I have a cool new app idea! How do I get started building it?

Why I’m writing this

“I have a cool new idea for an app! How do I get started building it?” I get some form of this question about once a month. It recently came up again over lunch with a friend who owns a small, successful business. “I have an app that we’ve been using at my business for a couple years. I think it could really be valuable to other businesses like mine, so I’ve been talking to a couple of my friends, and I think we’re going to go in together and build the app out so we can sell it as a service to other businesses.”

As we talked, I heard some really encouraging things and some red flags.

Encouraging

  • A few other business owners have told him they think it’s a good idea and they would be interested in learning more.
  • He already has a prototype that’s a functioning web app, so he wouldn’t be starting from scratch.
  • The app saves him a lot of money every month by almost eliminating the time needed for one aspect of his business’s customer service; it also brings in a little revenue of its own.
  • He has direct access to a good-sized target market. His particular business is very well respected in his niche, and those who respect him could benefit from this product and would take his call if he wanted to ask them to try it.

Red flags

  • He wants to bring a couple of technical people in as co-founders to start a company and build the app.
  • His background is in sales and marketing, but he has little technical expertise (someone else built the current app with his direction and input).
  • He’s already pretty busy running his current business day to day. He also owns another totally different business on the side.

After lunch, I told him I would think about his idea and email him with my thoughts. I realized I had a lot more to say about his idea and I put together a long email, hoping to help him avoid some possible pitfalls and set him up with an actionable plan in case he moves forward with his idea.

Then I realized this could really apply more generally to the question in the title of this piece. So I’m posting it here and I’ll refer future requests here as a starting point.

Here’s the email, slightly edited. I swapped out the specific function of the app for a generic term “uses” or “instances” so I don’t give too much information about my friend’s business or his app. I also edited for brevity in some spots.

The email

DISCLAIMER: I’m not a lawyer or an expert on building apps or starting businesses, or co-founding, or equity, or anything like that. If you need an expert or a lawyer, you should go find one 🙂

Howdy!

I looked at the app on your site, and it’s pretty cool! I’m happy to talk about this over lunch some time, but here are my general thoughts. Everything I’m saying here is from the perspective of how to build and grow a business to give yourself a good shot at success. I’m not really looking at it from the perspective of someone who just wants a challenge, or something to do with friends, or is looking for a new project.

Overall bottom line

  1. Get a rough idea of who you’re going to sell to and what you’re going to charge.
  2. Go find potential customers and see if they’re really interested. Get a commitment from them that they would pay for your product at a certain price-point. You may also want to put up a “landing page” where other potential customers can sign up for a mailing list and/or pre-order.
  3. If there’s real interest then start building it either by outsourcing or with a single technical co-founder with experience in this area.

Revenue model

Bottom line: I recommend charging monthly using a tiered model based on number of times they’ll use the app. I don’t know where the prices should land (I’m not sure how much value the app adds – more on how to figure that out below), but something like: “Up to 50 uses a month for $149/month; Up to 100 uses a month for $249; Up to 200 uses a month for $399; Up to 1,000 uses a month for $999; Call for Enterprise pricing”.

You should start thinking about this now. You may change it later, but it’s important to know how this app will actually make you money. Are you just charging customers a monthly fee to use it? If so, does every customer pay the same amount? How do you differentiate between “big” and “small” customers? Or maybe you just take a cut of premium upgrade fees and give the app to customers for free.

How to determine price: The easiest way to do this is just to figure out the value-add for a customer and price accordingly. You mentioned that you used to spend a lot of time every day for this aspect of your customer service. You could do a rough guess on how much time you save (man hours) per month with the app, then figure out what that translates into on a per-use basis for you.

Example: “We complete about 100 instances a month. My employees probably spent about 40 hours a month performing this function manually, and my cost of payroll is about $12 an hour. I don’t save all of that time because the app doesn’t replace all of the manual work, so let’s call it $400 a month in savings.” But this app also increases top line revenue, so you could add, “And we make about $100 a month from upgrades. So we’ll save total value is about $500 per month at my store.” But you have to add value – not break even – for your customers, so let’s cut the cost to the customer in half: $250/month for 100 uses.

This is just a ballpark number that you would use to build other tiers around so you have a pricing plan to show to potential customers. The reason this matters is that the next thing you need to do is…

Marketing and Customer Development

Bottom line: You should find customers before you invest the time and resources in building the product. You want to go out and find a few customers who have the pain point you’re addressing, and who are willing to pay for your solution. If possible, you want some kind of commitment that they’ll be a customer when you launch. I’d say you want at least five customers who say, “Yes, I have this need and I would be willing to pay that amount for a product that addresses this need.”

If you’re serious about building this app, you should start with Marketing and Customer Development. You should start by going out and finding customers who will pay for your product. From what you told me at lunch, this could be easy – but you won’t really know if it’s a viable (meaning – profit-generating with customers ready to buy) business idea until you have commitments from customers to give you money to use the product.

So you’ll call up some of your contacts in your own niche and ask them if you can get their feedback on a product idea you’ve been thinking of bringing to market. Show them a demo or some mockups to get their input and gauge their interest. Then ask them if they’re a customer at their estimated price-point, and ask if you can keep in touch with them via email as you move forward with the project. You want to leave the meeting with two things: 1. Some kind of commitment that they’re a customer around the price you anticipate charging them (this could range from a verbal commitment to a pre-order); 2. Some way to keep in touch with them (email, phone, etc.).

If you’re able to get five commitments or so, you’ve got a good thing going and you should think about developing the app. But first, you might want to set up a “landing page” – a one-page website with a little brochure about what you’re building, and where potential customers can sign up for a mailing list to keep up with your progress. You could market this page and continue soliciting signups as you build the app so that you have a nice mailing list to reach out to when you are ready to launch (or do a Beta or whatever). Marketing will be an ongoing activity as you develop the app, and it’s best to start early.

Co-founders

Bottom line: In your case, I would recommend either 0 or 1 co-founders. Since your available time to work on this is limited, it seems like you’d be best off getting one technical co-founder to manage app development (including outsourcing if you want to save time by spending more money).

Now I’m finally getting to co-founders! You’ve gotten to this step because you’ve figured out a potential revenue model for your product, and you’ve found a number of potential customers who said they would buy your product at some price. So it’s time to figure out how to bring this to market given your constraints. In your case, it seems that your constraints are primarily your available time to invest in building another business, and technical expertise. (Your strengths are that you are very comfortable running a business, and you’re an experienced Sales and Marketing guy.)

I think you should have a really, really strong business reason for bringing on co-founders. For example, if I decided to start a business tomorrow, I would be capable of owning the technical aspects of the business (technology, writing code, testing, etc.), and a lot of the business operations (cash flow, whether to hire, etc.), but I am pretty green when it comes to Marketing. If I were bringing in a co-founder, I think my blindspot is Sales and Marketing, so I would try to find someone who is very strong there. But I wouldn’t go after multiple people with that skillset – just one.

Be careful bringing on co-founders – they’re very expensive and difficult to get rid of if they don’t work out. If you give someone 25% and they work a few months and then get bored and moved to Indiana, they’re still a co-founder with 25% and that would be really unfortunate. [Digression, which I didn’t include in the email itself: You can do some smart things around vesting periods that mitigate this, but their ownership stake is only a small part as they’ll also be influencing the actual operations of the business, possibly slowing it down or derailing it, or just generally getting in the way.]

It sounds like you had a good idea, and talked to some friends, and they thought it was a good idea, so you’re all thinking of co-founding together. But you already have the idea and you had a prototype built. And, if you’ve gone through this progression the way I wrote it, you’ve already gone out yourself and found people willing to pay for your product. What you need now is technical expertise. I think it’s reasonable to find a technical co-founder, but I don’t think it’s necessary (or even useful) to have multiple technical co-founders. The difficulty in managing the business increases exponentially with more co-founders–the more you have, the harder it is to make decisions, and the more likely someone will just free-ride on your work.

Things I would look for in a technical co-founder for your idea (these aren’t all mandatory)

  • Has some level of business experience – after all, you’re co-founding a business. You want your partner(s) to know something about what that means.
  • Experience building web applications.
  • Experience with billing and payment integration into applications (you’ll be taking money and he’ll be responsible for making the app do that).
  • Experience with multi-tenant web applications (“multi-tenant” just means that the app can be used independently by multiple businesses without them seeing what the other businesses are doing).
  • Experience managing technical resources. Odds are you’ll need to outsource some of the work (although a really strong technical founder could at least build the prototype and Minimum Viable Product).

You could also do this without a technical co-founder, but it would be tough. What you would need to do is find a web app developer who could build the app as a contractor or something like that. This could be problematic for a few reasons:

  1. It might be tough for you to manage a contractor given that you aren’t experienced with app development. It’s not impossible that this could work (after all, you have a prototype), but it could be tough.
  2. Proficient web app developers are in very high demand right now, and could be both difficult to find and expensive to hire.
  3. If you want to move quickly at all, it would probably be better if your technical lead was really invested in making this product work and bringing it to market. Contractors charge by the hour and would be pretty happy to just plod along at a reasonable rate. A co-founder with equity would want to start generating revenue quickly in order to get paid.

I’m not trying to discourage you here – I know it may seem that way. I’m trying to help you maximize your chances of succeeding without running yourself into the ground. I’ve heard this methodology described over and over again, and I wish I had approached TaskBook this way.

Some resources you may find helpful

  • Most of the “get customers and signups first” stuff I am talking about is based on Nathan Barry’s book, Authority.
  • Startup For The Rest of Us is an excellent podcast on startups. I’ve listened to about 60 episodes and I’m moving through them as quickly as possible. You could scan the list of episode names for relevant topics (co-founders, customer development, etc.).
  • Amy Hoy’s blog is a great resource for bootstrappers. In particular, How do you create a product people want to buy? might be helpful to you right now.
  • Product People is a really great interview podcast where Justin Jackson asks entrepreneurs about their products and businesses. It’s a really informative, and really easy listen.

