With Netflix's announcement this week that the company is changing its pricing structure--essentially upping the cost for customers who wish to both have access to DVDs and streaming of content--it is worth looking back at Dan Ariely's compelling Wired article on how companies successfully manipulate consumer behavior online.  Ariely's short assessment of Netflix looks prescient:

Netflix built a billion-dollar business on one simple principle: People hate late fees. With traditional video stores, customers always had to choose between racking up extra charges and returning an overdue movie without watching it. Besides eliminating the late fee, Netflix offered an exhaustive selection of films from which each user could assemble a personal “queue.” This seemed to create an intelligent system that matches users with the movies they want to see. What wasn’t to like?

In practice, though, Netflix users ended up watching fewer DVDs than they might have expected. (This is fine with Netflix; it saves on postage and boosts profits.) Why? One reason is that Netflix was forcing us to choose based on what we thought we wanted to see in the future—and we’re bad at predicting our preferences.

There’s a beautiful paper by Daniel Read and two coauthors showing the gap between what people want to do in principle and what they want to do right now. They asked subjects to choose several films from a list containing a mix of highbrow titles (e.g., Schindler’s List) and lowbrow titles (e.g., My Cousin Vinny). When asked which film they wanted to watch a few days later, most picked a highbrow one. But when asked which they wanted to watch right now, most went lowbrow. In principle, we want to be the kind of people who watch serious movies, maybe even French ones—just not tonight! And so our queue becomes aspirational, filled with titles that are more ambitious than the ones we really want to watch.

Now that Netflix offers streaming, I’ve dropped the DVDs altogether. With streaming, we no longer get stuck with movies we only want to watch in theory. Instead, we feel like we’re paying for the right to watch any movie at any time—even if we don’t wind up watching many.

Read How Online Companies Get You to Share More and Spend More here.