I wrote last fall about the "sweet spot" in pricing and spending patterns for a microtransaction-based service and business model, where I posited that given flexible consumption, revenue could be maximized by ensuring the lowest possible minimum price point; one which is preferably closer to 1 cent than one 1 euro. Depending on the goods sold and amount of logistics overhead, the minimum profitable price may of course be much higher, and depending on the payment mechanisms available, the minimum price for which the consumers effort overhead exceeds the cost of the good may also be fairly significant. A chocolate bar may be sellable for 40 cents, while few durable goods can achieve a price point lower than a few euros. For virtual goods, the minimum pricing is mostly a question of efficient mechanism for transferring low amounts of money, because the minimum "size" of the good sold can be in theory reduced ad infinitum, and distribution costs are a non-issue.

Last week there was a Facebook Developer Garage day in San Francisco where a couple of interesting presentations were given. I wasn't there, but browsing through the material I found this slide about the distribution of order sizes among Amazon customers (slide 10 in the deck):

It's interesting to see the similarities on this chart to the behavior in virtual goods. In this data, the observed behavior follows the power law model in an ideal fashion at price points over $25, but the drop-off below that order size is remarkably fast. This is the result of primarily the goods sold and the logistical overheads implicit in that; it just doesn't make much sense for someone to order $5 worth of goods from Amazon given the shipping costs and delays incurred on top of the purchase.

For virtual goods, the drop-off point can be much lower, but still, a similar drop off does happen - again because below a certain price point and transactional overhead level, neither the consumer of the good nor its producer see value in the market. At prices above that, the transactional model does however exhibit the power law distribution. Again, by reducing the minimum marketable and profitable price point, there is a big potential customer base to be gained at the bottom end of the pricing scale. Most companies leave an amazing amount of revenue on the table by not addressing this issue.