Wednesday, January 24, 2018

Making "Pay As You Wish" More Equitable -- Sustaining the Met Museum (and Others)

The Metropolitan Museum of Art in NYC stirred up a lot of heat and raised some interesting questions when it announced a partial end to its "pay as you wish" (= pay what you want, PWYW) admission policy earlier this month. Under financial pressure, it is ending PWYW admissions for all but residents of NY state (plus students from NJ and CT).

The underlying issue is how can a museum build relationships with "patrons" that are fair and affordable, while encouraging them to be true patrons, paying what they can afford to sustain the museum. Modern technology enables new ways to solve this knotty problem, but few have begun to exploit that.

An industrial strength variant of PWYW -- for profits -- and for non-profits

While for-profit businesses currently tend to fear giving any pricing power to customers, PWYW works surprisingly well in many situations. PWYW is common in museums, and has become popular for digital content and services (and has other well-established uses such as tipping). What I suggest is that the Met -- and others -- look at how to make it work better.

My work on FairPay points to new technology-enabled strategies to make enriched forms of PWYW "ready for prime time" -- by balancing pricing power more fairly on both sides in an ongoing relationship. FairPay was developed for for-profit businesses, but it is very well-suited to non-profits, such as the Met, as well.

FairPay membership relationships

My post from last year, A Better Revenue Strategy for Non-Profits in the Digital Era, explains how FairPay (short for Fair Pay What You Want) can change the game in ongoing patron relationships.
  • The idea is to seek to personalize a level of payment that is fair and affordable to each patron, and to motivate each patron to pay at that fair level. 
  • The problem is that patrons have very different value propositions -- different levels of usage, of value obtained, and of willingness and ability to pay.
  • Addressing that variability is facilitated by shifting to a relationship view: from one-off admissions, to the total being paid by an individual patron over an ongoing period. 
  • This shifts all sides from a transaction mind-set to a relational mind-set -- and turns price-setting into a repeated game that centers on value instead of price, and encourages cooperation, transparency, and trust
  • That relational mind-set builds mutual dialog and engagement -- which is good for both the museum and the patron. Technology enables this to become far stronger.
FairPay works much like a membership, but with fully personalized pricing that adapts to the value each member gets, as well as their willingness and ability to pay. Because FairPay is highly flexible and adaptable in its pricing, it can work for anyone who is likely to make repeat visits. It can provide for free or low-price admission in cases where that is fair, given the circumstances -- and enable simpler forms of premium patronship for those willing and able to provide greater financial support to a cause they think worthy. (Another post explores FairPay memberships in more depth: The Missing Piece of the Membership Puzzle -- Agreeing on Value for Each Member.)

Even for institutions not ready to move to FairPay, understanding the principles behind it suggests a direction to move toward (as encapsulated by the thought experiment described in another post).

From visitors to members ...to become true patrons

Of course many who visit the museum will be one-time visitors. FairPay is primarily aimed at ongoing "member" relationships, and that was the focus of my prior post on non-profits. However, FairPay can be adapted to address the issue of new and one-shot relationships, and to provide a smoother path from visitor to ongoing patron. That leads to pricing that is both more win-win, and more economically efficient -- raising more funds from more people.

Much of the negative response to the Met's PWYW change is about how it may reduce access to disadvantaged visitors. FairPay's flexibility in customizing relationships adapts to patrons with both low and high ability to pay.

