Pricing the coronavirus vaccine

It’s 2020’s Holy Grail: the coronavirus vaccine. Large parts of the country and the world are shut down in a deadly pandemic. Scientists around the world are racing for a vaccine to end the suffering and re-start the economy.

Let’s say you found it. After 9 months of hard work, you have the answer to the world’s problems. What do you charge for it?

(Unlike most strategy and pricing questions I pose, there isn’t what I believe to be a “right” answer. This post is a framework for you to think about pricing in general. In all likelihood, you’re not developing a vaccine. But, if you do, I’ll help you think through pricing in exchange for a lifetime supply of your vaccine.)

Some factors to consider:

  • What is the value to the customer?
  • What is the cost of developing and producing the vaccine?
  • How quickly am I delivering it?
  • What’s the frequency of use?
  • What impact does the pricing have on my brand?
  • What are the regulatory impacts?
  • How does this affect other products I have?

Consumer value

No doubt the value is here. At a country level, we should be willing to pay $1 trillion — we’re spending more than that in the current bailout and recovery packages, with an unknown amount of misery to go. From an overall health of the country and the economy, the government should write a big check that covers all 350 million people.

It’s when it comes down to consumer pricing, it becomes a lot tougher, In this scenario, I’d be willing to write a check for $100,000 to solve this for me and my spouse. Some would pay more; most could only afford a fraction of that. In economic terms, this is largely a price inelastic good. But I don’t get any meaningful benefit unless the bulk of the population is immune. (You can’t go to restaurants, go to a bar or get a haircut.) The price needs to be set so that the average person can buy it.

This is different from a drug like Sovaldi, where a 1-month, $28,000 treatment can cure you of Hepatitis C. There aren’t dependencies on the behavior of the rest of the population.

Cost of development

Cost + margin is a common (and lazy) way to develop prices.

In the case of drugs, the first pill costs you $2 billion and the next one costs you 5 cents.

The cost of R&D is less material if you’re Pfizer than if you’re a biotech startup. Pfizer might want to do it at a loss for other reasons; a startup that may only have one big drug in its lifetime needs to price differently.

Delivery timeline

One of the challenges in pricing is that people assume that if something takes longer, it is worth more. Clearly it involved more effort. So it’s “fair” that you charge me more. That’s how most industries work and how employees generally work.

In this case, a solution today is much better for society (and the individual) than a solution 6 months from now.

I would pay a higher “delivery” fee for my meal if it showed up immediately in my apartment versus waiting 45 minutes for it. But that’s not how most people think about these things.

Frequency of use

If one use cures or prevents the disease, then the pricing should reflect the lifetime value because you have to get it all up front. See the Sovaldi example earlier.

On the other hand, if you need to use it weekly or monthly, you can charge less because you have a long term revenue stream.

Brand impact

Depending on your pricing strategy, you could have a positive or negative impact on the brand. Some people say that if Pfizer discovered a vaccine, they should give it for free immediately to everyone because they would be remembered forever as the savior of the world.

But does the brand matter? In the case of drug companies, it really doesn’t, for two reasons. First, very few people know what companies make what drugs. Without Googling, what drugs does AbbVie make? Even if you do Google it, the first page of results don’t tell you what it makes. (You have to click on a link.)

The second is that pharmaceutical companies have a monopoly on the branded drugs they make and someone else gates what you purchase. Your doctor is going to prescribe whatever drug the hot pharma sales rep who took him to lunch told him about  the drug that is the best for your condition.

There will be some initial PR blowback, but in the long term, it won’t matter. This is partly how doses of insulin cost hundreds of dollars – and the price keeps going up – despite the fact that the patent for insulin was once sold for $1. Eli Lilly, Novo Nordisk and Sanofi just don’t care what you think of their brands.

The brand impact matters more if you’re Target, Walmart or Pepsi.

Regulatory impact

For a coronavirus vaccine, this is probably the biggest constraint on pricing. Charge too much and the government may pay the bill to get the pandemic under control and then start probing every other aspect of your business.

