We all know the feeling when we get an unwanted gift, whether it is an unexpected pet fish, a candle to add to the pile, or Aunt Clara’s rabbit pajamas: sometimes people, even with the best intentions, miss the mark. Current Apple CEO Tim Cook, is currently facing a twitter-storm because Apple automatically credited a U2 album to everyone’s iTunes account, regardless of whether they wanted it or not. Many people are countering, saying that it’s extremely selfish to be upset about receiving a free album. “What kind of person would complain about that” or, “Who doesn’t love Bono!” they say. Doing so, however, ignores a core driver of what causes individuals to be motivated to pay for a variety of goods and services in the market place: preferences.
For those who don’t know, as part of a marketing ploy, Apple paid artist U2 100 million dollars to obtain the right to distribute, for free, the band’s newest (albeit mediocre) album entitled “Songs of Innocence.” Every single person who has iTunes has had the album credited to their account regardless of whether or not they chose to buy it: lowering the hipster credibility of iPhone users everywhere. In doing so, they’ve ignored an important part of what drives consumer economics, and that is something called ‘utility.’ Essentially, utility is a fancy word for a unit of ‘happiness’ and everything that is bought in the marketplace generates some amount of it for the person buying it. In addition, the same item in the marketplace can generate different levels of utility for different people, for instance, Jackie may prefer to listen to Beyoncé when she’s on her way to the club, while Barry really likes to sit back and listen to the Eagles in his easy chair while drinking a beer. In this case, Barry gets more utility from a new Eagles CD than a new Beyoncé CD, while Jackie would get more utility from the new Beyoncé album. This all boils down to the idea that different people have different preferences, and because of it they like to spend their money and time in different ways.
Most economics deals with what we call ‘goods,’ or things that generate positive utility which make people happier, but there are also ‘bads’ which are things that make people less happy, and ‘neuters’ which don’t change how happy the person is. Just like before, happiness is dependent on the person who is receiving the item in question. A good example is cats. If someone were to leave a box full of kittens at my door with a sign saying ‘yours’, I would be pretty annoyed. For one, no matter how much enjoyment I get from watching them play with balls of yarn, that enjoyment doesn’t outweigh my dislike for the task of scooping the litter every day, and, in addition, my landlord would likely charge me to replace all the carpets in my apartment. These cats wouldn’t make me happier, and having them; even for free, makes me less happy. Giving those same cats to my COMPLETELY fictional neighbor who we’ll call Betsy, on the other hand, could make her greatly happy, and maybe she’d rather spend time with her new kittens than yelling at me to turn my music down at 5:00 in the afternoon. Win win. In essence, this is what Apple has done for many users of iTunes, ignoring the fact that many people either don’t care about or actively dislike U2’s music, which has for some caused undue distress. I know that I lost several friends overnight, when, while perusing my library, they discovered as much to my surprise as theirs that I’d suddenly and in a Lovecraftian fashion transformed into a fan of U2.
While U2 made out quite well with this new deal: achieving a huge amount of market penetration all the while getting a hefty check, Apple seems to have been left to face annoyed anti-U2 app users alone. Love it or hate it, you now own it. But let’s not be ungrateful. Come downstairs in your rabbit pajamas and we’ll listen to uncle Ted’s gift together.
For more, here’s an NPR radio article on Apple’s album release.