Here, I sketch out some suggestions on how a new visitor might be addressed with FairPay, and highlight some of the underlying principles.
  • The idea is to invite those who want to pay less than full price -- as well anyone who expects to be a repeat visitor -- to join a special "FairPay patronship program." 
  • This can work for any visitor who is willing to build a relationship that is more value-centered, even those of means -- many of whom might pay at premium levels, just as in other membership programs.
  • While this may not be well suited to the out-of-area visitors now being excluded from the PWYW policy (at least those who will not visit regularly), it offers a way to get more, on a more cooperative basis, from those who are still permitted to pay as they wish. (And it should be able to pass muster with NYC as being no more onerous to those who cannot pay than the current PWYW policy mandated by the Met's lease of public parkland.)
  • It also provides a tool for the Met to build a direct relationship with the many visitors who have not joined as members. Membership now costs $100 for unlimited visits (if within 200 miles) versus the suggested $25 per visit.
  • FairPay provides a smoother and more rational range of value propositions -- less that $100 for those who might visit 2-3 times per year, and a basis to suggest those who visit many times per year should pay more, if they can. Instead of pre-set bundles of perks for higher level memberships, FairPay can provide for individually customized on-demand bundling.
FairPay relationships generate personalized prices and value propositions based on the following key principles:
  • Post-pricing: set the price after the experience, when the value of the experience is known. That eliminates the patron's pricing risk (the risk that the experience is disappointing). Note that the Met has little pricing risk at an individual level (since its marginal cost per person is near zero), only the overall risk that the aggregate pricing level (over all people) is too low.
  • Post-bundling: a further aspect of post-pricing -- enable the patron to select the package or bundle of services they desire, one piece at a time, when they know what they want -- not as some pre-set package that is arbitrarily bundled (often with undesired pieces that are not used, as in the Met's current $200 and $600 membership bundles).
  • Participatory pricing: get the patron involved in setting a personalized price that they consider fair and affordable for them. That avoids misunderstanding the value proposition (as they perceive it), and helps build a deeper and more cooperative relationship. Some patrons will push for lower prices, while some can be "nudged" to pay more than now suggested.
  • A repeated game: shift the focus to the continuing relationship, rather than the one-shot transaction, to focus on value rather than price, and to draw on human values of cooperation:  fairness, reciprocity, trust, and altruism (especially powerful for museums and other public services).
Together, these principles lead to prices that are fair for each patron, whatever their level of activity and their ability to pay.

The repeated game of relationship

How does this game work?  Think of it as something like "running a tab," but with a new kind of cooperative price-setting process. See the diagram (fully explained in another post, with some basics here):
  1. Visitors seeking this FairPay admission would join as "FairPay patrons," providing and confirming their email (and maybe presenting a credit card for validation only, with no payment), thus beginning a basic, ongoing relationship with the Met. 
  2. They could immediately be given a membership card (or an app) with a coded tag that allows tracking of their entry and exit times (and which exhibits they visit).
  3. After their visit, the Met would email them to request a payment -- reminding them of how much time they spent, and any special exhibitions visited, with a suggested price for them. The Met would emphasize the importance of the patron's financial support to maintain its offerings, and emphasize the benefits offered to ongoing patrons. 
  4. The patron could then "pay what you think fair" -- and indicate the reasons why they feel it is fair to pay less (or more) than the amount that had been suggested for them to pay. They would be free to be unfair and not pay much (or at all), but that would be tracked. Note the important difference between "pay what you think fair" and "pay what you wish" -- the emphasis is on fairness, not whim. 
  5. On their return for another visit, the card or app could be used again on the same terms -- if the holder is in good standing, based on their prior usage and payment history. Thus repeat visits would be enabled, with all payment requests for that month processed together. 
Note how tracking visits provides a way for the Met to make the value obtained more evident, and more personalized. These repeated visits could be discounted on a sliding scale to work much like an annual membership, but still be priced to reflect individually varying levels of activity. There could also be cap on total payments in a given year, as with conventional memberships.

But unlike conventional memberships, it could be made clear that those who visited often, and for longer times (and visited premium exhibits) might be expected to pay more than those who visited less. Similarly, students, retirees, and other categories with limited means might be empowered to claim discounts (with more flexibility and privacy than at a ticket window). Conversely, visitors who can afford to pay more could be "nudged" to do so. Seniors and students who are affluent could be discouraged from seeking discounts.
Another important benefit these methods would provide to the Met is that new visitors are immediately brought into an email-based relationship with the museum. That has numerous obvious benefits.