Slowing recovery by maintaining the status quo

The monthly jobs report dropped last Friday, and shows a sluggish, but steady recovery. I think this chart is pretty interesting:

EmployRecAlignJune2013

HT @justinwolfers for sharing that pic on Twitter, and obviously Calculated RISK Blog for posting the original.

Note how slow this recovery is, but also note that recoveries have been slowing over time – the U-shaped curves are getting more and more pronounced (less V-like) over time. This is true for the past four slumps (1981, 1990, 2001, 2007). It seems the most unique thing about the current recession isn’t just the time-to-recover, but the depth of the recession. This (admittedly very speculative) post is about the duration (and the trend to lengthening the duration in successive recessions), not the depth.

My purely qualitative theory is this: Government and industry are both mostly interested in maintaining the status quo. So, when something happens (an economic jolt, disruption, globalization) that threatens the status quo, we often must choose between letting the change happen, and trying to protect the status quo. The issue is that we often protect the status quo at the expense of economic efficiency, and this happens aggressively during recessions.

Too Big To Fail (TBTF) was a great example of this. I don’t think anyone thought, “It’s long-run economically efficient to bail these banks and creditors out.” Instead, the rhetoric was, “If we let these banks fail, our economy will crumble and who knows how long it will take to recover.” We knowingly made inefficient decisions to protect the current status quo – we weren’t willing to accept the pain of an economic correction that severe.

On his EconTalk podcast (an excellent, excellent podcast that I highly recommend), Russ Roberts frequently refers to the “Bootleggers and Baptists Theory“. Basically, bad stuff can happen when apparently-opposed interests pursue a common interest that benefits them both at the expense of society. In this case, the bootleggers were the banks, and the baptists were the politicians who (ostensibly) believed America couldn’t handle the economic fallout of allowing the banks to fail. The result was TBTF, and hundreds of billions in bailouts to banks who had already demonstrated that they were not acting in an economically efficient manner. It seems obvious to me that the banks should have failed if we’re interested in economic efficiency. They obviously didn’t operate efficiently, and the market tried to destroy them when the housing bubble popped. But rather than allow them to fail, we propped them up with tax payer dollars.

In general, we see this with rhetoric about how so and so industry is crucial to American interests, and we must protect it. The results are subsidies, favorable regulations, licensing regimes and the like. These are all essentially government and industry working together to maintain economic inefficiency for the benefit of the few, at the expense of the masses. Basically, we allocate capital (human or fiscal) to maintain the status quo rather than allowing the economy to adjust on the fly and reallocate capital efficiently. This is “sustainable” when everything is rosy – there’s all kinds of money available to maintain the inefficiency when the economy is booming. But as soon as we experience a bust, the money dries up and we can’t maintain the inefficiency because there simply isn’t enough capital.

My theory is that the more we support inefficiency is good times, the longer it will take the economy to adjust in bad times because it’s so difficult to unwind the inefficiency. The beneficiaries of the inefficiency are loathe to release the control they gain, and that control must be slowly pried away from them by economic forces over time. The more control they have, the harder it is to pry away from them. TBTF demonstrates this well: It was actually a last-ditch effort to maintain the status quo after the housing bubble burst. The “so and so industry” of the 90s and aughts was the housing industry. We put all our eggs in that basket, promoted it, lobbied for it, subsidized it, did everything we could to bolster it, ultimately misallocating a substantial amount of capital to that particular industry. When the market couldn’t bear the weight of the inefficiency, it collapsed, and the government stepped in with TBTF (a collaboration of government and industry) to try to maintain the status quo. 1 2

This all reminds me of one of my favorite E.A. Poe short stories – The Facts in the Case of M. Valdemar. WARNING: SPOILERS LIE AHEAD!

The story is basically about a sick man (M. Valdemar) who is hypnotized and put into a sort of suspended state to prevent him from dying. He’s very ill and would soon die otherwise, but a “specialist” thinks he can prevent M. Valdemar from dying by putting him in a sort of hypnotic state. It works, and M. Valdemar is held there in suspended animation for a long time (like seven months). Eventually, he starts mumbling and moaning, and his caretakers/experimenters are worried something isn’t right. They decide to ask him what’s wrong. That’s where I’m picking up with the story:

“M. Valdemar, can you explain to us what are your feelings or wishes now?”


There was an instant return of the hectic circles on the cheeks; the tongue quivered, or rather rolled violently in the mouth (although the jaws and lips remained rigid as before;) and at length the same hideous voice which I have already described, broke forth:


“For God’s sake! — quick! — quick! — put me to sleep — or, quick! — waken me! — quick! — I say to you that I am dead! “


I was thoroughly unnerved, and for an instant remained undecided what to do. At first I made an endeavor to re-compose the patient; but, failing in this through total abeyance of the will, I retraced my steps and as earnestly struggled to awaken him. In this attempt I soon saw that I should be successful — or at least I soon fancied that my success would be complete — and I am sure that all in the room were prepared to see the patient awaken.


For what really occurred, however, it is quite impossible that any human being could have been prepared.


As I rapidly made the mesmeric passes, amid ejaculations of “dead! dead!” absolutely bursting from the tongue and not from the lips of the sufferer, his whole frame at once — within the space of a single minute, or even less, shrunk — crumbled — absolutely rotted away beneath my hands. Upon the bed, before that whole company, there lay a nearly liquid mass of loathsome — of detestable putrescence.


Although they found a way to maintain the status quo, suspending his death – an inefficient decision since they weren’t doing anything to actually address the causes of his illness – his body was primed to deteriorate just as it would’ve without the intervention. They managed to delay the inevitable for seven months, but once they woke him, efficiency was restored and he turned to a “nearly liquid mass of loathsome — of detestable putrescence.” At least M. Valdemar’s body was eventually allowed to correct itself very quickly. This doesn’t quite match my analogy to U.S. industry — we would’ve brought specialists, lobbyist, regulators, politicians bedside to try to slow the decay as much as possible, even after he awoke. We would’ve moved him into a freezer, or given him medicine, or whatever might work to preserve the status quo as long as possible.

So many of our economic interventions – supported by industry and politicians alike – are just like this hypnosis. They postpone the inevitable, but are ultimately bad for the economy as a whole. We hold on to economically inefficient regimes to maintain the status quo, but we’re only postponing the inevitable and misallocating resources in the interim.

FOOTNOTES:

Make Better Hashtags With Camel Case

There you are, casually perusing Twitter, when all of a sudden you’re forced to decode a jumble of letters–you’ve run into a garbled hashtag. “I don’t even like word jumbles!”, you shout at your poor, startled roommate, who fell asleep on the couch watching Mythbusters re-runs again.

You didn’t sign up for this, right? You’re only messing around online because you’re procrastinating on a paper that’s due in 12 hours–you’re trying to avoid thinking hard about words and letters and English. No, it’s not fair that the Internet gave you this hashtag to decode, but there’s nothing you can do about it now. You just have to soldier on, decode that sucker, feel that twinge of disappointment when the effort isn’t worth it, and move on to the next Tweet.

But you can do something to help future generations: start using Camel Case for your hashtags, and maybe the change you make in the world will boomerang and make your life better in the future. I took to Twitter on Valentine’s Day to try and get the word out:

Camel Case is a way to write human-readable, multi-word strings sans spaces and special characters. Basically, you capitalize the first letter of each new word in the string, so you can see the individual words at a glance. It’s been around for a long time in computer programming and chemistry, whose taxonomies involve long, continuous strings of words and individual characters. Most user-facing applications and interfaces don’t need Camel Case because they’re usually pretty comfortable with spaces–they’re designed to be human-facing, human-readable interfaces–but you may have seen Camel Case in online usernames (“FrankTheTank”) and a few other places.

Aside from usernames, the most common user-facing, non-spaces, multi-word user interface element is probably the hashtag. But for some reason, people haven’t adopted Camel Case for their hashtags. The result is that hashtags are as much of a nuisance as a tool. But they don’t have to be! Here are some examples of hashtags with and without Camel Case:

nocamelcase

  • #followfriday
  • #justsayin
  • #nofilter
  • #happybirthdayjosh

WithCamelCase 1

  • #FollowFriday
  • #JustSayin
  • #NoFilter
  • #HappyBirthdayJosh

See how much easier it is to read the Camel Case hashtags? The Camel Case hashtags are still clumped up, but at least we immediately know where their words begin and end, making it a lot easier for us to process and decode them.

So, do yourself and everyone else a favor and use Camel Case for your hashtags. Your followers will thank you.

FOOTNOTES:

A Suggestion for Planet Money: Investigate why the healthcare market isn’t competitive

Planet Money podcast: Please consider a second part for “Episode 439: The Mysterious Power Of A Hospital Bill”

I’ve regularly listened to Planet Money for a few years now. I’ve occasionally had qualms with an episode, but it’s a great podcast, and I’ve learned a lot from it. This Tuesday’s episode was about healthcare costs, and it focused on Steven Brill’s ideas (Brill just wrote a whopper of a cover story for Time: “Bitter Pill: Why Medical Bills are Killing Us“).

You should listen to the podcast to get the full flavor of the conversation. But the gist is that costs are high because insurers lack bargaining power. The silver lining is that Medicare actually pushes costs down because the program has so much bargaining power. Brill suggests we lower the age for Medicare so that costs will come down.

