Jim Raggi, the creator and publisher of LotFP, has been on a pretty crazy pay-what-you-want binge lately: in addition to selling adventure modules for his game in digital format as pay what you want - as others have been experimenting with through the last couple years - Jim has also started going to conventions with that same model: he sells paper books face to face with the customers paying what they feel the products are worth. He's done this at about half a dozen conventions so far, and apparently it roughly doubles the revenue at the cost of what amounts to a moderate discount to the customers. Well worth it for direct sales, I understand.
A couple weeks ago Jim floated the idea that he's itching to do a crowdfunding campaign for a new paper book as pay-what-you-want. I was initially rather skeptical about the math of the matter; the Internet can be a cruel mistress, and it can be difficult to predict when 4chan or some such Internet jury decides to make an example of you. What if you just end up printing thousands of books at your own expense for assholes who want free swag, or who just want to see you squirm?
Jim's not exactly one to listen to the voice of reason, so now he's started this crowdfunding drive with Rafael Chandler
: a goal of 5,000 €, no contribution levels, and every contributor gets the book at the end. There are fortunately certain mathematical constraints that work to make it very unlikely that they'll go bust with this experiment. For instance, consider these points:*
Jim's not actually selling books, he's selling 100% discount coupons for books in his webstore. This means that the contributors will still have to pay postage for the books if they want a paper copy. (PDF you get regardless, of course.) That's an effective bottom on the unit price at which you can get the book, as even if you were to contribute a close-to-zero amount of money into the campaign, you'd still have to pay the 5 € or whatever to have the book shipped.*
Each contributor only gets one copy of the book. Not that you couldn't get around this with shenanigans if you wanted, but at least trolling Jim here isn't as simple as clicking a button.*
The actual profit of this enterprise basically comes in the form of a lowered unit price for the books: even if Jim ends up selling the first 500 or 1,000 units at a harsh discount, he'll still benefit in that he can use his own money to extend the print run and then make money by selling the cheap units later, via distribution and long tail direct sales. From this perspective it's not that important for him to get a good profit margin from the initial crowdfunding project, as long as it pays for those first 500-1,000 books; thanks to the way set-up costs for printing work, those are the most expensive books to print, after all
Anyway, I've been following Jim's antics with pay-what-you-want, and I'm curious about what others think regarding this business model: why is it working, will it work in the long term, and could it work on a larger scale? What are the limits here? Economic armchair theory would seem to indicate that this can't be an universally successful sales strategy due to the way it loses pricing information (the customer has to rely on competition to get a sense for what the appropriate price is), but one has to admit that it seems to be working for Jim here and now. Should I be planning to throw myself to the mercies of the customer base in this same way with my next project?
It occurs to me that this approach might work for rpg products as well as it does because of the specific traits that rpgs have as products, in comparison to some other things one might sell. For example, rpgs are luxury products (the demand is elastic, people only buy them for want, not need), and the competing products are generally not directly comparable, and the customers have at least a little bit of social investment in the producers. Toilet paper, for comparison's sake, has none of those qualities - could a paper factory sell toilet paper as a pay-what-you-want product? Crazy thought. Why does pay-what-you-want work at all?