There are strong behavioral economic underpinnings to making this strategy fair and sustaining -- this should be primarily "carrots," but there are also some "sticks:"
  • Some might try to abuse FairPay and not return, or could return with another email address. But FairPay's tracking process makes such abuse harder -- and more conspicuously at odds with maintaining one's own positive self-image. 
  • Such abuse might have results similar to the current PWYW policy -- but probably for fewer people, and less aggressively -- and abusers could now be tracked and cut off from repeated abuse. (Enforcement of fairness criteria could be lenient, or as whatever level the Met and the city agree to be appropriate.)
  • Other methods proven by behavioral economics could be applied to nudge patrons to pay fairly, and even generously. 
  • More direct, proactive programs could be applied to encourage participation by the disadvantaged (or others) -- and even to encourage them to volunteer non-cash support that might be credited toward their membership obligations.
Thus total revenue should be higher than with the current PWYW policy -- and relationships should be much stronger.
Naturally the Met would want to test this to learn how to manage the process well, starting with selected segments of visitors who can be expected to be most deserving and appreciative of this increased level of cooperation, transparency, and trust.


From visits to relationships, from price to value

FairPay is all about building value-centered relationships, and being smart about how to motivate and value such relationships. Technology is providing much more powerful ways to do that than ever before.

The institution's challenge is to exploit these new ways to make museum pricing work better for all of us -- whether with full forms of FairPay, or with partial steps in that more win-win direction.

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For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video). 

Even better, read my highly praised new book: FairPay: Adaptively Win-Win Customer Relationships.

(FairPay is an open architecture, in the public domain.)

Tuesday, January 16, 2018

"The Square and the Tower" — Hierarchy versus Emergence

For those interested in the big picture of history and how technology affects that (and is shaped by that) -- with implications for the future of commerce in our digital world -- Niall Ferguson's new book, The Square and the Tower: Networks and Power from the Freemasons to Facebook is well worth a look. I have posted a full review, with some proactive suggestions, on my other blog.

A few extracts:

...a sweeping historical review of the perennial power struggle between top-down hierarchies and more open forms of networks. It offers a thought-provoking perspective on a wide range of current global issues, as the beautiful techno-utopian theories of free and open networks increasingly face murder by two brutal gangs of facts: repressive hierarchies and anarchistic swarms.

...I think Ferguson fails to see the potential for better ways to design, manage, use, and govern our networks -- and to better balance the best of hierarchy and openness. To be fair, few technologists are yet focused on the opportunities that I see as reachable, and now urgently needed.

My full review: "The Square and the Tower" — Augmenting and Modularizing the Algorithm (a Review and Beyond)

Wednesday, December 20, 2017

The Ghost of Pricing Future -- A Thought Experiment

In the spirit of Dickens's Ghost of Christmas Future, I thought again of the "demon" that I have outlined as a simple but over-arching vision of ideal pricing.

It is easy to get lost in the many currents of discussion about the strategy and tactics of pricing -- and to lose sight of the deep connection of pricing to how enterprises think about their business, their customer relationships, and the marketing, production, and design of their products and services.
  • There are many strategies for more effective pricing, such as based on value, performance, solutions, and outcomes. These relate to broader business directions, such as one-to-one, customer-first, and customer-value-first, as well as the growing focus on customer experience
  • While these generally point in the right direction, we often fail to see the forest for the trees. We need a fundamental principle to guide us, and to make it clear how to align all aspects of a business. 
  • My demon illuminates that driving principle.
Think of the Value-Pricing Demon outlined below -- What would the demon do? 

If your pricing stays true to that, success will follow.

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(Prolog to the book, FairPay: Adaptively Win–Win Customer Relationships, by Richard Reisman)

Prolog:  
A Thought Experiment -- Imagine a Value-Pricing Demon…

Imagine a demon that might power a system of commerce.  Imagine that this demon has perfect ability to observe activity and read the minds of buyers and sellers to determine individualized "value-in-use" -- the actual value perceived and realized by each buyer, at each stage of using a product or service.
  • The demon knows how each buyer uses the product or service, how much they like it, what value it provides them, and how that relates to their larger objectives and willingness/ability to pay. It understands the ever-changing attributes of current context, where the value of a given item or unit of service can depend on when and how it is experienced.
  • Furthermore, this demon can determine the economic value surplus of the offering -- how much value it generates beyond the cost to produce and deliver it.
  • The demon can go even farther, to act as an arbiter of how the economic surplus can be shared fairly between the producer and the customer. How much of the surplus should go to the customer, as a value gain over the price paid, and how much should go the producer, as a profit over the cost of production and delivery, to sustain their ability to continue those activities.
Such a commerce demon might thus serve as the brains of a system that sets prices that are adaptive and personalized -- to set a price for each person, at each time, that is fair to both the producer and the customer.  Imagine we could build an e-commerce system, with advanced programming and data that worked as an artificial intelligence version of this demon. Prices would not be pre-set by the seller, but would be set dynamically by the demon for each item or unit of service, at levels that would be fair and acceptable to both the buyer and seller.