In some cases, some governments will say, “Screw you and your patent. We’re going to make it ourselves.” This is especially true of developing countries. In a pandemic, this isn’t a hard decision to make.

Impact on other products

“This is an important life-saving drug and everyone should get it for free.”

Well, that may be true. But there are a lot of life-saving drugs. Do you give all of the life-saving drugs out for free and only make your profits on the quality-of-life drugs?

Have you undercut your entire business and the way people think about healthcare? (Leave aside the issue of whether pharmaceuticals should be a for-profit business.)

As I said at the beginning, this is not a guide to pricing your coronavirus vaccine. But these principles apply in pricing most things. As tech becomes a much deeper part of society, we’ll have to pay more attention to regulatory impact than we have so far.

For most products, competitive pricing will also matter.

Why Google+ failed, a product view

vic-gundotra-googleToday is Google+’s fifth anniversary. By most measures, despite massive investments, it was an epic failure.

I’ve been following all of Google’s attempts at social. I knew Buzz, Wave and Google+ weren’t going to work. You can watch me say so in this Bloomberg clip, where I went on against Robert Scoble.

Here are some of the reasons:

A hard line between product and marketing

I’ve talked to Googlers at almost all levels, including several at the VP and SVP level. Some of my closest friends work at Google. What stands out to me is that there is a hard line between product and marketing. Engineers build something and then marketing goes and figures out how to market it.

In the online world — and especially in social — this is a relic and counterproductive. Marketing has to be baked into the product and vice versa.

This is something that Facebook understands at its core. But it’s something that seems to be lost at Google.

People tagging is one of the smartest things Facebook (or any company) has ever done for distribution. (See https://blog.agrawals.org/2007/10/10/the-power-of-the-social-graph/) Is this a product idea? A marketing idea? Yes. Yes. It’s both. And the only way you come up with something like this is having people from a lot of disciplines involved in the product.

Part of Google’s challenge is that it hasn’t had to do a lot of marketing. Its key products — search, mail, maps — have been so much better than the competition that people naturally loved them.

Google did great with Google+,  if you consider traditional marketing. The Google+ ad below was beautifully executed. It should have won an award. But it didn’t move the needle, because that’s not how consumers “buy” social products. (Incidentally, the ads that agencies love — that show off their creativity and win awards — are rarely the ones that are effective.)

Google+’s botched invite process

An invite process is key to attracting users, but it is also important for engagement.

This was the flow when Google+ launched:
  • Rakesh invites Sundar.
  • Sundar accepts invite.
  • Sundar sees nothing, leaves.
  • Rakesh sees nothing, leaves.

(This was the initial flow. It’s possible that the team changed it weeks or months later. I did my testing at launch.)

This is what the flow should have been:
  • Rakesh invites Sundar.
  • Sundar accepts invite.
  • Sundar is automatically connected to Rakesh. (He accepted the invite, it’s logical to connect them.)
  • Rakesh gets an email saying “Sundar has joined Google+. Say hi to him!”
  • Rakesh (who is likely lapsed because of cold-start problem), now has a reason to go back to Google+.
  • Rakesh says “Hi” to Sundar on Google+.
  • Sundar gets an email that says Rakesh has responded on Google+.
  • Rinse, repeat.

Google could also have (with permission) scanned my email contacts and suggested groups like “close friends,” “business contacts,” “family,” “college,” etc. I’d be much more likely to invite close friends than bulk spam everyone I’ve ever interacted with. (a la LinkedIn.)

The Wave invite process was similarly botched. Here was a product designed for groups, but the invite process was such that I couldn’t guarantee my whole group would get in on it.

An emphasis on technology, even when it isn’t needed or is antisocial

In the Google Wave demos, there was a lot of emphasis on the real-time nature of the platform. Changes happened instantly! You could enter a few characters and everyone would see it right away. It seemed that the people who worked on it were very proud of their technical achievement.

