Bundle Magic

Author: Nathan Baschez (Divinations) URL: https://divinations.substack.com/p/bundle-magic One-line: The “dark magic” of bundling: bundles eliminate the deadweight loss of people who want each thing a little — they work when buyers have a little demand for everything and a lot for some things, and only for goods (software, digital media) that cost nothing to give away.

Highlights #Pricing

• One idea we came up with recently was to offer a bundled version of our newsletters. The theory was based on an idea called “bundle economics” that I thought might apply in our case.
• It’s not obvious why bundling is good. And in fact, bundles are often bad! Sometimes you should unbundle. It entirely depends on the circumstances.
• Unbundling is kind of obvious (you want less stuff, so you pay less money), but there is a sort of dark magic inherent in bundling, which allows it to benefit both buyers and sellers in wonderful ways.
• Most newsletters should charge $7-8, and capture the top two most interested readers, while sacrificing the bottom three. The exception is The Monad, which is super niche and should charge $13.
• The thing that makes bundles work is they eliminate waste. What waste? The wasted demand of all the people who want access to each newsletter a little bit, but not enough to pay the market price.
• The less variance, the easier it is to charge a price that works for everybody, the less deadweight loss you have.
• The relationship here is very clear: if people have zero demand for most things in your bundle, it’s a bad idea to try and force a bundle on them. But if people have a little demand for everything, and a lot of demand for some things, then a bundle is a great idea.
• Lastly, none of the analysis above works for physical products, or consulting services. It only makes sense to give people things they don’t fully want if it costs you nothing to give it to them. So it works for software and digital media, but not much else. This is why music and movies weren’t previously offered as a bundle when they had to be printed on discs and shipped, but now that they’re delivered for essentially free over the internet, they’re bundled.
• The default “willingness to pay” for writing on the internet is zero, and it takes something special to dislodge it from that spot.

Connections

• bundle economics — the underlying theory: bundles compress willingness-to-pay variance and capture otherwise-wasted demand.
• Pricing — practical pricing implications for newsletters and digital subscriptions.
• Why Software Is More Profitable Than Content — same week, same logic: zero marginal cost is what makes both software bundling and content economics work.
• How Substack Has Spawned a New Class of Newsletter Entrepreneurs — the bundle-vs-standalone tension for individual newsletter businesses.