Actually, a rather different pricing demon has long been widely accepted as central to our economics.  Isn’t Adam Smith’s invisible hand just the hand of a demon that guides the setting of prices based on a balance of supply and demand?

So if we have Adam Smith’s demon, why do we need my demon?  Because the invisible hand works nicely for markets of scarcity, but in the digital era, we face markets of abundance.  The task of these new markets is not how to allocate scarce goods, but how to sustain the creation of services that can be replicated without cost or limit.  What we now need to allocate is a fair share of the customer’s wallet. 

This book shows how thinking about my demon can help us do that. FairPay is a business architecture centered on a new value feedback process that adaptively seeks to approximate what the demon knows

(More on thought experiments and this demon in Chapter 5.)


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This Prolog to my book, FairPay: Adaptively Win–Win Customer Relationships is also online. I first posted about this (with added commentary) in 2015:  Harnessing the Demons of The Digital Economy.
.

(A note on ghosts and demons:  Of course my demon is a converse of Dickens' ghost, which pointed to the dark scenario -- my demon points to the ideal scenario -- but both serve as thought experiments. I call it a demon in the same spirit as the well-known benign demons of physics:  Maxwell's demon and Laplace's demon -- those have long served as very useful thought experiments.

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For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video). 

Even better, read my highly praised new book: FairPay: Adaptively Win-Win Customer Relationships.

(FairPay is an open architecture, in the public domain.)

Tuesday, October 31, 2017

"Invisibly"? -- Or Visibly? ..."Finding the New Revenue Stream Publishers Dream Of"

"Can startup Invisibly be the new revenue stream publishers dream of?" asks Ken Doctor in his very interesting Newsonomics piece last week.
Led by the cofounder of Square, Invisibly promises “four-figure CPMs” and a way to make big money off readers who won’t subscribe. It says it has most of the U.S. digital news industry on board. But is it just “an ad network dressed up as a savior for news sites”?
(This post is based on the comment I made on Ken's piece.)

Invisibly?

There is much positive here -- but there is one fundamental concern at the heart of this -- the "invisibly" part!

The name relates to the handling of what is described on Invisibly's FAQ:
A digital wallet will accompany visitors as they navigate content across the internet. As the visitor happens upon participating sites, the digital wallet will invisibly keep a ledger of earnings from brand engagements and expenditures from content. At the optimal time, the system will prompt visitors to sign up and improve their experience, by giving them a choice of watching or avoiding ads. If a visitor wants to avoid ads, they can add payment (i.e. a credit card) that can process all of their content and subscription purchases in one bill.
Thus, as Ken fills in, based on his interviews: 
A reader/consumer’s "wallet" will fill up silently in the background — invisibly, you might say — depending how much value his attention to commerce is affording advertisers. Consumers won’t see these wallets, or how much content these value holders will offer them. Why? In showing actual value gained, consumers will try to 'game' the system.
But I say, "On the contrary!"

Hiding the wallet (ledger) seems inevitably to harm cooperation, loyalty, and willingness to pay a fair price for value -- the willingness to contribute funds that sustain the continuing creation of such value. The value of of a consumer's attention and how it affects the price they are asked to pay is secret??? How would that make you feel? Would you want to do business with a company that hides your account balance and history? a bank that wants to hide your balance from you?

Consumers will feel gamed, and that will lead them to feel justified in seeking to game the system against the publisher in return. They will seek to avoid paying a fair share -- or just not buy at all -- because they feel any publisher who is hiding this ledger of value exchanged is not playing fair with them. The same reason current experiments with dynamic pricing are hated so much -- it is done invisibly, often secretly, with no apparent justification -- just a devious game of extracting the most possible from one's wallet.

