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Monthly Archives: May 2011

Lodsys didn’t invent in-app purchases but wants money for every one

Lodsys, a company that produces no products, has been sending out letters to Apple App Store developers demanding license payments over their patent on in-app purchases.  While Apple itself is mixed up in more than a dozen patent lawsuits, it is becoming growingly apparent that there is no area safe from a patent lawsuit.  Lodsys, who seems to be offended at the idea that people call their company a patent troll, is only looking for 0.575 percent of in-app purchases.  Now Lodsys didn’t invent this patent. They purchased it from Intellectual Ventures.  And the patent itself is pretty obvious.  Applications and websites have long had purchases to be made after opening their program (or site).  This just applies to the mobile version of doing that same thing.

How is innovation served by paying Lodsys?  How does paying Lodsys promote the progress?

For developers, you can get some advice here on what to do if you get one of these letters.

Price regulations should fix inefficiencies, not cause them

France is push forward a law to place price regulations eBooks.  This expands current price regulations on paper books that requires all books sold in France to be sold for the same price – no discounts. The law aimed to protect small book stores, but it now going to cover eBooks regardless of who is selling them.

Our love for the corner book store is wonderfully nostalgic, but economically inefficient.  While we in the United States lament Walmart and Amazon pushing out mom and pop bookstores, the reality is authors are publishing more books than before, and people are reading more books than ever before.  And because eBooks reduce upfront and marginal costs for book publishing, authors are more able to read audiences. Amanda Hocking, for example, has been selling her own, cheap eBooks without a publisher and is making millions of dollars.  Even publishers are starting to see the success of eBook revenue – Hachette claims more than 20 percent of its U.S. revenue is from eBooks.

Let’s ignore the impossible regulatory nightmare France opens up by trying to regulate online businesses like Amazon and Apple.  Rather price regulation is a mistake France and even digital media companies are making.  Apple and Amazon set very specific prices on songs, movies, and TV shows. Almost every new video game is sold for $60.  These are price regulations even without government interface, and they only lead to economic inefficiency.  It means more popular/valuable products can’t sell for higher prices and less popular ones can’t sell for cheaper.

Like Amanda Hocking, other digital products not subject to price regulations are seeing great success with lower prices leading to great profits in greater volume.  Game publisher Valve discounted Left4Dead significantly and found sales jumped 3,000 percent – leading to more sales than its opening weekend.

Remember, price and value are not the same thing. We all value air immensely, but the price is free. When something many people value is made cheaper, then the market for that product increases.  With smart pricing and other business models, businesses can make more money with lower prices – computers are more valuable today, but are far cheaper than 10 years ago.

Price regulations can be used to fix inefficient markets, most specifically for products where the overall cost is not built into the price.  For example, oil is running out and damages the environment, but these costs are not felt by the purchaser because the costs will come years later.  Smoking also will lead to greater health costs in the future, but that is not built into the price of the initial purchase.  This is why taxes can help limit these markets for the better.

It’s a very fine line to find an inefficient market.  Price uniformity is in the form of price regulation is inefficient.  Maybe that’s why so many economists oppose it. Or tax a working market just because. Utah seems to like that idea.