February 26, 2008
The Penny Gap
Free! Why $0.00 Is the Future of Business, by Chris Anderson
“The huge psychological gap between ‘almost zero’ and ‘zero’ is why micropayments failed. It’s why Google doesn’t show up on your credit card. It’s why modern Web companies don’t charge their users anything. And it’s why Yahoo gives away disk drive space. The question of infinite storage was not if but when. The winners made their stuff free first.”
But if you’re offering something like short-term trading ideas, the audience is so small that it can never work “for free.” Doesn’t Anderson’s whole “taxonomy of free” require that the service provider have a massive number of users?
Maybe if I do only get 1% (exactly 12) to pay for my short-term trading ideas when I start to charge, then I should think up another way to make money from them? Maybe the “open positions” report will cost something instead? Ideas from the gallery?
February 26th, 2008 at 3:58 pm
Economies of scale and scope on steroids. Some services already offer certain trading ideas for free, with users paying for the complete list and real time picks.
February 26th, 2008 at 4:01 pm
Brian: Do you have a link to these guys? What’s the difference between complete list and partial list? Real-time picks are a whole ‘nother ball game.
February 26th, 2008 at 6:28 pm
For 20 bucks a month you can find services such as Fallond. Most of them blog about selective picks.
I don’t like paying for trading ideas, but if I was running such a service, I would probably pick the highest potential R idea in the list and offer it for free on the blog. Helps drive traffic and may entice readers to pay for more picks at some point.
February 26th, 2008 at 7:29 pm
www.traderhr.com offer free stock recommendations just by giving them an email address. They provide entry and stop but target price is kept for (paying) members only. Their performance looks impressive but I can’t personally vouch for it.
February 26th, 2008 at 9:10 pm
@Brian: Fallond is $14.95 a month, yes? That’s an interesting idea about putting out the highest R idea for free with the rest for subscribers, but I’m a little leery of half measures.
@Cedric: Thanks for the link, $40 a month, twice what I’m asking, I’ll check it out.
February 26th, 2008 at 10:49 pm
The most successful “guru” model I’ve seen is to offer the trading ideas inside a paid forum. If you moderate it like Hitler then you end up with crystalline pure groupthink and then everybody thinks they’re geniuses - and thusly happy.
February 27th, 2008 at 1:25 am
Pay for current picks, free views of historical picks. Provide a history of results on a regular basis.
February 27th, 2008 at 2:13 am
how about you trade your ideas to make the big bucks? isn’t that the whole goal of them ideas to start with? and if you are making the big bucks from them then people will flock to you to pay you for them.
i started tracking all my trades in real-time on my recently minted blog… i do not give out ideas, nor suggest entry/exit… or anything like that… but i track all open positions in real time as well as closed positions.
February 27th, 2008 at 2:38 am
Diversification and smoothness of income, as well as added income.
Assume you could make 25% annually with a 15-20% standard deviation; having income from selling the picks could buy your room and board during down years for the system, and allows your wealth to compound faster than it would if you were making your living off of trading.
February 27th, 2008 at 3:04 am
@Bill: yeah, i am totally with you :) i am all for earning as much as you can as often as you can from as many resources as you can. I live that philosophy in my small business and in my investments.
My point to CM is that it is easier to capitalize on the ideas once he shows that he can make the big bucks from them. So far i do not know of anybody that has traded the whole list, trading the partial list is an obvious problem.
The only complete track record is CM’s tracking which shows a good month and a bad month. Not enough to entice enough people, IMO.
February 27th, 2008 at 3:07 am
I’m guessing that a year’s worth of disclosed, publicly tracked picks could be followed by a paid subscription route, with 30-ish days delay before they’re all free. That way, two years from start, a prospective customer could view 23 months of results before making a decision. Sure, some DIY guys will just try to deconstruct them, but that’s the breaks.
February 27th, 2008 at 5:18 am
@Donk, Bill, Born2: Thanks for the ideas. All of the competing services I’ve looked at don’t offer a long track record and none of them disclose a complete record of their ideas, yet they’re charging a monthly fee two, three, four times what I am, and seem to have plenty of subscribers. I think my main problem is that I’m not out to target suckers with any “big bucks” claims.
February 27th, 2008 at 5:30 am
You could move from ideas to recommendations. If a fixed amount invested in the recommendations makes a profit then subscribers pay, otherwise a credit is given for the next period. You could throw in the standard list of ideas as a bonus. You could probably double the subscription price on that basis.
February 27th, 2008 at 6:47 am
CJD: I’ve thought about the idea of giving a credit if the cumulative R for the month is negative, but again, I don’t see anyone else offering to be so generous.
February 27th, 2008 at 2:12 pm
On a side note: what minimum capital size would you have needed to have been able to trade every entry that has been triggered so far?
February 27th, 2008 at 2:36 pm
You might find this article on ideas on turning something that is free into something that is “better than free” so you can charge for it. http://www.edge.org/3rd_culture/kelly08/kelly08_index.html
Some thoughts:
* if the box shows a long play, publish it after the market opens. Subscribers get first look before the market opens. My thinking is that it can’t hurt to have others buying in after your subscribers have had a chance to get their positions set. You could also leave off some of the info, like the price target or time frame - let people pay for that.
* Personalization is also a way to add value. Perhaps someone only wants to play S&P 500 stocks, or high dollar stocks, or only-tech, or whatever. Showing people stocks they are comfortable playing means they are more likely to take the advice from the Box.