Visibly (= Transparently)

The publishing world (much like the larger business world) is recognizing the need to be customer-value-first -- to build a true "social contract" around their relationships and value propositions with their readers/members/customers. That requires transparency.

Most of the rest of what Ken reports of Invisibly seems to be a smart combination of many of the strategies of FairPay (an open architecture that I have proposed): flexible exchange of value personalized to individual reader behavior, based on "a new business model stack" that goes beyond "the binary subscribe/don't subscribe" model. An approach that seeks "a newer kind of advertising engagement" that is factored into a reverse meter to give credit for attention to ads. The difference is that FairPay seeks to transparently justify its new forms of personalized pricing -- doing it in ways that customers can participate in and recognize as fair -- not by "invisibly" imposing pricing that will seem arbitrary and exploitative.

"What will the readers think?"

As Ken pinpoints, the big question is one of "consumer acceptance and adoption." Hiding the accounting for the exchange of value seems bound to intensify the zero-sum conflict between publishers and their readers.

Maybe Invisibly can play its game cleverly enough to work better than the badly broken model we have now. There is much that is smart and forward looking here. But there is this fundamental turn toward the dark side...

A new logic (a new business model stack) that is win-win

Why not apply these sophisticated strategies in a more cooperative manner? It is time for publishers to embrace the idea that in our new world of digital, the only truly winning game is a win-win game with readers/viewers/customers. Many publishers are beginning to warm to that more customer-value-first logic. They should learn from what Invisibly has right, but in a way that is more transparent.

As I said in a LinkedIn message to Invisibly founder Jim McKelvey, "You seem to be on the right track, but with one more twist needed to be win-win. (Maybe Invisibly 2.0, if not now...)" I hope McKelvey and Invisibly's launch partners will look carefully at this issue, and realize that zero-sum games of hidden manipulation are not the way to sustain a publishing business. Invisibly seems an otherwise well-conceived and formidable effort to help publishers. But that needs to be done visibly and transparently.

In these times of existential threat to publishers -- in which both publishers and readers increasingly recognize a need for "a new social contract" that is win-win -- it would be a shame to turn publishers toward a darker direction that is in direct conflict with that. Invisibly seems to be smart, but what is needed is to be wise.

The only way publishers will find the new social contract needed to win with their customers in a scalable and sustainable way is visibly!

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For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video).

Even better, read my highly praised new book: FairPay: Adaptively Win-Win Customer Relationships.


(FairPay is an open architecture, in the public domain.)

Monday, October 16, 2017

Thaler's Nobel, Surge Pricing, Fairness, and Long-Term Relationships

Some very nice insights on this theme are woven together in the latest Upshot reporting by Neil Irwin. It shows how Richard Thaler's behavioral economics adds deeper dimension to the debates about surge pricing -- and how that ties to underlying issues of fairness and long-term relationships, beyond the usual conflicting simplistic responses ("not fair"/"sound economics").

My congratulations to Thaler on winning the 2017 Nobel Prize in Economics last week for his work in creating the field of behavioral economics. That is a key foundation for my work on FairPay, and I am very appreciative to have gained his encouragement, as noted below.

When we look beyond the surface, we see that fairness in long-term relationships is what really matters for economics to work well, and that leads to the values (fairness) that we all seek. Thaler developed behavioral economics to look deeply at those deeper issues of human value and behavior. FairPay makes that the center of an new logic for consumer commerce that is badly overdue in our new digital age.

Some relevant quotes from Irwin's article:
For artists, no one show exists in a vacuum. And the things that might maximize revenue for any given night might not be the elements that matter in the longer term in developing devoted fans.
...So one view of the Springsteen approach is that it is economically irrational. But another is that it is part of a long-term relationship between a performer and his fans.
...Utilities and regulators, in other words, have to think a little like Mr. Springsteen: It’s not just about maximizing the efficiency of the energy market on any one day, just as the Boss isn’t trying to maximize his revenue from any one concert. Rather, it’s about maintaining a relationship in which people do not feel like they have been exploited.
...People’s perceptions of what is fair and just are not set in stone; they evolve over time. But companies looking to use variable pricing have to be cognizant of how important it is to respect those perceptions.
...What the successful examples of variable pricing have in common is that they treat customers’ desire for fairness not as some irrational rejection of economic logic to be scoffed at, but something fundamental, hard-wired into their view of the world. It is a reality that has to be respected and understood, whether you’re setting the price for a highway toll, a kilowatt of power on a hot day, or a generator after a hurricane.
“If you treat people in a way they think is unfair, then it will come back and bite you,” Mr. Thaler said. And it doesn’t take a Nobel to understand that.

