How Potato Salad is Changing our Economy

The recent success of the Potato Salad project on Kickstarter (at the time of this post, it has raised over $15,000 for the project owner to create potato salad) illustrates how radically the Internet has changed our economy. What began with $.99 iTunes app and music purchase has culminated with Kickstarter into a full-blown micro-transaction economy.

The extremely low threshold of micro transactions takes advantage of what the Internet brings: volume. With minimal upfront capital (i.e., making potato salad actually costs very little; one could make the same claim of the wildly successful app Flappy Bird or any modern software for that matter) and thanks to platforms like Kickstarter, anyone can make a consumable product available at a significantly small enough price point ($.99) that overcomes the natural tendency of people to research and consider before making a purchase.What that means is that the barrier to convincing someone to purchase is gone. Spending $1.00 or $2.00 on something is enabled with the click of a button.

The question that begs to be answered is, “what’s the magic threshold?” Well, if the potato salad project is any bell weather, that threshold might be $2.00 (over 50% of the backers have contributed $2.00 or less). One could argue, though, that the threshold should be dependent upon socio-economic standing, that it should be different for people with means than those without. But I argue that the threshold is probably universal. Whether affluent or not, there is no pain associated with spending $2.00 (except in a very small demographic that most likely wouldn’t be participating in the micro-transaction economy anyway). It’s the psychology of perceived cost. $2.00 is like pocket change regardless of economic standing; it’s something you might find underneath the couch cushions and therefore, psychologically, ascribe little value to it making it all the easier to spend it on something that might seem frivolous. Even on a limited budget, what’s the pain of dishing out a couple of bucks?

Which brings me to the last point. Why potato salad? Why is this Kickstarter campaign so wildly popular? It’s all in the psychology. Kickstarter preys upon our natural proclivity to belong. We all want to be part of something. According to Matthew Lieberman in his book Social, it’s the very reason why our brains have evolved the way they have. Now combine that need to belong with the ability to get a Dopamine fix by spending $2.00, by carrying out a micro-transaction that has little psychological pain, and you can see why the people who have gotten involved…got involved. In the case of Kickstarter and the potato salad project, the micro-transaction threshold is so low that people are paying to belong to something, to say that they were one of the few who funded that funny project on the crowd-sourcing platform. But this is no different than purchasing a mobile app or a song. With each purchase, we have a sense of camaraderie, a sense of community; we are one of the tribe. Kirby Wadsworth and I talk about this in our book Recommend This as the fundamental tenant for developing deep and meaningful relationships with online audiences. The key is that the cost to join the tribe is so low that we never encounter the psychological pain of spending our hard-earned money.

We are at an economic inflection point. We are finally at a point, thanks to digital, where we can produce goods and services far below that psychological threshold. Perhaps its generational (it would be interesting to know the demographics of the backers behind the potato salad project) with those growing up closer to micro-transactions, i.e., millennials, much more connected with the psychology of threshold economics. But perhaps it isn’t. Perhaps what micro-transactions like Kickstarter enable, and how it’s truly changing our economy, is our ability to capitalize on our deep-seeded inherent desire to belong. And now we can…at a low, low price.

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