Near the end of the podcast, they acknowledge that there may be an alternate way to push costs down: competitive markets. But they quickly brush this aside after about a minute with, “Obviously we’re not gonna’ settle this debate right here.” Then they close the show. While I understand the time constraints of the podcast, I’m concerned that what they really mean is they aren’t going to try to settle the debate at all. I hope they revisit the idea that competitive markets could help bring costs down, if only healthcare were a competitive market.

“Healthcare is fundamentally different”

Here’s their reasoning for why this just wouldn’t work: Around 16:00 into the 18:00 podcast, they say “…healthcare is fundamentally different. If you have chest pains, you’re not gonna’ like get on the Internet and start Googling ‘what hospital in my neighborhood has the best price for heart attack treatment’, right?. You’re gonna’ call 911, and the ambulance is gonna’ come and get you and it’s going to take you wherever it takes you. So [Steven Brill] argues that the model is not really a sensible model to use for healthcare.”

This just seems like such a weak argument to me. I’m not going to settle the debate either, but I’d like to at least throw out some ideas, and point out how shallow this example is.

How much healthcare spending is on traumatic life-and-death care?

First of all, I’d be curious how much of our healthcare spending goes to this type of suddenly-traumatic and life-threatening situation. My guess is that the vast majority of “healthcare spending” happens in a planned, calculated way. People find out they’re sick, they get a first, second, third opinion. They decide on their course of treatment, and they sign up to receive that treatment at a hospital. There’s a lot of room for regular old competitive markets here. Nobody’s being whisked anywhere in an ambulance. The real question is why healthcare markets aren’t competitive in these planned-care situations.

But let’s look at this heart attack example since it seems to be the most extreme. Someone suddenly finds himself very ill, nearing death, and must seek treatment immediately. He calls an ambulance, and is simply taken to the nearest hospital. Cost is not a factor in any of this because he just doesn’t have time to think about cost. If he stops to negotiate price, he could be dead before he gets the care he needs.

There are just so many things ignored here. I’ll start with an analogy and then circle back to some of the finer points.

What if my car had a heart attack?

About 15 months ago, I took my car to a car wash, left the car with an attendant and waited around front for my car. After they finished washing and drying my car, I got in and could immediately tell something was wrong. The engine was pretty loud, and I noticed the temperature gauge was pointing to “really hot”. I put it in drive, just hoping I could move it to a parking spot or something so I could regroup. It didn’t make it to a parking spot (about 40 feet), so I just let it roll to a stop under a tree, out of the way. My car was dead – it wasn’t drivable and appeared to be in “limp mode”. I had no choice but to have it towed to see what was wrong.

Obviously, I wasn’t in danger of dying, but my car certainly was. What’s more, I was stuck – I couldn’t shop around for a good deal on the repairs because I need my car (I was going home for Thanksgiving in a few days, then off to Atlanta not long after that) and because it’s not drivable. Also, I was pretty sure the car wash wouldn’t be ok with me just leaving my car parked under their tree for very long. If my car were a person having a heart attack in Planet Money’s world, I’d call an ambulance and they’d whisk it away to whichever hospital could save it. I wouldn’t be able to negotiate the cost of repairs, and I’d end up paying a lot of money for some healthcare.

My car is saved, and I get a great price despite a desperate situation

What happened instead is that I called AAA, who sent a tow truck out in about 30 minutes. When the tow truck driver got there, I told him to take my car to Bush Gator Transmission & Auto Repair on Main Street. About 20 minutes later, it was up on the rack and they told me one of my cooling fans had died. I asked what it would cost, they told me, and I had them go ahead and do the repair. A couple hours later I drove home, plopped down on my couch, and finished planning my trip to Jacksonville.

“But you didn’t negotiate price either!”, you might be thinking. And you’re right… and wrong. The reason I didn’t negotiate price is that I knew I was going to get the best price. How? I’d been to Bush Gator many, many times in the previous five years. They’ve been my mechanic since I moved back to Gainesville in 2006. I initially went there because a friend told me about a really great experience he had there, so I decided to check them out. 1 When I first went to them, I did call around to shop prices, but I eventually just stopped doing that because Bush Gator was always far cheaper than anywhere else I called. 2

So, no, I didn’t negotiate the price of this particular repair. But I didn’t need to because I already knew they had the best prices and best service in town. I managed to get my dead-in-the-water car repaired in a pinch and I managed to get a really good price. Why isn’t this possible for healthcare? For heart attack victims, even?

Is healthcare innately different, or do we just treat it differently?

The common answer is some flavor of “healthcare is different” or “but this is life and death” 3, but this is very myopic. It assumes that Yelp! and Consumer Reports can’t exist for healthcare. It assumes that word of mouth isn’t important. It assumes that anyone who ever has a health emergency is totally ignorant of his options for care. It assumes people are incapable of making phone calls to find the lowest price for anything related to health or medicine. 4

But if I’m right, then there’s a big question we need to answer: Why isn’t healthcare a competitive industry? I don’t know, but I think Planet Money has the right resources to find out, and a great platform to tell us.

EDIT: This piece from Uwe E. Reinhardt is a good start: “Shocked, Shocked Over Hospital Bills

FOOTNOTES:

Apple iPhone Lull: Screw-up or growing pains?

Henry Blodget at BusinessInsider.com wrote “Okay, Can We All Now Please Agree That Apple Screwed Up With The iPhone?” in response to Apple’s unusually lackluster quarterly earnings report for Q3 FY12. He makes some good points, but he’s missing a huge factor regarding iPhone’s release schedule and how it’s changed over time: the Verizon iPhone.

He cites two contributing factors that hurt iPhone sales this year. I’ll just quote him:

  • First, Apple switched (or delayed, depending on who you listen to) the launch of that year’s new iPhone to the fall instead of the June releases it had had in prior years. This “delay” took many people by surprise, and it also kept the then-current version of the iPhone, the iPhone 4, on the shelves for three months longer than people had expected. This contributed to a sharp fall-off in iPhone sales in the summer months, as the “4” began to feel stale and customers waited for the new version of the iPhone, which almost everyone assumed would be the “iPhone 5.”
  • Second, when Apple finally released the new version of the iPhone, it was not the iPhone 5–it was the iPhone 4S, which didn’t look or feel much different than the iPhone 4. Although the iPhone 4S was a great phone and sold very well initially, it was soon leap-frogged in some respects by new, bigger phones from Samsung and others. And now, with Samsung’s very-well received Galaxy S3 out there, the current iPhone looks decidedly small and old. So much so that the “air pocket” in iPhone sales appears to have started one full quarter early this year and will therefore wallop both the June quarter and September quarter, while customers wait for the iPhone 5.

Summary

It’s possible that Apple screwed up with the iPhone, but probably not in the ways Blodget describes. At the very least, there are some factors he left out of his analysis. If Apple did screw up, it was by making a calculated decision to introduce the iPhone to a new US market on Verizon’s network. It’s obvious that Apple saw Verizon as an opportunity to open up the iPhone market in the US, and they took the opportunity. We don’t know the details of either the AT&T or Verizon contract, so it’s tough to know for sure what Apple was working with when they decided to release the Verizon iPhone 4 in February 2011, four months before the next “standard” iPhone release date.

I’ve already written about why the 4S release was expected and appropriate. I won’t spend any more time on that. 1

Apple delayed the 4S release until the fall instead of the summer

Here are the iPhone release dates so far 23:

  • iPhone – June 29, 2007
  • iPhone 3G – July 11, 2008
  • iPhone 3GS – June 19, 2009
  • iPhone 4 – June 24, 2010
  • iPhone 4S – October 14, 2011

Apple was remarkably consistent with release dates until the 4S. What happened? I actually kind of cheated above – there’s a release I didn’t include:

  • iPhone 4 – June 24, 2010
  • Verizon iPhone 4 – February 10, 2011
  • iPhone 4S – October 14, 2011

Apple needed to move out from under the exclusive AT&T contract, and open up the iPhone market in the US. This “How Apple’s Revenue Stacks Up” chart shows pretty flat-looking iPhone revenue from late-2010 into mid-2011. I couldn’t find numbers Verizon vs. AT&T iPhone unit sales, but my guess is that AT&T iPhone sales tailed off in early 2011, and were overtaken by Verizon iPhone sales through the first half of 2011.

It seems like Apple’s exclusive AT&T contract was still in place when the original iPhone 4 launched in 2010, delaying Apple’s move to Verizon until February 2011. Then they could start selling on Verizon immediately or wait for the iPhone 4S later in the year. They chose to sell on Verizon immediately rather than wait.

The downside to this decision was it left Apple in a bit of a pickle: their normal release cycle would put the iPhone 4S release around June 20, 2011 – only four months after the Verizon iPhone 4 was released. That would probably make the Verizon iPhone 4 adopters pretty angry, so they delayed the 4S until October 4.

In this context, it’s obvious to me that Apple made a calculated business decision: in order to expand its US footprint by adding new carriers, they released the Verizon iPhone 4 in February 2011 – only a few months before the typical iPhone release window. Then they bumped the 4S release until October in order to avoid angering customers who just bought a shiny new Verizon iPhone 4. Apple knows first-hand how angry people get if they release a new gadget, and then immediately undercut themselves (either on price, or by releasing another new gadget).

I think Apple wants to release iPhones at the end of Q3 or beginning of Q4 (fiscal), but they had to slip the 4S to keep new Verizon adopters happy. The 4S was released in October 2011, and I expect the iPhone 5 to be released in September 2012 (or sooner). The 5S will probably come earlier (August) and so on until the iPhone is back in the late-June/early-July sweet spot that Apple has used in the past.

Apple released the 4S instead of the 5

This is pretty simple, actually, and I’ve written before about how Apple cycles hardware and software updates to remain competitive while continuing to produce the best products. 5 I think Apple has a pretty clear pattern of this.

iPads so far:

  • iPad
  • iPad 2 (body changed significantly, much faster processor, different look and feel, smart cover, etc.)
  • “New” iPad (pretty much the same form factor, added Retina, a little speedier, not much else)

And they’ve followed a similar pattern with MacBook Pros.