I had a few more ideas, but I think their work-to-payoff ratio is low.
One final comment - you might think about raising the price by a a lot. Essentially you signal that this is a premium good by charging a lot for it. Not real happy with that suggestion, but it’s a tried and true marketing tactic.
Best of luck!
February 27th, 2008 at 2:52 pm
Cedric: Depends on how much you’re risking on each trade, but if you figure on a dozen or more positions open at any one time, then you’ll need several hundred thousand dollars minimum.
February 27th, 2008 at 2:58 pm
kdp: Thanks for your thoughts and the link. Yes, an after the open or one-day delay is an idea. A friend of mine was involved with some heavy duty newsletters where they spent a ton of money on market research to figure out what people would pay, and the answer is around $20 a month max. So if you’re charging, say $50 a month, you won’t have anyone subscribing (not even twelve).
February 27th, 2008 at 3:14 pm
Mao, ask yourself, would you want to pay someone money for a service that made money one month, lost the next and has no further track record at all. Even you don’t know the longer term viability of “the box.” I think you are missing the point. It’s not the amount you are charging, it’s the confidence people have as to whether they can make money with it. So far it appears to be a coin flip. It sounds (a bit whiny, in fact) like you think people owe it to you to sign up and pay you for this. No doubt many would if they had a high level of confidence they would profit from it.
February 27th, 2008 at 3:46 pm
dayo: Good point, but I think even with a longer track record (which will undoubtedly show profitable months and losing months) people won’t have any confidence because they’re used to the exaggerated claims of practically every system vendor / stock tout out there — people want a sure thing and it just doesn’t exist.
February 28th, 2008 at 3:10 am
I think you should advertise this program. Get a guy in a big Panda bear suit to chase around a Caucasian dude, and have the Caucasian say something like, “The market used to have me dis-ORIENTed, but now I use ‘Chairman Trades!’ ”
” ‘Chairman Trades’ – Chinese name, American stock market picks.”
February 28th, 2008 at 5:37 am
Bill: Not a bad idea. :) Folks are complaining, hey you were down 9R in January, why should I subscribe? How many R down were the Gorillas (or whoever) down in January? At least I’m open and honest about things — “authentic” is the word, I guess.
February 28th, 2008 at 6:31 pm
My 2 cents:
[1] I did raise the charge from $14.95 to $19.95 for new members from the start of this year. Existing members maintain their initial subscription charge.
[2] Bill’s idea is the best; provide a few teaser plays - give a detailed historical record and let members get the latest plays. I tried doing this myself, but few people ever visited those pages, so I stopped. Offering a free trial has worked better for me. This brings me to [3]
[3] The top top top(est) of points is having a big enough pool of readers to draw a membership base. Keep plenty of free information available and have a few extras for the members. This works well for The Kirk Report as I remember reading in Barron’s he had something like 700+ members.
[4] Testimonials are important, but one thing which always amuses me about the various stock pick services out there is how hilarious/lame the testimonials and accompanying mug shots are. How many idiots in bermuda shorts standing next to a sports car/Merc does it take to sell a stock service? Offer your newsletter free to the main bloggers (and me!) and see what response you get. Use that as your testimonial base. Ehhh.. I didn’t do this, so any blogger want a free newsletter? Drop me an email fallon-at-yahoo.com
[5] First year is critical. When I started my service I enjoyed steady membership growth for the first six months. Then I lost over half of my membership in the space of a few weeks and it is has been idling since. The performance of the stocks had improved steadily during the cancellation period - but it may have been burn from a bad 2-month patch which was the killer blow for those members who cancelled.
[6] On the income front I earn enough to cover hosting and data costs, a few trading books and magazines, MTA fees and a laptop once in a while - but that is it. There is nothing left over for a salary, or to actually trade (which was my initial plan). I reckon most would make more on Adsense than I do from selling a newsletter.
[7] The actual subscription charge is tricky. I think $20 is fair (I would, given that is what I am charging!) But if you go for bulk members with a low cost basis you are likely catering to people with smaller accounts who are more prone to wipeout on a few poor losers (even the commissions hurt these accounts). Go higher and you will have fewer members, but likely better quality in terms of what they can afford, and therefore the ability of their trading accounts to withstand a drawdown period. I don’t know what the sweet spot is for a monthly charge, I would love to know!
[6] Why do I continue to do it? I enjoy it. It helps build a routine and I’m a number cruncher (it’s the scientist in me - endless nematode counts over the past 15 years). Over the years I have close to 4,000 individual trades measured by stop, target and max high returns for the period of the trade. I include the latter to compare what would be termed the bullshitter returns you see everywhere - if I had advertised on those levels I would look as good as any of the competition. All of this information forms the Mother of an Excel spreadsheet which one day I will further number crunch, but for now sits in my archives. One of the key reasons for continuing is I have had subscribers who have stuck with me for nearly 4 years. As long as there is an interest from others for my work - I will provide it.
[7] I would be happy to answer any questions (maybe I should make this a blog post…) for those looking to sell a newsletter service.
DJF
February 28th, 2008 at 10:51 pm
Declan: You are very generous to write such a long and detailed comment about your experience and I appreciate it and will consider your various points closely. The only thing I can share is my friend’s study on investment newsletter pricing which found that, if I remember correctly, $14.95 to $22.95 (monthly) is a kind of sweet spot and anything below there or above is disastrous. In the past when I’ve asked for donations, the average tends to be around $25, but of course that’s a one-off, not a recurring thing.