What would your reaction be if you walked into Starbucks and the barista told you that you could pay whatever you wanted for your coffee? Oh, and if you wanted all the money to go to charity instead, that’d be cool, too? In addition to buying 17 carmel macchiatos with the 13 cents you found in your pocket, you’d also probably wonder who in Seattle lost their sanity.
Well, that’s exactly the pricing model Humble Bundle offers. They provide limited-time offers on bundles of video games, in which buyers set their own price, and then choose how much goes to charity. The latest bundle, simply called “The Humble Bundle for Android 2″, was released just this week. How does it work? Instead of being one of those blogs that just regurgitates content found elsewhere, I’ll just point you to their video:
Here are some stats on their success: 2 years old, 2 million transactions, and $12.6 million raised for developers, charity, and themselves (the exact breakdown to each party isn’t made available). It’s an interesting pricing model that’s likely raised a handsome sum for charity, but could it be applied to other types of products as well? Let’s take a look at what makes the Humble pricing system tick and see where that leaves us:
Acting like the boss
When you learn that your boss at your new job doesn’t come into the office until 10:00 AM, you learn that’s OK if you don’t want to arrive until after 9:00. When he shows up in jeans, you can confidently come back to work the next day in that acid washed denim that’s been in your closet for 26 years (right?). He sets the norm; you feel better because you know what’s expected. Humble Bundle does the same thing. They start buyers off with a default split of 55% to developers, 30% to charity, and 15% to Humble Bundle. Hard to feel anxious about getting the allocation wrong, when a strong suggestion is made for you.
A gentle guilt trip
Humble Bundle does a couple smart things to encourage you to pay a legit price. First, they show real-time data for the average purchase amount. If you decide to pay less then that, they’ll remind you with a nice blue warning banner before you pay. Secondly, if you pay more than average, you actually get an extra game. It’s a slick combination of guilt and rewards to keep buyers honest.
Freeloaders don’t (really) count
Some users are going to pay only a few cents for these games. But in addition to not being cool, they’ll also be negated out by the thousands of buyers who do pay a reasonable price. A high transaction volume (over 70,000 just three days in) keeps the moochers at bay.
Downloading video games is becoming pretty standard. You do have Angry Birds, yes? Even though the pricing model is strange and new, everything other aspect of the promotion is standard fare. That’s important, because if potential buyers are asked to digest too many unfamiliar pieces, they’ll leave.
$0 marginal cost of distribution
This one’s pretty boring, but it’s one of the most important. Downloadable digital goods cost next to nothing to distribute. Each copy sold costs about $0.00 to make and deliver. So if a user pays a mere penny, no one is any poorer for it.
It’s indie developers who submit games to these bundles – newer companies who are relatively unknown. Even if these developers don’t make much per copy sold, they still benefit from the increased exposure and gross sales. Gamers benefit, too, by being exposed to quality games they may not have discovered otherwise.
If “set your own pricing” were available all the time, then that would customers to expect such treatment all of the time. That’s not sustainable, and it certainly won’t make developers happy. (Is there any reason why an “add your own donation” piece couldn’t stick around forever, though?)
That’s a long list of things that contribute to the success of the model. Could this work elsewhere? Not at Starbucks, but I think there’s plenty of ideas here that could be applied to online retail, for one. Where else do you think a Hunble-esque offering would do well? Let’s hope that Humble Bundle continues to be successful, raise gobs of money for charity, and encourages others to follow suit.