  • (First gen) Original MacBook Pro – 2006 (spec bumps followed)
  • (Second gen with big change) Unibody MacBook Pro – 2008
  • (Spec bumps throughout 2009 before…) Big spec bump on MacBook Pro – 2010
  • (Third major iteration) MacBook Pro with Retina, SSD, thinner form factor – 2012

My point is that there really wasn’t any reason to think the 4S would be a 5. That’s just not how Apple does things. 2011 was a year for big software updates (including Siri) and a spec bump for the iPhone 4 (to the 4S). I also think releasing the iPhone 5 right after the Verizon iPhone 4 would have been a mistake. The way Apple did it, the Verizon iPhone 4 users could think, “Well, the 4S looks pretty neat, but I’ll just wait for the 5.” rather than, “WHAT?! I just bought the iPhone 4 and now it looks obsolete?” Meanwhile, a lot of new iPhone users bought the 4S or upgraded 6, so 4S sales were still strong. The iPhone 5 will sell like hotcakes, and eventually Apple will get back to its normal iPhone release cycle. I don’t think they have screwed up with the iPhone, they’re just experiencing growing pains as they seek greater market penetration in the US.

Movie Mind Games: Does manipulating our expectations make movies better?

Illustration by Sean Nyffeler of Popcorn Noises fame

[This was originally a three-part series: Part 1; Part 2; Part 3.]

We spend a lot of time gobbling up media. We want to do fun stuff, and we want to do stuff on the cheap. Such is life in a stagnant economy. One of my go-to, quick and dirty ways to choose one option over the others is to figure out the cost per hour for each of my options, and then choose the one with the lowest cost per hour. 1

Here’s a quick summary of the cost to consume different types of media, shown in ascending worst-case dollars per hour 2 3:

  • Podcast – free – As long as I have iTunes and an internet connection, I can get just about any podcast free of charge.
  • News online – free – Yeah, the NYT has a pay wall now, but they don’t have any news I can’t get for free somewhere else.
  • Video games – $.03 to $1.25 – Angry Birds, Madden, NCAA: they all take so long they end up being really cheap by the time we’re through with them.
  • Books – $.25 to $2 – This one obviously depends how fast you read, but a good old paperback can go a long way on short change.
  • MP3 albums – $.3 to $4 – The trick with MP3s is to find them on sale. The Amazon MP3 store runs sales all the time.
  • Movies – $.50 to $5 – Movies tend to run the gamut because there are so many ways to get them. Prices vary pretty widely from Redbox to IMAX.

Almost any way I slice it, movies are one of the most expensive pieces of the entertainment pie. Looking back at my personal habits over time 4, it’s pretty obvious that I’ve been moving to cheaper and cheaper options over time. This wasn’t a conscious decision, but I have been purposely reducing my spending over the past few years, and I’ve obviously accomplished that by buying cheaper media.

Consuming media isn’t just about being entertained as cheaply as possible 5; I want quality entertainment. It’s not as simple as just consuming some type of media–I also have to figure out which examples of a given type of media to choose. If I’m listening to podcasts, how do I decide which ones? How do I find good books to read? How do I decide which movies to see in the theatre and which ones to rent? How do I know which ones to avoid altogether? The easy answer is recommendations. The trickier answer is expectations.

Recommendations

Over the past decade, recommendations 6 have gone from an informal give and take to a very sophisticated marketing tool, employed by giant companies to boost sales. Amazon, Netflix, Apple’s App Store and many other companies rely on recommendations to keep customers coming back for more. “Recommendation Engines” have become a closely guarded secret and a competitive advantage designed keep customers from switching to a competitor. I’ve bought hundreds of items on Amazon, and I like the recommendations it provides based on my previous purchases. If I start shopping at another online vendor, I’ll have to start over from scratch. That would be a lot of work, so I’m likely to stay with Amazon for quite a while unless a competitor offers something significantly better or Amazon totally drops the ball.

Many of my social interactions revolve around either sharing recommendations or comparing opinions on different media. For as long as I can remember, I’ve frequently asked friends what they’re into: “Seen any good movies lately?” or “Have you heard the new Girl Talk? How is it?” For almost any kind of media, I have at least one friend who’s practically on speed dial in case I need new recommendations.

I also make a lot of recommendations. I love it when a friend tweets, “Looking for some good books to read this summer. Any suggestions?” It takes me a few questions to figure out what kind of stuff they like, but once I zero in on their preferences I can usually recommend several titles that I can almost guarantee they’ll like. The same goes for music, movies, podcasts and TV shows. Part of being a maven 7 is that I’ve always got a solid cache of information ready to share if someone’s careless enough to open the door for me.

Expectations

The flip-side to recommendations is the expectations they create. If a friend of mine, let’s call him Morris, has successfully recommended 10 documentaries to me without any stinkers, then I expect his next doc recommendation to be a good one. If another friend, let’s call him Les, has recommended five documentaries for me, and all of them have been terrible, then I expect his next recommendation to be terrible and I’ll eventually just stop listening to his recommendations altogether. If Morris and Les both make recommendations to me at the same time, I can safely choose Morris’ recommendations because I expect them to be better. With each recommendation Morris and Les make, I can reevaluate their recommendations as a whole to determine how much weight I’ll give to either recommender in the future.

This is also true for recommendation engines like those at Amazon and Netflix. If Amazon starts recommending stuff that I hate, I’ll take that into account in the future and begin lowering my expectations for the stuff they recommend. Eventually I’ll just stop buying stuff they recommend, and that may remove the exit barrier I described earlier so that I’m comfortable going to another company and starting over from scratch.

There’s a feedback loop of recommendations and expectations. With each new good recommendation I get from a friend, the higher my future expectations will be that the stuff he recommends is worth my time and money. With each bad recommendation I get from a friend, the lower my future expectations will be that the stuff he recommends is worth my time and money. Eventually, I will learn to anticipate exactly how accurate my friends’ recommendations will be.

Recommendations and expectations are part of an adaptive framework wherein each future recommendation carries the weight of all previous recommendations. This feedback loop is only useful if I compare my actual experience to my actual expectations. 8

Utility-Hours Per Dollar

Before I can compare outcomes to expectations, I need a way to objectively measure my general satisfaction with any particular piece of media. Dollars per hour is a good metric to figure out the cost of consuming media, especially if my biggest concern is keeping a budget. It helps me measure efficiency. I might say, “Well, I’ve got three bucks left in my entertainment budget this month. I might as well stretch it as far as I can. What’re my options that are three bucks or cheaper and provide the most entertainment time?” But I’m not just looking for any old media–I want the good stuff. I need a way to account for both efficiency and the relative enjoyment offered by something. Enter this new thing I’m creating called “Utility-Hours per Dollar” (UHD) 9. The UHD allows me to normalize things so that I can compare apples to apples. Yes, going to see a movie in the theatre is really expensive ($5 per hour), but what if it’s the most fun thing I could possibly do with five bucks? That has to count for something, right? Sure it does.

I calculate UHD like this:

  1. Find the absolute cost (in dollars) of the media I’m looking to buy.
  2. Estimate how long (in hours) it will take to consume. 10
  3. Subjectively determine its utility 11on a 10-point scale (1 is for awful stuff, 10 is for incredible stuff).
  4. Multiply the utility number by the number of hours.
  5. Divide that number by the cost, rounded to the next highest dollar. For free stuff, use $1 (not $0). 12 13

For those who like a tidy formula, here it is:

  • UHD = (Utility * Hours) / Dollars

That’s it. Here are a couple examples 14:

  • A really bad movie at the theatre would be $10, last 2 hours and provide a utility of 2:
  • 2 utils * 2 hours = 4 util-hours
  • 4 util-hours / $10 = .4 UHD

  • A pretty good album that I buy on Amazon for $8 might give me 20 solid hours of listening at 6 utils:
  • 6 utils * 20 hours = 120 util-hours
  • 120 util-hours / $8 = 15 UHD

A UHD near zero sucks. A UHD that ends up in the double digits is pretty good. Stuff with a UHD in the mid-to-high double digits is pretty great. Using this metric, I can figure out my most cost effective, enjoyable option for entertainment.

Our trusty UHD chart–we’ll see this again later

UHD isn’t as esoteric as it seems

I realize that, at first, UHD just seems like a wonky way to describe something that’s already obvious and intuitive. But it actually has real-world applications, especially when it comes to understanding our intuitive-but-not-easily-explained preferences for stuff.

For example, UHD helps me understand why it took me a little while to move from CDs to downloading MP3s 15. Initially, the cost of an MP3 album (on iTunes, for example) was pretty close to the CD and Apple was using DRM 16. My concern was that I wouldn’t “own” the music if I paid for the MP3s. The result was that the utility of the MP3s was less than that of the CD, even though it was the same music at the same cost. Since the cost was similar, and the hours of entertainment would be the same, the difference in utility made the UHD for CDs higher than MP3s. Eventually, Amazon started offering DRM-free downloads and cheaper prices, shifting the UHD for MP3 downloads ahead of CDs. That’s when I made the switch to MP3 downloads 17. Of course, I didn’t actually do a conscious UHD calculation one day and say, “Ah ha! The UHD for MP3s is finally greater than it is for CDs! Time to make the switch!” But that’s basically what happened. The same process is happening for me with eBooks right now. 18

A brief, anecdotal history of cinema

The shift from CDs to MP3s, or from physical books to eBooks is interesting to me. But what’s really interesting to me is the persistence of movie theaters despite cheaper, very similar movie-watching options. Fifty years ago, the only real option for seeing a movie was to go to the movie theatre. This was great for movie companies because they could charge high prices since they were basically the only game in town. The UHD calculation wasn’t really useful for deciding how to watch a movie because it wasn’t so much a matter of comparing different movie-viewing options as just deciding whether it was worth it to spend the money on a movie or not. If it wasn’t, you just had to find something else to do.

