So, Spotify has added a button that allows you to donate money directly to some starving hipster. Sorry, musician. Presumably the Berlin Philharmonic needs the cash or summat.
About which the Guardian’s music editor says:
Spotify’s ‘tip jar’ is a slap in the face for musicians. It should pay them better
Fans can now donate to their favourite artists via Spotify, but this feature is a tacit admission that the firm undervalues the musicians that make it viable
We’re unlikely to gain good economics from what appears to be Carrie Marshall in drag but still, this is a new low even for The Guardian.
For the economics here is really rather simple.
The aim is to maximise revenue. Whatever price we set there are some people who are willing to pay more than this. So, how do we stop them enjoying that massive consumer surplus by freeloading on the backs of those only willing to pay a little bit?
It’s called market segmentation. The Bentley, VW and Skoda are all built on the same platform, using the same parts (largely), in the same factory by the same people. They are not all the same price – those who can only spell to the second letter of the alphabet are willing to pay more for a motor so we charge them more. We can’t do this if all the cars are exactly the same, so we modify them a little bit and we can. We now maximise revenue.
What is Spotify doing? Revenue is maximised by charging everyone a tenner. But there are those willing to pay more and we’d like to dig that more out of them. So, add a button which says “If you’d like to pay more, pay more here!”. In which manner revenues go up. More than if we tried to charge everyone £11 because we don’t lose those who will only pay a tenner.
In this revenue maximisation process Spotify give that extra revenue direct to the producers – in a manner the car companies don’t to the people who build the cars. That is, Spotify’s behaviour here is better than the average profit maximising capitalist.
And for which they get grief.
The Guardian, wrong about everything. Always.