The New York Times took an intelligent look at how content is selling on Apple’s App Store.  The best-selling version of David Pogue’s “iPhone: The Missing Manual” book is its $4.99 iPhone app version, not the paper book or PDF.  Saul Hansell understands the application’s success on the iPhone is because of the valuable convenience and service Apple provides rather than customers simply paying for content.

Apple has created an environment that makes buying digital goods easy and common. With an infrastructure that supports one-click purchases of songs and videos, it was easy to add applications in the same paradigm. Paying for software, especially games, is not new to Apple customers. So when you see the iPhone manual or the Frommer’s Paris guidebook, it feels natural to click. (And of course, your credit card is already on file with Apple.)

He adds that Pogue’s app “hard to use” with poorly formatted text and a lack of interactive features, but for $4.99, the book sells quite well to a captive audience.  The publisher raised the price to $9.99 and saw sales plummet 75 percent.

This is not an example of micropayments, like some would like us to believe.  As newspaper’s desperately try to convince the public content should be paid for, they forget to tell us why to pay for it, let alone give us a reason to.  Apple built a easy-to-use system that is so convenient, it’s worth a few dollars and cents.  But Apple doesn’t look to make money on it’s App store. Apple already makes a healthy profit on the iPhone itself, just like on the iPod. Any profit from songs or applications is icing on an already sweet cake. These so called micropayments supplement Apple’s massive profits – they aren’t the source.  Newspapers hoping to replicate this model will be sorely disappointed.

Another difference, Apple has no real competition.  No one else can sell or offer iPhone applications except Apple (unless you jailbreak your phone). And no other mobile phone system offers as complete a catalogue or convenient system to truly challenge the iPhone (Google’s Android is trying very, very slowly).  If and when Android or Symbian or Windows Mobile (ha) can and do challenge the iPhone, convenient service will not be worth paying so much for. It’ll be expected and the next innovation will be required.  That’s, of course, smart business – staying ahead of the competition.

Something of concern for Apple and micropayment fans is research shows iPhone users rarely use applications after 20 days.  Techdirt points out iPhone users not finding much value in the apps they download will be less likely to spend money on more, hurting the long-term viability of the store.

The newspaper industry has been buzzing about building their own iTunes, offering a pay-per-article model with everyone’s favorite buzz word, micropayments.  After a cover article in Time Magazine promoting the model, the idea has joined a larger debate of people who just don’t understand the new economics of news.

Walter Isaacson’s article for Time builds on this misconception that newspapers made the mistake of posting their content online for free, making customers get used to the idea and now unwilling to pay. Alan Mutter even calls this the Original Sin.  So all newspapers have to do to save their ailing industry is agree to charge for every article.

The crux of the micropayment argument is people should pay for news simply because that’s the way it’s been. But economics change. The internet makes sharing news articles incredibly cheap.  With hundreds of thousands of online news sites and blogs spreading news for free, no amount of conglomeration will convince the market to pay for news again.

Let’s look at what happened already. The New York Times tried to charge online subscriptions to its archives. Instead of paying for subscriptions (or per article), customers went to the Huffington Post and blogs to get the same information for free.  Isaacson says newspapers need to prevent others from sharing the content they read, but how does he think this will happen? Mind wipe after reading? Information and news can’t be copyrighted. Once you read a news article, you can tell anyone and everyone what you read.  The value is in being the source material, but if people can’t read the source material, they’re happy to find a secondary source.  Marshall W. Van Alstyne, associate professor at Boston University, likened iTunes for news as putting toll booths in the ocean.  Any barrier to user entry online is easily avoided.

The further problem with iTunes for news is news is not music.  Alstyne elaborates:

News is not like an iTunes song; it’s perishable. Today’s front page is tomorrow’s fish wrap, and we don’t need to replay it. If anything, a reader benefits more from a second source than repetition from the first. Facts are delivered; songs and movies are created. Facts also can’t be owned, so when the Internet places geographically dispersed media in direct competition, the price of facts falls to marginal cost. In digital markets, that’s zero.

With micropayments, suddenly users have to question is each article worth reading.  This is the problem with micropayments in any industry.  Customer willingness to jump from free to $0.01 is much larger than $0.01 to $1. For every article, I have to decide, is it worth $0.01 to me; is it worth taking out my credit card; is it worth typing it in.  And how will article pricing be decided? Will the more important articles be more expensive?  Customers do not want to guess which articles are worth paying for.

News is free now. It has been free for a while – how much do you pay for TV news? Most arguing for pay models for news articles just want things as they were, pretending the economics haven’t changed.   Saving the newspaper industry relies on giving customers more value, not charging more for less (the most popular trend in newspapers has been reducing size but raising prices – less for more).  The key is to recognize the business’ main value – providing news – rather than the method – paper.

50 percent of most newspapers’ budget goes to printing and distribution costs.  With the internet, those expenses disappear. To be profitable, an online newspaper can make half the money it made offline because distribution is so cheap. MediaView posted a list of 14 models being tested for journalism, many with quantifiable success.  Each successful model (not micropayments, included on the list) looks to raise the value for customers.  Micropayments offer nothing valuable for the customer.

For all newspapers’ grandstanding, there are several viable models already working.  Several big cities have free, tabloid dailies handed out to people on their morning commute.  These quick reads offer the greatest hits of the day’s news, focusing on the need to know and leaving you to fill in the blanks online when you get to work. Online news providers are already offering original reporting, from Slate to Salon supported by advertising.

News reporting won’t disappear because there’s always a market demand for good journalism.  But the old guard isn’t offering the market what it wants – the market wants free, up-to-date news. Many want a community to discuss the respond to the news, asking questions or sharing opinions.  The old guard doesn’t understand how this changes their old mentality.  Newspapers are no longer the only purveyors of news, controlling what we see and when.  They need to be part of the communication process. That requires giving customers what they want, not making things like they once were.