Then technology started changing, opening the door for the home theatre experience. First, VHS started enabling people to watch movies at home en masse. Hi-fi began morphing into fancier surround sound setups whose cost was dropping so that more and more people could buy them. LaserDisc 19 came and went. Then DVD took hold and made the home-viewing experience even better.

A sidebar into UHD for movies at the turn of the century

Ten years ago, we really had two options for watching a movie (without owning it). We could either go to the theatre or rent it at Blockbuster. Let’s run through the UHD calculations real quick, just to get an idea of the difference in UHD for these two options at that time:

  • A good movie as a “New Release” rental was about $4 (-ish), lasted 2 hours and provided a utility of 6:
  • 6 utils * 2 hours = 12 util-hours
  • 12 util-hours / $4 = 3 UHD

  • The same good movie in the theatre would have been about $5, lasted 2 hours and provided a utility of about 7 (slightly higher since it was in the theatre):
  • 7 utils * 2 hours = 14 util-hours
  • 14 util-hours / $5 = 2.8 UHD

So the UHD for renting versus going to the theatre was really close even as recently as 2000. They were close enough that there was a real decision to be made: Spend $5 and go to the theatre or spend $4 and stay home? We would often decide what to do based on the number of people in a group (if there were four of us, we could just split the rental for a buck a piece; if there were two of us, then why not just pay for the movie in the theatre?) and our willingness to sneak snacks into the theatre. 20

Our trusty UHD chart from earlier

Snap back to reality

A lot has happened over the past 10 years or so. Netflix popped up, HD-DVD lost the war to Blu-Ray, streaming video became better and better, Blockbuster got crushed, and DVD rentals have gotten cheaper and cheaper. There are options now, options that just weren’t available when movie theaters first became a big deal. Not only are there options, but there are cheap options that rival the actual movie-going experience. And yet, movie ticket prices have been steadily increasing over time. 21

Let’s look at one more sample UHD calculation:

  • A really bad movie that I waited to watch on Redbox DVD would be $1, last 2 hours and provide a utility of 2 22:
  • 2 utils * 2 hours = 4 util-hours
  • 4 util-hours / $1 = 4 UHD

As we saw earlier, watching the bad movie in the theatre gives .4 (that’s point-four) UHD. Watching the same bad movie on DVD gives 4 UHD. Watching the bad movie on DVD is 10 times “better” than watching it in the theatre, and all of this difference is accounted for by the difference in cost. “But wait!”, you say, “What if I enjoy watching movies more in the theatre?! I really like going to the theatre!” Ok, fine. How much better would the movie have to be in the theatre to make up for the difference in UHD?

Some people will want to go to the most extreme case first, so let’s just go straight there. Let’s say that the bad movie moves from 4 utils to 10 utils just because I enjoy going to the theatre so much. It only jumps to 2 UHD (still half of the 4 UHD if I wait to watch the bad movie on Redbox DVD). “That doesn’t make any sense!” My counter would be, “So you’re saying there’s no way any movie can be better than the bad movie in the theatre? What if you go see a good movie in the theater?” Since the 1-10 scale is a subjective scale, I have to leave room above the bad movie for less-bad movies. Either that or I have to slide my Redbox DVD experience down to a 1 or something. If I move the theatre experience up to a 10 and move the Redbox DVD experience down to a 1, then I get the same result for both options: 2 UHD.

The present, seemingly uncrossable gulf between UHD for going to the movies and watching them at home is due to super high, sticky movie prices and much, much cheaper alternatives for watching movies at home. This has created such a big gap in cost that watching movies in the theatre is just that much more expensive, ruining their UHD relative to the very-similar experience of watching movies at home now.

Going to see movies in the theatre is expensive. I realize some people will say, “But your formula is just wrong. It weights the cost too much.” Using the UHD calculation as-is, it’s hard to see many situations where it would be better to go to the theatre than to watch the flick at home. It’s possible that I’m weighting cost too heavily, but I think the real problem is that movie theaters are just way too expensive now because we have more, better options. There really is that much of a difference in cost between movie theaters and rentals.

Movie Expectations – A bizarre special case?

And yet, new releases continue to set box office records as people go to the theatre in droves. At the same time, the movie theaters are much more expensive than the alternatives, and the quality of the movies released has been consistent (or at least not improving enough to justify the growing gap between theatre prices and the alternatives). What gives? If I’m right that waiting for the movie on DVD is almost always better than going to the theatre, then why do so many people continue going to see movies in the theatre? Why did I go see three movies in the theatre this summer?

I’ve overheard this sentiment several times recently: “That movie wasn’t that bad. I just went into it with no expectations and it turned out ok. I’ve decided I just won’t have expectations for movies because I end up over-hyping them and when they don’t meet my expectations I feel ripped off.” So the idea is that movies are often bad because we expect them to be good, or at least because we expect them to be better than they actually are. To solve this problem, we play mind games with ourselves, intentionally under-hyping a movie so that when we go see it and it’s just an ok movie, it exceeds our deflated expectations.

At first, I saw the wisdom in this tactic. If we get really good at lowering our expectations, almost any movie will be a success, at least inasmuch as it will exceed our expectations. That way, we can pretty much guarantee that when we pony up $10 for a ticket and another $10 for concessions, we won’t be let down.

The more I think about this, the more ridiculous the idea seems. We don’t lower our expectations for music, books or TV shows, do we? So why do we do that with movies? Of all our options, movies are one of the most expensive options we have. Why would we trick ourselves into doing something super expensive that we don’t really enjoy that much?

But this one goes to 11.

What we’re doing when we go see movies with deflated expectations is trying to trick ourselves into accepting the lower utility of the movie and ignoring the greater cost. Let’s say we go see the same bad movie we’ve talked about already, but we have “no expectations”, meaning we essentially expect the movie to be about 1 util of entertainment. That way, when we go to the movie and it’s 4 utils, we exceeded expectations! We practically created three utils out of thin air! Um, ok. But the problem is that the movie itself is still only 4 utils. It has to be because we have to put every other movie we’ve ever seen on the same scale. We can’t artificially inflate the number of utils to, say, 5 because what happens to those other movies that really were a 5? 23 This also reduces the perceived value of a 10 because we’re watering all of our other movie experiences down. So if we inflate the utility from a 4 to a 5, what we’re really doing is inflating the whole scale. Now it goes to 11. We have created UHD inflation.

A Delightful Food-Poisoning Analogy

It’s as though we have a friend who likes to cook. He says, “Hey everyone! Come over to my place and bring $5. I’ll cook something for all of us to eat. It’ll be delicious!” So we all go over there and bring five bucks. We eat the meal and it’s really freaking terrible. Half of us are disappointed and the other half are left with Oregon Trail flashbacks. A few weeks later, the same friend makes the same offer. We all decide to give it one more shot–maybe he just had a bad night, right?–and we head back over there with our five bucks. Same thing happens. Half of us are disappointed and the other half end up battling the dysentery. A couple weeks later, the same friend makes the same offer again. Would I go? Of course not. But what if I said, “You know what? I’m going back! I’ve learned that I just have to lower my expectations so I can really enjoy the food poisoning! I’m going to just assume it will kill me this time, or at least that it’ll ruin my digestive system for the next few days. It’s going to be terrible! I can’t wait!” I’m tricking myself into paying $5 for the privilege of being food-poisoned by my friend.

Ridiculous, right? How’s that any different than saying, “The trick to movies is that I just lower my expectations as much as possible. If I go in without expectations, I can’t be disappointed!” Well, kind of. But you’ll trick yourself out of $10 and you’ll waste time that you could’ve spent doing something cheaper and better.

What’s going on here?

So why do we trick ourselves into going to see bad movies in the theatre at 10 times the cost of the Redbox DVD? What’s really strange is we don’t do this with other stuff. If anything we tend to inflate our expectations, especially when it comes to music. I’ve heard friends totally pan a new album just because it didn’t live up to their expectations, which were far higher than they should’ve been. This happened with She & Him’s “Volume 2”. Many of my friends said they didn’t like it, and it was just more of the same from She & Him. Well, duh. They’re still She & Him and their first album was awesome. I’d say “Volume 1” was like 8 utils to me. I expected “Volume 2” to be about 8 utils. I think some of my friends expected it to somehow magically be 10 utils. Why? I have no idea. Turns out it was right about 8 utils (maybe slightly less, but it was really close). I ended up enjoying it a lot (and still listen to it regularly), whereas they ended up all disappointed and annoyed. Of course, they just did that to themselves.

So, with music, a lot of my friends do the opposite of this movie theatre trick–they inflate their expectations so they’re artificially disappointed when they hear a new album. 24 This is silly, but at least it makes some kind of sense: If we’re going to mess with expectations, we should manipulate the numbers so we tend to be less satisfied. That way, we’re basically tricking our future selves into spending less money. But this leaves us in an awkward place: we trick our future selves into spending more money on expensive stuff (movies at the theatre), and less money on cheap stuff (music). If we’re going to trick ourselves, we should be tricking ourselves so that we’re less satisfied with expensive stuff and more satisfied with cheaper stuff. At least that way we end up tricking our future selves avoiding the more expensive purchases on stuff we don’t like anyway. The UHD for music is almost always higher than it is for movies so, if anything, we should tend to “trick” ourselves into consuming more music and fewer movies in order to use our time and money more efficiently by consuming better stuff.