Numerous posts on this blog address similar underlying issues related to consumer perceptions of price discrimination (including surge pricing) -- and how a more enlightened variation that I call "value discrimination" can be very fair and broadly beneficial to consumers.

I was privileged to get Richard Thaler's attention and encouragement when I wrote to him in 2015 about how nudging is a key aspect of the FairPay strategy, referring to my blog post, How Consumers Can Nudge Corporations for Good (which commented on a piece by him in the NY Times). He then connected me to his colleague, Heather Caruso, executive director of the Center for Decision Research at the University of Chicago Booth School. After some encouraging discussion, she indicated that their center would be interested in possibly being a resource for help in conducting experiments when a company is ready to do a trial.

With regard to trials, businesses, entrepreneurs, researchers, or others who might have interest in applying FairPay or related strategies are invited to contact me for pro-bono assistance. (FairPay is an open architecture in the public domain.)

More detail on how behavioral economics supports the strategies that underlie FairPay is in my earlier post, Thinking Fast and Slow about FairPay: A New Psychology for Commerce in a Networked Age, and in Making Customers Want to Pay You -- Research on How FairPay Changes the Game. (I previously had brief interchanges with Daniel Kahneman, the first winner of a Nobel for related work in behavioral economics, and author of Thinking Fast and Slow.)

We are just beginning to see the real world results of the more human side of economics that Kahneman, Tversky, and Thaler shined their light on.

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For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video).

Even better, read my highly praised new book: FairPay: Adaptively Win-Win Customer Relationships.


(FairPay is an open architecture, in the public domain.)

Monday, October 9, 2017

WTF?: A New, Better, Warm-Blooded Capitalism -- Linking Profit to Human Values


We can start now, one company at a time. What company will take that step? -- to shift from the cold-blooded zero-sum logic of dinosaurs, to the more dynamic and cooperative logic of mammals? All it takes is one imaginative business to lead the way (most likely starting in digital).

I just finished an advance copy of Tim O'Reilly's important new book, WTF?: What's the Future and Why It's Up to Us.* My focus was Tim's perspective on how we are now confronting "the beginning of the end of a failed economic theory," because my work on FairPay is aimed at a simple change in how we structure customer relationships that can enable individual companies to lead toward "an economy where people matter, not just profit."

Tim's WTF? provides a sweeping and insightful synthesis of how technology has been reshaping all aspects of our civilization -- not all for the best. It paints a compelling picture of the forces driving the problems we now face, and of the wide variety of hopeful vectors for change that are emerging. But it only hints at the idea that there are simple things that companies can do now on their own initiative (with the aid of consumer support) to begin to change the game unilaterally, in a way that can begin to shift perspectives more broadly. Just as Eastern sages say "there is nothing you must do first to achieve complete and perfect enlightenment," there is nothing we must do first to allow companies to align profits with human values (at least to a far greater degree than we do now, in some contexts).

First some initial comments on why Tim's book is important and compelling, then some observations on how FairPay highlights possibilities now at hand that promise to enable us to change direction even faster than Tim seems to suggest.

WTF?: What's the Future and Why It's Up to Us

Tim draws on his established position as thought leader with ties to the increasingly broad range of "alpha geeks" and entrepreneurs that have shaped our digital world, and his perspective as a publisher and communicator concerned about the broad human effects of technology on our civilization. He richly explores the double-edged effects of technologies such as platforms, automation, algorithms, and AI, and how they seem to be making life worse in many ways, even as they work miracles.

