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On this weeks episode of gdgt weekly (iTunes), Peter Rojas and Ryan Block discussed the new Android based phone.  For those of you who aren’t familiar, Android is Google’s new cellphone OS.  It is hailed as an open platform with very little restriction on developers and users.  I haven’t used the phone so I can’t provide any input on usability or comparability to other phones.

On gdgt they claimed that Android is better than Windows Mobile.  They brought up the fact that Windows Mobile has been around for awhile (currently on ver. 6.1) and this is Android’s first release.  They seemed pretty shocked/impressed that a the newcomer can outdo the old timer.  Personally, I don’t find this all that shocking.  If anything, I think it makes some sense that the first version software can be better than the seasoned veteran.

Google’s advantage comes from the sunk costs in a project.  The sunk costs are what you have put into a project that should be irrelevant when making future decisions.  Since they are already in the project and can’t be recovered there is no reason to consider them in future decisions.  The problem is that sunk costs often lead to commitment bias.  This bias causes a someone to stick with something because they have already put in time and money.  An example is putting a lot of money in a stock that then starts to lose value.  If you fall victim to the commitment bias then you will feel the need to stick with the stock because you have already “come this far”.

A commitment bias isn’t always caused by money.  It can develop because of the amount of time invested or even from irrational feelings.  This can manifest in software and OS development.  A team will spend a lot of time and money developing a UI.  Over time, the original idea may not be the best approach.  To fix it up, the team decides to do little fixes and enhancements.  The idea is they have already put in so much energy that minor fixes is all it needs.  Sometimes a better idea would be to scrap the design and start over.  The longer they stick with it, the harder it is to just start over.  This will eventually put the software at a competitive disadvantage as the competition implements a better UI.

Those developing a ver. 1.0 has less of a commitment bias because there will be less sunk costs.  They can test out different ideas with less guilt if they change directions.  They can also evaluate the competition more effectively.  If they see something wrong in the competition’s UI, they can leave it out early on instead of having to make drastic changes later.

It isn’t that shocking that a version 1.0 software can beat out a 6.0 or 7.0.  In fact, we have seen it at least twice over the past two years with both Google’s Android and Apple’s iPhone.  The question now is whether Microsoft will pull away from previous biases and sunk costs to create something that will push the platform forward.

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About a month ago, there was news that NBC and Apple were having trouble agreeing on terms for the renewal of their contract to distribute NBC shows on the iTunes Store. It seemed that the one main snag had to do with pricing. Apple wanted to keep it the same, NBC wanted variable pricing.

Currently, TV shows on the iTunes store cost $1.99 across the board. They can be half an hour or an hour, popular or obscure, comedy or drama. Either way, they cost $1.99. Variable pricing would allow the TV network to set the price how they see fit.

Shortly after rumors leaked that the contract would not be renewed, Apple issued a press release stating that the reason for not renewing the contract was:

“Apple declined to pay more than double the wholesale price for each NBC TV episode, which would have resulted in the retail price to consumers increasing to $4.99 per episode from the current $1.99.”

NBC came back to say that the reason was that they wanted more flexibility with pricing and the ability to have variable pricing. (Couldn’t find the press release)

From this perspective, NBC clearly looks like the bad guy to consumers. How dare they raise prices, don’t they know we can get this stuff for free over the air (cable) and on the internet (torrents). Apple clearly loves us little guys (although the consumer base can by no means be considered little) and is willing to fight for us. Right?

Let me paint you another picture. Apple is hurting us as consumers. They are taking away our power and at the same time making it look good. If Apple were to allow NBC use variable pricing, the consumers could then have an influence on setting the price. Will NBC set crazy high prices like $5 per episode of Heroes, you bet. At the same time they will lower the price of some less popular shows to $1.

If consumers are really so upset about the price at $5, hopefully they won’t buy, and at the same time they might check out that mediocre show for $1. By using variable pricing, NBC can judge the market to see what people are willing to pay for the TV shows. Their results could show that people are willing to pay $4 for an episode, but they could also show that sales will triple if they cut the price to $1. If NBC were able to judge this correctly, it could greatly benefit us consumers. As it currently stands, NBC has no way to tell if they could make more money by lowering prices because Apple wields the power. Sure consumers could get hurt by this, but I would rather have the power to influence price then have no power or choice at all.

My idea would work great, except there is one glaring problem. The media distribution agencies (MPAA, RIAA, TV Networks) are very cautious when it comes to internet distribution. They assume that all of their customers are thieves and thus interpret any bad result as a failure of the distribution channel rather than high prices. This means that they might price the episode at $5 and justify the declining sales as the falut of the internet. This is one major problem with the industry, if they could get over this and realize the benefits of internet distribution they could rake in the cash. Until then, Apple may end up being the good guy that sticks up for the consumer. As good as that sounds, it is unlikely. Remember that Apple is in business to make a profit, not help out everyone.

In the end, would you rather have a chance to influence prices or have no shows on iTunes. I vote for variable pricing.

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