Why do we have it backwards? There could be a few explanations for this. Rather than trying to make sure we spend our money as efficiently as possible, we’re more focused on justifying expensive movies because they’re a cultural staple:

“Did you see the new X-Men movie?”
“No, I’m waiting for it on DVD.”
“Lame-o! Hey everybody! This guy’s super lame!”

It’s not cool to wait to watch movies on DVD. If I show up at the water cooler on Monday morning after a big release 25, nobody wants to hear anything I say if it starts with, “Well, I’m waiting for that one to be available on Netflix streaming.”

Sometimes there are benefits to seeing a movie in the theatre, especially action flicks. But we can account for that by bumping the utils for the movie just a little bit. Maybe X-Men on DVD is 6 utils, but X-Men in the theatre is 8. Ok, but does that justify the 10-times-higher price tag? The UHD sure doesn’t think so.

Conspiracy Theory!

There’s also some clever marketing going on by the movie studios. Most of the movies made are crap. We tend to remember good things more than bad, but most movies are really, really bad. This is easily confirmed by just browsing Netflix for movies 26. Some friends and I recently spent about two hours scrolling and scanning through Netflix to find a movie to watch. We ended up just re-watching Arrested Development Season 1. The issue wasn’t a lack of options, it was a lack of good options. There just weren’t any. We looked at hundreds of movies and all of them were terrible. If we used movie studios’ previous product as an indicator of future quality, we’d almost always opt not to go see movies in the theatre because there’s just too much risk that the movie will be crap and we’ll waste $10. Waiting for the DVD gives us more time to get recommendations from other people who have seen it so we can decide whether it’s even worth seeing on DVD.

But movie studios have cleverly convinced us that we should set our expectations aside so we can enjoy the movie-going experience itself. 27 Of course, as discussed earlier, the movie theatre experience isn’t really much different than just watching the movie at home (there are a few exceptions). If we all had the appropriate level of expectations for movies, we would rarely go to the theatre because we would mostly be disappointed. But instead of just saving that cash and doing something with higher UHD, we buy into this idea that we should essentially forget all the crap they’ve fed us previously so that we can enjoy this current experience more.

Positive Reinforcement of Terrible Moviemaking

But it’s actually worse than that. By tricking ourselves into “liking” (and paying for) bad movies, we’re encouraging movie studios to make more bad movies. If I trick myself into paying $10 to see Zookeeper, then I just gave the movie studios $10 and a green light to start production on Zookeeper 2: Flying Poo. Now I have to trick myself into going to see that dud, too?

Not only am I tricking myself into spending a lot of money on a bad movie, but I’m feeding the movie making machine so that it continues to churn out garbage that I have to trick myself into overpaying for in the theatre next time. I’m essentially a recommendation engine whose recommendations are made in dollars. I’m saying, “Movie studios. I recommend that you make Zookeeper 2: Flying Poo! Here’s ten bucks to get you started!” When does it end?

It is ending

In many ways, this phenomenon is ending, if only subtly. There are myriad modern sources of recommendations that are almost forcibly removing our self-imposed myopia. For example, Rotten Tomatoes is a crowd-sourced recommendation engine that is almost impossible to ignore once you know it’s out there.

“Want to go see the new Zookeeper movie?”
“What’d it get on Rotten Tomatoes?”
“Eleven percent.”
“And how did the first one do on Rotten Tomatoes?”
Fourteen percent.”
“This one is worse than the first one? That’s pretty bad. I’ll pass.”

That’s what saving $10 and two hours sounds like. I have conversations like this one a couple times a month. On the flip-side, I often decide to go see a new movie specifically because Rotten Tomatoes rates it highly. For example, when I was in Vancouver last year, my friends and I went to see Drive because I saw it got something like 90% on Rotten Tomatoes. They had never heard of the movie, and I had only heard a little about it, but the Rotten Tomatoes score pushed me to recommend it to them. We also went to see The Help and Moneyball because of high scores on Rotten Tomatoes. All three movies ended up getting Oscar nominations 28 There were a few other movies that we skipped because the Rotten Tomatoes score was so low.

Recommendations Engines are enabling us to make better decisions and making it more difficult to declare that we’re lowering our expectations to justify a trip to the theatre. It’s a lot easier to lower expectations when there’s some chance that the movie will be good despite the trailer or word-of-mouth buzz it’s been getting. But when thousands of people have already said it’s a bad movie and we know that, then it’s much harder to pretend it might be good.

The trick is that we, as consumers, have to listen to what so many other people are telling us through all the recommendations vehicles that are out there. When we start listening to others’ recommendations, we can set our expectations appropriately to maximize two of our scarcest resources: time and money.

SPECIAL THANKS

I put a lot of work into this piece, but I also got a lot of help from other people. Jason Killingsworth offered his editorial insight and sage advice to help make it better and more readable. Jason was also one of the first bloggers I read, so there’s a nice historical symmetry here. Danny Anderson did the final review before I published, and helped me figure out how to wrap it all up. Sean Nyffeler illustrated the piece (twice, actually: he did a draft, took some notes and re-did the illustration for the published version). Several other people were sounding boards who helped me refine the basic ideas over the past several months. Thanks to everyone who helped make this a better piece.

Movie Mind Games: Does manipulating our expectations make movies better? (3 of 3)

Illustration by Sean Nyffeler of Popcorn Noises fame

PREVIOUSLY, in Part 2: How we all use UHD to decide what to buy, and how we sometimes ignore UHD altogether. [Click here to view the entire piece as a single page.]

But this one goes to 11.

What we’re doing when we go see movies with deflated expectations is trying to trick ourselves into accepting the lower utility of the movie and ignoring the greater cost. Let’s say we go see the same bad movie we’ve talked about already, but we have “no expectations”, meaning we essentially expect the movie to be about 1 util of entertainment. That way, when we go to the movie and it’s 4 utils, we exceeded expectations! We practically created three utils out of thin air! Um, ok. But the problem is that the movie itself is still only 4 utils. It has to be because we have to put every other movie we’ve ever seen on the same scale. We can’t artificially inflate the number of utils to, say, 5 because what happens to those other movies that really were a 5? 1 This also reduces the perceived value of a 10 because we’re watering all of our other movie experiences down. So if we inflate the utility from a 4 to a 5, what we’re really doing is inflating the whole scale. Now it goes to 11. We have created UHD inflation.

A Delightful Food-Poisoning Analogy

It’s as though we have a friend who likes to cook. He says, “Hey everyone! Come over to my place and bring $5. I’ll cook something for all of us to eat. It’ll be delicious!” So we all go over there and bring five bucks. We eat the meal and it’s really freaking terrible. Half of us are disappointed and the other half are left with Oregon Trail flashbacks. A few weeks later, the same friend makes the same offer. We all decide to give it one more shot–maybe he just had a bad night, right?–and we head back over there with our five bucks. Same thing happens. Half of us are disappointed and the other half end up battling the dysentery. A couple weeks later, the same friend makes the same offer again. Would I go? Of course not. But what if I said, “You know what? I’m going back! I’ve learned that I just have to lower my expectations so I can really enjoy the food poisoning! I’m going to just assume it will kill me this time, or at least that it’ll ruin my digestive system for the next few days. It’s going to be terrible! I can’t wait!” I’m tricking myself into paying $5 for the privilege of being food-poisoned by my friend.

Ridiculous, right? How’s that any different than saying, “The trick to movies is that I just lower my expectations as much as possible. If I go in without expectations, I can’t be disappointed!” Well, kind of. But you’ll trick yourself out of $10 and you’ll waste time that you could’ve spent doing something cheaper and better.

What’s going on here?

So why do we trick ourselves into going to see bad movies in the theatre at 10 times the cost of the Redbox DVD? What’s really strange is we don’t do this with other stuff. If anything we tend to inflate our expectations, especially when it comes to music. I’ve heard friends totally pan a new album just because it didn’t live up to their expectations, which were far higher than they should’ve been. This happened with She & Him’s “Volume 2”. Many of my friends said they didn’t like it, and it was just more of the same from She & Him. Well, duh. They’re still She & Him and their first album was awesome. I’d say “Volume 1” was like 8 utils to me. I expected “Volume 2” to be about 8 utils. I think some of my friends expected it to somehow magically be 10 utils. Why? I have no idea. Turns out it was right about 8 utils (maybe slightly less, but it was really close). I ended up enjoying it a lot (and still listen to it regularly), whereas they ended up all disappointed and annoyed. Of course, they just did that to themselves.

So, with music, a lot of my friends do the opposite of this movie theatre trick–they inflate their expectations so they’re artificially disappointed when they hear a new album. 2 This is silly, but at least it makes some kind of sense: If we’re going to mess with expectations, we should manipulate the numbers so we tend to be less satisfied. That way, we’re basically tricking our future selves into spending less money. But this leaves us in an awkward place: we trick our future selves into spending more money on expensive stuff (movies at the theatre), and less money on cheap stuff (music). If we’re going to trick ourselves, we should be tricking ourselves so that we’re less satisfied with expensive stuff and more satisfied with cheaper stuff. At least that way we end up tricking our future selves avoiding the more expensive purchases on stuff we don’t like anyway. The UHD for music is almost always higher than it is for movies so, if anything, we should tend to “trick” ourselves into consuming more music and fewer movies in order to use our time and money more efficiently by consuming better stuff.

Why do we have it backwards? There could be a few explanations for this. Rather than trying to make sure we spend our money as efficiently as possible, we’re more focused on justifying expensive movies because they’re a cultural staple:

“Did you see the new X-Men movie?”
“No, I’m waiting for it on DVD.”
“Lame-o! Hey everybody! This guy’s super lame!”