Tim makes his case in terms of a fitness function, the quantified objective function that guides the evolutionary optimization of an organism (or a system) to fit an environment. Through a wide range of contexts and examples, Tim suggests that we need to change the rules and incentives of our markets -- not only markets for goods and services but also financial markets -- and layers of internal and governmental rules that regulate them -- to better address the conflicts between people and profit, to turn the invisible hand to guide corporations fairly. On the long-term effects of algorithms and automation, he wisely observes that we need to not only manage these to protect and augment people (rather than simply replace them), but also to shift our focus to not simply protect jobs, but to the guide ourselves to the work that needs doing.

Tim points not only to emerging problems, but also to many signs of hope, and to how to build on that. He draws our attention to the many vectors of change (forces characterized by both intensity and direction) that shape the future. He points to both the urgent need, and the rich potential, that we have at this pivotal time, to remold the world closer to our heart's desire.

WTF?: What steps can a business take now to jump-start  that future?

My focus here is to synthesize and build on some of the vectors that are already pointing to ways to do this without waiting for systemic change in the underlying rules and regulations of our markets. There are already shoots we can build on, to work within the logic of our markets, to be more focused on human values.

There is nothing we must do first: we have already entered an age where profit can be increased by better serving customer values. Just be customer-value-first. 

What does that mean? Many businesses are realizing that it is not enough to be customer-centered (just seeking to extract maximum value from customers). We are entering an age of relationship capitalism -- most visibly in the emerging subscription economy where it is now understood that the key metric is not quarterly profit but customer lifetime value (CLV). Companies of all kinds are looking to customer journeys and loyalty loops, and seeing the need to be customer-value-first -- to work with each customer to maximize the value they perceive (and thus get the most from them in return). CLV is maximized when the company looks not to what its customers can do for it, but what it can do for its customers.

Value-based pricing has emerged in the B2B world as a way to align the business with the value it co-creates with its customers, to share fairly in that value surplus, and to drive that directly to the bottom line of pricing and thus profits. Less need for multiple bottom lines that tack on social values, if those values are priced in to the financial bottom line. Less need for external controls to manage externalities, if those are baked into value-based prices. Less conflict with investor demands, if prices and profits are aligned with customer values.

Translating that value mind-set into the B2C world has lagged because doing value-based pricing in a scalable way for mass-consumer markets has seemed so impractical that few even think about it. But we are seeing hints of a sea-change. Tim mentions Patreon and other new crowdfunding strategies for consumer funding of creation as "having a lot to teach us about [the economy's] future direction." Similar shoots can be seen in the move toward membership models in which readers fund journalism (or other services) that they care about. Behavioral economics has studied such participative pricing models (including the often-too-extremely customer-value-first model of pay what you want) to find that they are surprisingly effective, and that the classical economic model of a purely financially motivated homo economicus misses the actual behavior of real people. (Tim also mentions cooperatives, like the Green Bay Packers, REI, and Vanguard, and how they succeed at better aligning profit with human values.)

It is encouraging that a theoretical base for deep changes in corporate mind-set has been coalescing in the work of some marketing scholars and businesses who are re-examining the “goods-dominant logic” of the past, versus the “service-dominant logic” that we now are faced with. This meshes with recognition that value is not created by “producers” and purchased by “consumers,” but that “actors” in ecosystems work together to co-create value, which flows in multiple directions. Customer-value-first thinking is just one aspect of that (and platforms are another).

Tim quotes William Gibson, "The future is already here -- it's just not evenly distributed." My work on FairPay seeks to build on these shoots of a more participative, win-win future, to drive simple changes to the structure of the game that a business offers to play with its customers, changes that can make that relationship far more cooperative in seeking a fair sharing of the business and consumer surplus.

FairPay and the invisible handshake

Tim describes how the invisible hand of competition in our markets does its work to balance supply and demand. The invisible hand works by rationing scarce supply against demand. But, increasingly, we have markets in which supply is not scarce, but essentially infinite (especially markets for digital goods and services). Furthermore, increasingly we expect our markets to work for goods and services that are not commodities, but experiences that have very different values to different people.

