‘virtual’. Like Neo in The Matrix, we can either exist in a real physical world (Zion), or an idealized, fictional virtual world (the Matrix) but not both at the same time. This reductionist view believes that social media lead people to trade the rich, physical and real nature of face-to-face contact for the digital, virtual and trivial nature of Facebook. It is prevalent in books such as Nicholas Carr’s The Shallows, Evgeny Morozov’s The Net Delusion and Andrew Keen’s The Cult of the Amateur. Jurgenson also believes that the arguments are flawed owing to a systematic bias to see the digital and the physical as separate; ‘a zero-sum trade-off where time and energy spent on one subtracts from the other’. As Jurgenson says, this is a fallacy.

On a personal level, my three closest friends live far away from my home in London. One is in Washington, DC, one in Oman in the Middle East and the third in a tiny village north of Belfast. I communicate with them regularly via digital channels like Facebook, Twitter, Skype and email when in a bygone era I would have communicated by letter. The two or three occasions a year when I meet up with them are significantly enhanced by the regular communications we have had electronically. At the other end of the spectrum, I work from home and my equivalent of the water-cooler is Twitter. There are people whose names I do not know but whose Twitter handles I recognize instantly. These people are becoming friends, but I’m not ready to count them as real friends until I have met them for a drink or a coffee. Twitter is a starting point or a continuation of a relationship in the physical world, but the two are inextricably intertwined.

The dangers of digital dualism are manifold. Writers and commentators who persist in this artificial distinction perpetuate the idea that change is bad. They imply that the physical is intrinsically better than the digital, when it would be more accurate to say that certain experiences may be more or less enjoyable, informative, educational or enlightening in the physical world, the digital world or the crossover between both. They ignore the day-to-day reality that an increasing proportion of the population (remember those billion Facebook users) exist comfortably in both worlds regularly. They refuse to acknowledge that humans adapt their behaviour to changing technologies with amazing rapidity, or they acknowledge it and find it disappointing because it doesn’t fit with an idealized perception of how the world ought to be.

From a business perspective, it is also dangerous. The first manifestations of a digital strategy involved taking the existing physical product and converting it into a digital format. (Actually, you could argue that the first version was mail order delivery, and that Amazon is not a truly digital business. You would be right, in that Amazon’s delivery business is still resolutely physical for the majority of the items it sells. However, the Amazon catalogue is digital, which is what enables the site to have such an enormous range.) The thinking in this form of ‘going digital’ is that consumers have already understood the value of the product, because it existed in a physical form. The business people who designed products, sold products and marketed products could understand this product offering, because they were essentially saying, ‘We have taken this physical artefact – a compact disc containing No Angel by Dido, a box containing every episode of The Simpsons on DVD, a black plastic case containing a shiny disc that holds Finding Nemo – and made it into a digital artefact without changing its fundamental essence in any way.’ This perception saw the physical and the digital as two separate realities, with the ability to convert between them.

The new business opportunities eschew this digital dualism. Jurgenson calls the opposite of digital dualism ‘augmented reality’, a phrase that I hate. I hate it because it has been a buzzword of games for nearly a decade, as companies tried to convince us that we want games played in the real world, virtual reality goggles, a holographic projection of digital information onto our perception of the real world and a dozen other dead-end technologies. I think it is a tainted term. I prefer digital holism, the idea that the two realities of the physical and the digital, while not being the same, cannot be understood without reference to the other.¹¹

Digital holism is why consumers will buy ebook readers and download cheap or free books and then go out and buy that same book in hardback. It connects our understanding of friendships in the real world with our preparedness to help out people we only know virtually in an online game. It is the marketing journey that businesses need to take customers on as they move from slightly interested visitor to a website to a fully engaged, deeply committed superfan spending tens, hundreds or thousands of dollars on items that exist in the physical reality, the digital reality or both.

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In 2007 Ian Livingstone, author of the Fighting Fantasy game books and life president of video game maker Eidos, visited South Korea. On his return, he started talking about a new business model that had become amazingly successful there. The prime example was KartRider, a game so popular that within the first year 12 million Koreans, one quarter of the population, had played it.¹² The game involved racing cartoon-like virtual cars around a virtual racetrack against other, real players. The game was free to play, but in the run-up to Christmas 2007, the company behind KartRider, Nexon, decided to allow its users to buy Santa hats to wear while racing. They put them on sale for $1 and, according to Livingstone, they had sold a million hats within a week.

Game developers in the Western world were amazed. A Santa hat probably cost an afternoon of an artist’s time to make, if that. Yet here it was generating $1 million in a week. It looked like a licence to print money. The developers were missing one very important fact: the players were not paying for the game at all. They were not paying for the expensive game engine that managed the steering, collision detection, animation and graphics that formed their entertainment experience. They were not paying for the design of the tracks. They were not paying for the work that went into balancing the performance of the different cars, the artwork of the characters, the points system or anything else. They were not paying for content. They were only paying for hats.

The precursor to KartRider was Quiz Quiz (now Q-play). Nexon didn’t plan on a virtual goods business model. In 2001, when the trial period of free membership ended and they announced they would shortly start charging fees, membership plummeted by 90 per cent. Nexon made membership free again and experimented with creating wigs, hats and shirts to decorate the avatars representing players in the quiz. The cosmetic items soon generated over $150,000 per month.¹³

In this world of digital distribution, where it can be trivially cheap to distribute content and where Bertrand competition dictates that prices will tend to move to the marginal cost of distribution, content will tend to be free. Instead, consumers will pay for things that they value, like self-expression, identity, status, expressions of friendship, and so on.

If you think that spending $1 on a Santa hat is foolish, consider this: do you spend more than $1 every year on holiday celebrations or decorations. If you say no, you are either a curmudgeon, a liar or a hermit. I think that spending $1 on a Santa hat as part of a social celebration in a place (albeit a virtual place) where I am surrounded by my friends seems cheap, and a darn site cheaper and better for the environment than buying a pair of novelty reindeer antlers for the office Christmas party.

The first person who bought a Santa hat in KartRider might have thought, Look at me, I’m the first person to have a Santa hat. Aren’t I cool? The next buyers might have wanted to be early trend setters. Then players will have started to think, Everyone else has a Santa hat, I’d better buy one. The Santa hat satisfies different urges: the desire to celebrate, to be first, to stand out, to fit in, to share an experience with friends and acquaintances and to have fun. Not bad for only $1.

We’ve established that people spend money on virtual goods for many of the same reasons that they buy goods in the real world. We’ve established that companies need freeloaders to provide the context within which people will choose to spend money. We’ve also established that in a competitive environment, the economic rule of Bertrand competition tends to push the price of goods to their marginal cost which, in the case of digital assets, can be as close to zero as makes no odds. We also know that when your product goes free, you no longer get a fee from all of your customers. Many of them will never spend any money with you at all. If only 10 per cent of your customers are going to pay you, when previously 100 per cent of them paid you, how are you going to be able to afford to pay for the creation of new content or products?

To answer that question, we need to meet another type of customer. Enter the superfan.