It’s not cool to wait to watch movies on DVD. If I show up at the water cooler on Monday morning after a big release 3, nobody wants to hear anything I say if it starts with, “Well, I’m waiting for that one to be available on Netflix streaming.”

Sometimes there are benefits to seeing a movie in the theatre, especially action flicks. But we can account for that by bumping the utils for the movie just a little bit. Maybe X-Men on DVD is 6 utils, but X-Men in the theatre is 8. Ok, but does that justify the 10-times-higher price tag? The UHD sure doesn’t think so.

Conspiracy Theory!

There’s also some clever marketing going on by the movie studios. Most of the movies made are crap. We tend to remember good things more than bad, but most movies are really, really bad. This is easily confirmed by just browsing Netflix for movies 4. Some friends and I recently spent about two hours scrolling and scanning through Netflix to find a movie to watch. We ended up just re-watching Arrested Development Season 1. The issue wasn’t a lack of options, it was a lack of good options. There just weren’t any. We looked at hundreds of movies and all of them were terrible. If we used movie studios’ previous product as an indicator of future quality, we’d almost always opt not to go see movies in the theatre because there’s just too much risk that the movie will be crap and we’ll waste $10. Waiting for the DVD gives us more time to get recommendations from other people who have seen it so we can decide whether it’s even worth seeing on DVD.

But movie studios have cleverly convinced us that we should set our expectations aside so we can enjoy the movie-going experience itself. 5 Of course, as discussed earlier, the movie theatre experience isn’t really much different than just watching the movie at home (there are a few exceptions). If we all had the appropriate level of expectations for movies, we would rarely go to the theatre because we would mostly be disappointed. But instead of just saving that cash and doing something with higher UHD, we buy into this idea that we should essentially forget all the crap they’ve fed us previously so that we can enjoy this current experience more.

Positive Reinforcement of Terrible Moviemaking

But it’s actually worse than that. By tricking ourselves into “liking” (and paying for) bad movies, we’re encouraging movie studios to make more bad movies. If I trick myself into paying $10 to see Zookeeper, then I just gave the movie studios $10 and a green light to start production on Zookeeper 2: Flying Poo. Now I have to trick myself into going to see that dud, too?

Not only am I tricking myself into spending a lot of money on a bad movie, but I’m feeding the movie making machine so that it continues to churn out garbage that I have to trick myself into overpaying for in the theatre next time. I’m essentially a recommendation engine whose recommendations are made in dollars. I’m saying, “Movie studios. I recommend that you make Zookeeper 2: Flying Poo! Here’s ten bucks to get you started!” When does it end?

It is ending

In many ways, this phenomenon is ending, if only subtly. There are myriad modern sources of recommendations that are almost forcibly removing our self-imposed myopia. For example, Rotten Tomatoes is a crowd-sourced recommendation engine that is almost impossible to ignore once you know it’s out there.

“Want to go see the new Zookeeper movie?”
“What’d it get on Rotten Tomatoes?”
“Eleven percent.”
“And how did the first one do on Rotten Tomatoes?”
Fourteen percent.”
“This one is worse than the first one? That’s pretty bad. I’ll pass.”

That’s what saving $10 and two hours sounds like. I have conversations like this one a couple times a month. On the flip-side, I often decide to go see a new movie specifically because Rotten Tomatoes rates it highly. For example, when I was in Vancouver last year, my friends and I went to see Drive because I saw it got something like 90% on Rotten Tomatoes. They had never heard of the movie, and I had only heard a little about it, but the Rotten Tomatoes score pushed me to recommend it to them. We also went to see The Help and Moneyball because of high scores on Rotten Tomatoes. All three movies ended up getting Oscar nominations 6 There were a few other movies that we skipped because the Rotten Tomatoes score was so low.

Recommendations Engines are enabling us to make better decisions and making it more difficult to declare that we’re lowering our expectations to justify a trip to the theatre. It’s a lot easier to lower expectations when there’s some chance that the movie will be good despite the trailer or word-of-mouth buzz it’s been getting. But when thousands of people have already said it’s a bad movie and we know that, then it’s much harder to pretend it might be good.

The trick is that we, as consumers, have to listen to what so many other people are telling us through all the recommendations vehicles that are out there. When we start listening to others’ recommendations, we can set our expectations appropriately to maximize two of our scarcest resources: time and money.

SPECIAL THANKS

I put a lot of work into this piece, but I also got a lot of help from other people. Jason Killingsworth offered his editorial insight and sage advice to help make it better and more readable. Jason was also one of the first bloggers I read, so there’s a nice historical symmetry here. Danny Anderson did the final review before I published, and helped me figure out how to wrap it all up. Sean Nyffeler illustrated the piece (twice, actually: he did a draft, took some notes and re-did the illustration for the published version). Several other people were sounding boards who helped me refine the basic ideas over the past several months. Thanks to everyone who helped make this a better piece.

Movie Mind Games: Does manipulating our expectations make movies better? (2 of 3)

Illustration by Sean Nyffeler of Popcorn Noises fame

PREVIOUSLY, in Part 1: Some background on recommendations and expectations, and UHD defined. [Click here to view the entire piece as a single page.]

UHD isn’t as esoteric as it seems

I realize that, at first, UHD just seems like a wonky way to describe something that’s already obvious and intuitive. But it actually has real-world applications, especially when it comes to understanding our intuitive-but-not-easily-explained preferences for stuff.

For example, UHD helps me understand why it took me a little while to move from CDs to downloading MP3s 1. Initially, the cost of an MP3 album (on iTunes, for example) was pretty close to the CD and Apple was using DRM 2. My concern was that I wouldn’t “own” the music if I paid for the MP3s. The result was that the utility of the MP3s was less than that of the CD, even though it was the same music at the same cost. Since the cost was similar, and the hours of entertainment would be the same, the difference in utility made the UHD for CDs higher than MP3s. Eventually, Amazon started offering DRM-free downloads and cheaper prices, shifting the UHD for MP3 downloads ahead of CDs. That’s when I made the switch to MP3 downloads 3. Of course, I didn’t actually do a conscious UHD calculation one day and say, “Ah ha! The UHD for MP3s is finally greater than it is for CDs! Time to make the switch!” But that’s basically what happened. The same process is happening for me with eBooks right now. 4

A brief, anecdotal history of cinema

The shift from CDs to MP3s, or from physical books to eBooks is interesting to me. But what’s really interesting to me is the persistence of movie theaters despite cheaper, very similar movie-watching options. Fifty years ago, the only real option for seeing a movie was to go to the movie theatre. This was great for movie companies because they could charge high prices since they were basically the only game in town. The UHD calculation wasn’t really useful for deciding how to watch a movie because it wasn’t so much a matter of comparing different movie-viewing options as just deciding whether it was worth it to spend the money on a movie or not. If it wasn’t, you just had to find something else to do.

Then technology started changing, opening the door for the home theatre experience. First, VHS started enabling people to watch movies at home en masse. Hi-fi began morphing into fancier surround sound setups whose cost was dropping so that more and more people could buy them. LaserDisc 5 came and went. Then DVD took hold and made the home-viewing experience even better.

A sidebar into UHD for movies at the turn of the century

Ten years ago, we really had two options for watching a movie (without owning it). We could either go to the theatre or rent it at Blockbuster. Let’s run through the UHD calculations real quick, just to get an idea of the difference in UHD for these two options at that time:

  • A good movie as a “New Release” rental was about $4 (-ish), lasted 2 hours and provided a utility of 6:
  • 6 utils * 2 hours = 12 util-hours
  • 12 util-hours / $4 = 3 UHD

  • The same good movie in the theatre would have been about $5, lasted 2 hours and provided a utility of about 7 (slightly higher since it was in the theatre):
  • 7 utils * 2 hours = 14 util-hours
  • 14 util-hours / $5 = 2.8 UHD

So the UHD for renting versus going to the theatre was really close even as recently as 2000. They were close enough that there was a real decision to be made: Spend $5 and go to the theatre or spend $4 and stay home? We would often decide what to do based on the number of people in a group (if there were four of us, we could just split the rental for a buck a piece; if there were two of us, then why not just pay for the movie in the theatre?) and our willingness to sneak snacks into the theatre. 6

Our trusty UHD chart from Part 1

Snap back to reality

A lot has happened over the past 10 years or so. Netflix popped up, HD-DVD lost the war to Blu-Ray, streaming video became better and better, Blockbuster got crushed, and DVD rentals have gotten cheaper and cheaper. There are options now, options that just weren’t available when movie theaters first became a big deal. Not only are there options, but there are cheap options that rival the actual movie-going experience. And yet, movie ticket prices have been steadily increasing over time. 7

Let’s look at one more sample UHD calculation:

  • A really bad movie that I waited to watch on Redbox DVD would be $1, last 2 hours and provide a utility of 2 8:
  • 2 utils * 2 hours = 4 util-hours
  • 4 util-hours / $1 = 4 UHD

As we saw earlier (in Part 1), watching the bad movie in the theatre gives .4 (that’s point-four) UHD. Watching the same bad movie on DVD gives 4 UHD. Watching the bad movie on DVD is 10 times “better” than watching it in the theatre, and all of this difference is accounted for by the difference in cost. “But wait!”, you say, “What if I enjoy watching movies more in the theatre?! I really like going to the theatre!” Ok, fine. How much better would the movie have to be in the theatre to make up for the difference in UHD?

Some people will want to go to the most extreme case first, so let’s just go straight there. Let’s say that the bad movie moves from 4 utils to 10 utils just because I enjoy going to the theatre so much. It only jumps to 2 UHD (still half of the 4 UHD if I wait to watch the bad movie on Redbox DVD). “That doesn’t make any sense!” My counter would be, “So you’re saying there’s no way any movie can be better than the bad movie in the theatre? What if you go see a good movie in the theater?” Since the 1-10 scale is a subjective scale, I have to leave room above the bad movie for less-bad movies. Either that or I have to slide my Redbox DVD experience down to a 1 or something. If I move the theatre experience up to a 10 and move the Redbox DVD experience down to a 1, then I get the same result for both options: 2 UHD.

