The Magic and Misery of “Zero Cost”

June 17, 2008 • Media Economics • by

Werbewoche, May 23,2008

The things we get for free are worthless: this may be a commonly held belief, but in our daily behaviour we don’t always seem much influenced by it. “The Cost of Zero Cost” is the heading of the third chapter of a book that is neither specifically aimed at advertising and marketing experts nor at journalists or the managers working in the publishing industry. Nevertheless, it is vital reading for all media makers who still are surprised at the success of free sheets.

The book to which said chapter belongs has been written by Dan Ariely, Professor of Behavioral Economics at the MIT in Cambridge/Massachusetts. Based on the results of a number of experiments, he questions the basic axiom of his discipline – which states that human beings, at least in most situations, act along rational lines. Predictably Irrational is the title of this volume*, and in it the author demonstrates how, well, predictably irrational – and hence often little self-serving – people tend to be when forming their decisions.

“It’s no secret that we all are happy when we get something for free”, Ariely states and underlines that getting something “for free” doesn’t just mean that it comes at zero cost – but, rather, for many this expression carries “strong emotional overtones” and therefore acts as a “source of irrational exuberance”. He goes on to explain what he means, holding up a mirror to his readers: “Would you buy something that has been reduced from 50 to 20 cents? Maybe. Would you buy it if it has been reduced to 2 cents. Again, maybe. But would you grab it if you get it for free? I’ll bet you would!”

But that’s not all. Ariely shows, based on his own experiments, how miserably bad we are at calculating and how often free gifts turn out to be truly mixed offerings. For example, when people end up buying three cans of tomato paste, instead of one, simply because they get the third one “for free”. Or when they go to the museum on a Sunday, because on that day it is free, only to be annoyed by all the others who block their view on the exhibits. Or, finally, when people stand in line for half an hour to get their free ice cream cone, without considering how much better they could have spent that time.

A similar case could be made against free sheets. They, too, steal our valuable time, and since you get them, well, for free all they can offer – of necessity – is zero cost journalism. From an economic perspective, their editorial content merely serves as a backdrop for advertisers’ messages. Hence you really never know which pieces are real journalism, and which ones simply camouflaged advertising or PR…

Ariely interprets the magic effects of our “zero cost” thinking as the consequence of a deep-seated fear of loss. If we have to pay for something, we tend to be afraid of losing something (our hard-earned money, that is) instead of gaining from that deal. Only few among us seem to realise that they might actually get ripped off precisely when they are offered something “for free”.

All this makes you wonder when all those magazine and newspaper editors – who all try to keep selling their products despite the fierce competition from the free sheets (some of them even produced in-house) – will start to inform people about all this. Although, it’s probably too late for that, anyway. At least in light of the fact that during an international conference on the future of journalism, recently held in Yahoo’s Silicon Valley headquarters and attended by 150 experts from all over the world, micro-payments were no longer on the agenda. During the last 15 years, those minute charges incurred by clicking on specific online offers were considered by many hopeful software engineers to be the solution for financing Internet services and hence were at the centre of countless conferences. Today, they no longer seem worth mentioning.

“Journalism That Matters” was the lofty title of that conference, but the thought that users might actually have to pay for editorial content offered on the Internet was taboo even among the prophets of online journalism. One of the attendants admitted it openly by saying that she grew up during the Age of Free Internet Information – and therefore couldn’t even “begin to imagine actually having to pay for it”.

Hence we are stuck with the somewhat vague expectation that “somebody” will actually pay the bill, in the end. So far, this somebody has been all the advertising clients who used to place their ads in the media. Today, however, they are finding an increasing number of new ways to convey their messages – most of which no longer entail subsidizing journalism, traditionally a rather costly affair. On the one hand, this is due to new technologies which allow addressing the desired target groups with great precision; on the other, this is also connected to the fact that understaffed editorial offices have opened their doors all too widely for those helpful providers of PR content. Furthermore, the classifieds sections are bleeding dry – now more than ever, as Craigslist is about to repeat in Europe the phenomenal success it has had in the US. A success that is also based on the fact that, naturally, private clients can publish their small ads for free…

What remains is the irrational hope that some generous backer may step in, or even the state – whose attempts at correcting market failures all too often have ended in state failure, however.  Perhaps people will finally come to realise that “zero cost” news could cost us all very dearly in the end. For journalistic independence and editorial quality cannot be had for free – probably not even on the Internet – once they are no longer cross-subsidized by the “old” media and their advertising clients.

* Dan Ariely, Predictably Irrational: The Hidden Forces That Shape Our Decisions, New York: Harper Collins, 2008

Translation: Oliver Heinemann

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