September 2019 issue
Twenty-six years ago we experienced a very unusual September. Whereas Septembers normally last for just thirty days, the September of 1993 was different. Nicknamed the eternal September, its effects still linger to this very day.
The eternal September marks the period in which AOL allowed non-technical users to participate in regions of the internet that were once reserved for the world's computer gurus. As a result, the status quo changed overnight. These new users took part in activities that were foolish, caused harm, and laid waste to the order that had once reigned supreme.
As pricers, we're finding ourselves in a sort of endless summer of our own. Historically unprecedented low (and even negative) interest rates and legions of zombie companies are causing havoc to the economy. Businesses no longer have to worry about prudent competitors; they now must concern themselves with firms that have no plan for ever earning a profit, surviving instead through continuous raising of capital from foolish investors desperate for yields.
The original eternal September did not herald the end of the internet, but it did signal a change to the internet. Similarly, the low interest rates of today do not mark the end of economics in the world of business, but they do signal a fundamental change to the ways that its lessons can be applied - at least for now.
Pricing Question from a Reader
Today's question comes from reader R. B.
In the old days, gas station attendants would fill up customers' gas tanks for free. Now drivers do it themselves. This shift in responsibility from company to customer has clearly saved gas stations a bunch of money. How can I do something similar for my software company?
Welcome to the World of Shadow Work
In economics, we have a term for what you're describing: shadow work.
Many businesses start out with a full-service concept. The companies will do anything and everything to keep their customers happy. After a while, however, owners discover that this approach can be quite expensive. As a result, they look to cut costs. While economies of scale and scope can help, a healthy bottom line can also be achieved by having customers take on responsibilities that were once seen as obligations of the vendor.
Can Anything Be Shadow Work?
Business owners would squeal in delight if every task could be handed off to their customers. Profitability would skyrocket because businesses wouldn't have to incur any expenses or perform any work. Of course, this is a clear impossibility. Few buyers would knowingly pay businesses without receiving something of value in return. Clearly some tasks must be kept in-house.
So how should businesses decide which tasks they can pawn off on their customers? Every case will be different, but here are a few characteristics of tasks that can be turned into shadow work:
- Work that does not benefit from economies of scale or scope - As a general rule, tasks that can be performed more efficiently at scale or scope represent a cost that trends toward zero for larger firms (especially when compared to a customer's cost of performing the work himself).
- Work that is enjoyable or interesting - If buyers have fun performing a particular task, why not let them do it? Have you seen pick-your-own strawberry farms, paint your own ceramics stores, or ready-to-bake bread?
- Work that can be used as a form of self-expression - When the performance or outcome of work can be used as a point of pride, you better believe that some people will jump at the chance to do it. One can look to the Ikea Effect for but one reason why.
- Work that is simple and routine - Work that is easy to explain and easy to teach will face lower levels of resistance from buyers.
- Work that involves minimal risk to the vendor - Transferring responsibility for dangerous tasks may result in higher levels of risk and reputational damage that far outweigh any short-term cost savings.
Some forms of shadow work aren't just accepted by consumers - they're actively preferred. For instance, when I go to the supermarket, I always bag my own groceries. I exercise much greater care than any cashier to ensure that my produce isn't bruised or mishandled. Not only that, but I'm also faster, I can arrange my purchases in my bags to my own preferences, and, as an added bonus, I don't have to make small talk with anyone.
Of course, not everyone feels the same way that I do. There are plenty of folks who care little for the state of their produce (or don't even buy produce, favoring boxed and frozen goods instead). There are also those who would rather not perform such menial tasks that are so clearly beneath them.
Understanding the preferences and cultural norms of your customers is key for the introduction of any shadow work initiatives.
Shadow Work for Software Companies
There are many types of software products, but I think the most exciting developments in the field of shadow work can be seen in the world of video gaming. Let's take a look at a few ways that today's most successful video game companies benefit from the use of shadow work (or something fairly analogous to it):
- Quality control - Video game publishers are notorious for leaving much of the responsibility for bug discovery to their paying customers. Sure, developers test their work to a degree, but with so many different models of computers and variants of operating systems, it's very tempting to outsource at least part of the work.
- Product management and feature selection - Many video games, like Minecraft, release unfinished products and request guidance from players as to what should be added or changed.
- Content creation - As early as the nineties, publishers of video games like Doom benefited from user-created modifications and skins. These adaptations change the appearance of the games as well as the way in which they function. As a result, the perceived value of the games increases.
- Training and documentation - A quick perusal of Google will find many customer-created guides, FAQs, tips, and configurations to assist customers in all sorts of unexpected ways. Volunteer-run WineHQ, for instance, contains instructions for running Windows games on Linux computers.
- Marketing - One of the most unexpected forms of marketing is known as the let's play. In the past, a team of developers would create a video game and then tell people about it. Now many developers are able to rely upon let's plays which are recordings of customers playing the games that they have purchased. Not only do these videos increase the discoverability of covered games, but they often engender greater feelings of trustworthiness and authenticity because they are made by third parties.
- Sense of fun - While developers were once responsible for each and every dopamine hit experienced by a player, now firms can rely upon other players to deliver them instead. I've examined this tactic in my article F2P, Class Struggle, and the Triangle of Value
It's important to remember that shadow work isn't just about offloading as much work as possible onto one's buyers. Instead, it's about identifying tasks that others can perform more efficiently, more effectively, or more enjoyably.
Of course the offloading of shadow work is rarely free and without risk. Sometimes it requires the creation of infrastructure. Sometimes it requires a rethinking of how a product is designed. Most importantly, sometimes its long-term effects may be hidden behind short-term increases in profits.
As with anything in life, the benefits of shadow work are not without their own share of risks. Caveat emptor.
Questions come from readers like you. If you'd like your questions answered, send them my way.
Pricing in the News
- Why Rate Cuts Don't Help Much Anymore - There's clear-cut evidence that cutting rates won't cut the mustard and should be cut out
- Amazon Squeezes Sellers That Offer Better Prices on Walmart - In the Amazon ecosystem, vendors may be up the river without a paddle
- Proposed bill would make monopolies pay serious fines - Will this harm big business like nobody's business?
- Big Pharma is using faux generics to keep drug prices high, critics say - Real profits come from fake competition
- A Mexican Hospital, an American Surgeon, and a $5,000 Check (Yes, a Check) - Hospital care so cheap, you might just earn a profit
- America is obsessed with beef. But it has no use for hides, so leather prices plunge - Ranchers are having a cow, but there's no point crying over spilled milk
- Uber made nearly $500 million from a 'safe rides fee' - and that money went straight to the company's pockets - Company charges money for doing nothing and still can't make a profit
- Hurricane Dorian: Delta capping flight prices, American offering reduced fares from Florida as hurricane nears - The price of airplane tickets dropped during the hurricane - results are still up in the air
- India's Restaurants Rebel Against Food Delivery Apps - I'll eat my hat: customers are eating high on the hog as restaurateurs are getting eaten alive because they're eating the costs associated with the dog-eat-dog competition
From the Blog Archives
- Can a Higher Price Seem Lower than a Lower Price? - Spoiler: maybe
Notable Pricing Quote
"The price of inaction is far greater than the cost of making a mistake." -- Meister Eckhart
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