The present, seemingly uncrossable gulf between UHD for going to the movies and watching them at home is due to super high, sticky movie prices and much, much cheaper alternatives for watching movies at home. This has created such a big gap in cost that watching movies in the theatre is just that much more expensive, ruining their UHD relative to the very-similar experience of watching movies at home now.

Going to see movies in the theatre is expensive. I realize some people will say, “But your formula is just wrong. It weights the cost too much.” Using the UHD calculation as-is, it’s hard to see many situations where it would be better to go to the theatre than to watch the flick at home. It’s possible that I’m weighting cost too heavily, but I think the real problem is that movie theaters are just way too expensive now because we have more, better options. There really is that much of a difference in cost between movie theaters and rentals.

Movie Expectations – A bizarre special case?

And yet, new releases continue to set box office records as people go to the theatre in droves. At the same time, the movie theaters are much more expensive than the alternatives, and the quality of the movies released has been consistent (or at least not improving enough to justify the growing gap between theatre prices and the alternatives). What gives? If I’m right that waiting for the movie on DVD is almost always better than going to the theatre, then why do so many people continue going to see movies in the theatre? Why did I go see three movies in the theatre this summer?

I’ve overheard this sentiment several times recently: “That movie wasn’t that bad. I just went into it with no expectations and it turned out ok. I’ve decided I just won’t have expectations for movies because I end up over-hyping them and when they don’t meet my expectations I feel ripped off.” So the idea is that movies are often bad because we expect them to be good, or at least because we expect them to be better than they actually are. To solve this problem, we play mind games with ourselves, intentionally under-hyping a movie so that when we go see it and it’s just an ok movie, it exceeds our deflated expectations.

At first, I saw the wisdom in this tactic. If we get really good at lowering our expectations, almost any movie will be a success, at least inasmuch as it will exceed our expectations. That way, we can pretty much guarantee that when we pony up $10 for a ticket and another $10 for concessions, we won’t be let down.

The more I think about this, the more ridiculous the idea seems. We don’t lower our expectations for music, books or TV shows, do we? So why do we do that with movies? Of all our options, movies are one of the most expensive. Why would we trick ourselves into doing something super expensive that we don’t really enjoy that much?

UP NEXT, in Part 3: Why we game the UHD system, what it costs us, and how much all this matters. [Click here to view the entire piece as a single page.]

Movie Mind Games: Does manipulating our expectations make movies better? (1 of 3)

Illustration by Sean Nyffeler of Popcorn Noises fame

We spend a lot of time gobbling up media. We want to do fun stuff, and we want to do stuff on the cheap. Such is life in a stagnant economy. One of my go-to, quick and dirty ways to choose one option over the others is to figure out the cost per hour for each of my options, and then choose the one with the lowest cost per hour. 1

Here’s a quick summary of the cost to consume different types of media, shown in ascending worst-case dollars per hour 2 3:

  • Podcast – free – As long as I have iTunes and an internet connection, I can get just about any podcast free of charge.
  • News online – free – Yeah, the NYT has a pay wall now, but they don’t have any news I can’t get for free somewhere else.
  • Video games – $.03 to $1.25 – Angry Birds, Madden, NCAA: they all take so long they end up being really cheap by the time we’re through with them.
  • Books – $.25 to $2 – This one obviously depends how fast you read, but a good old paperback can go a long way on short change.
  • MP3 albums – $.3 to $4 – The trick with MP3s is to find them on sale. The Amazon MP3 store runs sales all the time.
  • Movies – $.50 to $5 – Movies tend to run the gamut because there are so many ways to get them. Prices vary pretty widely from Redbox to IMAX.

Almost any way I slice it, movies are one of the most expensive pieces of the entertainment pie. Looking back at my personal habits over time 4, it’s pretty obvious that I’ve been moving to cheaper and cheaper options over time. This wasn’t a conscious decision, but I have been purposely reducing my spending over the past few years, and I’ve obviously accomplished that by buying cheaper media.

Consuming media isn’t just about being entertained as cheaply as possible 5; I want quality entertainment. It’s not as simple as just consuming some type of media–I also have to figure out which examples of a given type of media to choose. If I’m listening to podcasts, how do I decide which ones? How do I find good books to read? How do I decide which movies to see in the theatre and which ones to rent? How do I know which ones to avoid altogether? The easy answer is recommendations. The trickier answer is expectations.

Recommendations

Over the past decade, recommendations 6 have gone from an informal give and take to a very sophisticated marketing tool, employed by giant companies to boost sales. Amazon, Netflix, Apple’s App Store and many other companies rely on recommendations to keep customers coming back for more. “Recommendation Engines” have become a closely guarded secret and a competitive advantage designed keep customers from switching to a competitor. I’ve bought hundreds of items on Amazon, and I like the recommendations it provides based on my previous purchases. If I start shopping at another online vendor, I’ll have to start over from scratch to get new recommendations. That would be a lot of work, so I’m likely to stay with Amazon for quite a while unless a competitor offers something significantly better or Amazon totally drops the ball.

Many of my social interactions revolve around either sharing recommendations or comparing opinions on different media. For as long as I can remember, I’ve frequently asked friends what they’re into: “Seen any good movies lately?” or “Have you heard the new Girl Talk? How is it?” For almost any kind of media, I have at least one friend who’s practically on speed dial in case I need new recommendations.

I also make a lot of recommendations. I love it when a friend tweets, “Looking for some good books to read this summer. Any suggestions?” It takes me a few questions to figure out what kind of stuff they like, but once I zero in on their preferences I can usually recommend several titles that I can almost guarantee they’ll like. The same goes for music, movies, podcasts and TV shows. Part of being a maven 7 is that I’ve always got a solid cache of information ready to share if someone’s careless enough to open the door for me.

Expectations

The flip-side to recommendations is the expectations they create. If a friend of mine, let’s call him Morris, has successfully recommended 10 documentaries to me without any stinkers, then I expect his next doc recommendation to be a good one. If another friend, let’s call him Les, has recommended five documentaries for me, and all of them have been terrible, then I expect his next recommendation to be terrible and I’ll eventually just stop listening to his recommendations altogether. If Morris and Les both make recommendations to me at the same time, I can safely choose Morris’ recommendations because I expect them to be better. With each recommendation Morris and Les make, I can reevaluate their recommendations as a whole to determine how much weight I’ll give to either recommender in the future.

This is also true for recommendation engines like those at Amazon and Netflix. If Amazon starts recommending stuff that I hate, I’ll take that into account in the future and begin lowering my expectations for the stuff they recommend. Eventually I’ll just stop buying stuff they recommend, and that may remove the exit barrier I described earlier so that I’m comfortable going to another company and starting over from scratch.

There’s a feedback loop of recommendations and expectations. With each new good recommendation I get from a friend, the higher my future expectations will be that the stuff he recommends is worth my time and money. With each bad recommendation I get from a friend, the lower my future expectations will be that the stuff he recommends is worth my time and money. Eventually, I will learn to anticipate exactly how accurate my friends’ recommendations will be.

Recommendations and expectations are part of an adaptive framework wherein each future recommendation carries the weight of all previous recommendations. This feedback loop is only useful if I compare my actual experience to my actual expectations. 8

Utility-Hours Per Dollar

Before I can compare outcomes to expectations, I need a way to objectively measure my general satisfaction with any particular piece of media. Dollars per hour is a good metric to figure out the cost of consuming media, especially if my biggest concern is keeping a budget. It helps me measure efficiency. I might say, “Well, I’ve got three bucks left in my entertainment budget this month. I might as well stretch it as far as I can. What’re my options that are three bucks or cheaper and provide the most entertainment time?” But I’m not just looking for any old media–I want the good stuff. I need a way to account for both efficiency and the relative enjoyment offered by something. Enter this new thing I’m creating called “Utility-Hours per Dollar” (UHD) 9. The UHD allows me to normalize things so that I can compare apples to apples. Yes, going to see a movie in the theatre is really expensive ($5 per hour), but what if it’s the most fun thing I could possibly do with five bucks? That has to count for something, right? Sure it does.

I calculate UHD like this:

  1. Find the absolute cost (in dollars) of the media I’m looking to buy.
  2. Estimate how long (in hours) it will take to consume. 10
  3. Subjectively determine its utility 11on a 10-point scale (1 is for awful stuff, 10 is for incredible stuff).
  4. Multiply the utility number by the number of hours.
  5. Divide that number by the cost, rounded to the next highest dollar. For free stuff, use $1 (not $0). 12 13

For those who like a tidy formula, here it is:

  • UHD = (Utility * Hours) / Dollars

That’s it. Here are a couple examples 14:

  • A really bad movie at the theatre would be $10, last 2 hours and provide a utility of 2:
  • 2 utils * 2 hours = 4 util-hours
  • 4 util-hours / $10 = .4 UHD

  • A pretty good album that I buy on Amazon for $8 might give me 20 solid hours of listening at 6 utils:
  • 6 utils * 20 hours = 120 util-hours
  • 120 util-hours / $8 = 15 UHD

A UHD near zero sucks. A UHD that ends up in the double digits is pretty good. Stuff with a UHD in the mid-to-high double digits is pretty great. Using this metric, I can figure out my most cost effective, enjoyable option for entertainment.

Our trusty UHD chart–we’ll see this again later

UP NEXT, in Part 2: How we all use UHD to decide what to buy, and how we sometimes ignore UHD altogether. [Click here to view the entire piece as a single page.]