It may have been a technical achievement, but it’s not a great social experience. I wouldn’t want you watching letter by letter as I wrote this blog post. It takes some time to form cogent thoughts. I edit and re-edit myself. From the producer side, I don’t want that level of detail exposed. (Especially if I sucked at spelling or typed really slowly.) As a consumer, you don’t really want to sit around and wait for me to type.

Showing instant updates in this context is a bug, not a feature. IM clients don’t show you letter by letter for this exact reason. If we’re showing stock quotes, obviously it makes sense.

Circles was another feature that was technically a differentiator, but socially irrelevant. (And, truly, it wasn’t a differentiator. Facebook had similar functionality, but buried it.) Unlike engineers, most people aren’t highly organized. They don’t group their friends into lists. They don’t actively manage their lists. They don’t want to constantly worry about privacy. Consumers want to make the least effort possible to use a product. Google+ was the opposite of that.

Even the terminology was geeky. +1 means nothing to a normal consumer. I know what it means because I used to participate in Usenet forums. But that’s not common.

Google Photos is exactly on the right track with this. The team understands that people are lazy. Using Google’s machine vision technology to make it easier to find pictures solves a tremendous challenge for people. I love showing friends pictures of kids from birth to now. They can watch kids grow up just by using the scroll bar. Machine vision is also much, much harder for Facebook and Apple to do.

The kitchen sink and the complicated sell

Google tends to have a lot of feature bloat in its social products. They might be great products, but they are hard to explain to people.

The recent social successes have had simple value propositions:

  • Instagram – share photos w/filters
  • Snapchat – share disappearing photos
  • WhatsApp – free global text messaging (way around ridiculous fees for SMS)

You’ll notice Twitter isn’t on the list. It has failed to reach the masses despite billions in free media. There’s no simple value prop.

I have the same problem. I’ve worked in journalism, publishing, telecom, search, local, automotive, payments. I have cross-discipline experience: I’ve done journalism, engineering management, product management, market research, biz dev, UX, corp dev, angel investing and marketing. A typical recruiter (including Google recruiters) looks at all that and says, “Why would I look at this person?”

But sit down with me for 45 minutes and learn how I work and the depth of my thought processes and the usual reaction is, “Why haven’t we hired this person?”

Google doesn’t have 45 minutes — or even 45 seconds to make the pitch to consumers.

Outlook for Allo

I watched the keynote and Allo falls into the same bucket of a complicated sell. Why is a user going to adopt this? Is it for:

  • Tons of emojis. (Piece of cake to emulate.)
  • To play command line games? Zork 2016 (Piece of cake to emulate.)
  • Google Assistant.
  • whisper SHOUT. (Piece of cake to emulate. iOS 10 includes this.)

Better to pick one thing and knock that out of the ballpark. You aren’t going to win FB Messenger users over with emoji. Given Google and Facebook’s relative strengths and weaknesses, I’d bet it all on Google Assistant. Another plus: It adds virality to Google’s other products.

The other key challenge for Allo will be distribution.

WhatsApp built its base outside the U.S. The primary reason people adopted it initially was to avoid paying the exorbitant cross-border SMS and MMS fees. There was an easy, compelling reason to switch.

Facebook Messenger used its insane time-on-site and hundreds of millions of users to build its user base. They had a massive (and personal) friend graph to work with.

So far, I haven’t seen anything from Google about how it’s going to attract users.

Recommendations for product folks and managers

  • Build interdisciplinary teams. The best products come from a team that understands various facets of consumer experience.
  •  Build growth mechanisms within the product experience.
  •  Focus on 1 or 2 easy-to-understand pitches.
  • With more fully featured products, those can be exposed contextually, as people become accustomed to the product. e.g. when Facebook started its move into mobile, they didn’t do big interstitials about mobile. They put a little phone icon next to statuses that were posted from mobile. This subtly introduced the mobile product without hitting people over the head.

Have questions on building products? Hit me up on Twitter at @rakeshlobster or stay tuned for my office hours.