We still think with the economic logic of the invisible hand, but it no longer works so well in many domains (especially digital). For example, many digital businesses feel driven to create artificial scarcity, in an effort to prop up the invisible hand to maintain their profits under this obsolete fitness function. Customers easily see through that, and wonder why they should pay what is demanded (or anything at all) -- they resent being manipulated in ways that they see as patently unfair. Even publishers are realizing that information wants to be ubiquitous (except in special markets like time-sensitive financial information in which customers want scarcity and are willing to pay a premium for that). Furthermore, artificial scarcity is an enemy of the economies of scale that benefit business, customers, and society alike -- it limits the fruits of creation to those with high ability to pay.

Tim says "I am a strong believer in the social value of business done right. We should aim to build an economy in which the important things are a natural outcome of the way we do business, paid for in self-sustaining ways rather than as charities to be funded out of the goodness of our hearts." I agree completely -- that is the objective of FairPay.

Tim is concerned about how capital markets get distorted to focus on the narrow interests of shareholders (and management), and looks to ways to change that. That is a deep and urgent concern -- I do not mean to suggest any weakening of Tim's points regarding that. But I suggest there are complementary ways to make our fitness functions work better -- for businesses, customers, and society -- from inside our businesses, in the current market environment. Let's do what we can to change from inside, now!

FairPay builds on the recognition that many businesses are now much more strongly a matter of relationships. Subscription businesses are beginning to see that they are living a new kind of social contract with their customers. Customers rightly question why they should pay for existing content (since it can be provided at negligible cost). They understand what they need to pay for instead is the continuing creation of more such content. (The recent dramatic increases in news subscriptions is an example.)

A business applying FairPay makes this social contract explicit, in the form of a repeated game that motivates cooperation. "I will be more flexible (and give you more say) in how I price my services, as long as you are fair about paying for the value you receive" (as explained in FairPay Changes the "Game" of Commerce). Instead of an invisible hand, think of this social contract as an invisible handshake that drives pricing toward equitable sharing of the value surplus, however that varies in any specific context (including widely varying abilities to pay). (This is explained in An Invisible Handshake for The Digital Wealth of Nations and Harnessing the Demons of The Digital Economy.)

No one else needs to change any rules to apply this invisible handshake -- it is just a matter of a single business being clear about the structure and intent of the game it offers to play, and being smart about framing its offers, learning what the customer values and working to deliver it, and nudging the customer to accept and hold up his end of this social contract. This can be done in many market sectors, among selected segments of users who (1) value the service, (2) want more flexibility in pricing and offers, and (3) are willing to make an effort to be fair about it.

Businesses of all sizes using current emerging models like Patreon and membership are pointing in this direction already. (And effective SaaS platforms can facilitate this to make it easy for small businesses and even individuals -- with significant scale economies and data network effects -- a major entrepreneurial opportunity there! Think not just of CRM, but of pricing and relationships as a service.)

Tim emphasizes the importance of tight feedback loops to achieve fitness functions, and to ensure product-market fit. FairPay is driven by an adaptive feedback loop that underlies every touch-point between the customer and a business and its products/services, to seek to jointly measure and maximize value at all levels -- as both the business and customer agree to define it.

Tim explores the dark side of business models that seek engagement (like Facebook and other ad- or commerce-driven businesses). FairPay fosters a form of consumer engagement that is win-win for all of us.

Tim suggests thinking of the economy as a game. FairPay shifts our micro-economics to see commercial relationships as a repeated game that works not for single transactions, but over a relationship, to align business and customer incentives to produce what we want, when and how we want it, for everyone who values that -- and to divide the surplus value so that both profit well from doing that. That harnesses the law of attractive profits to incentivize companies to profit from competing on creating customer relationships that maximize human values. That in turn leads to a macro-economics in which bottom-line revenues and corporate profits correlate with the creation of real human value.

A vector to broader human values (and other WTF? improvements)

Taking this farther will take skill and continuous learning and refinement, but, if done with care on the part of the business, customers will increasingly see that it delivers the value they seek, on terms they are be happy with. That value can include not only the narrow aspects of value addressed by the invisible hand, but whatever human and social values the customer wants to factor in (including people, planet, and purpose, to the extent the business will agree that is reasonable).** All of the vectors that Tim describes support and facilitate moving in this direction. Early success will lead to wider use across broader segments of consumers. Even costly real goods can be partly amenable to this logic, especially if they are based on human creative work (which Tim points to as another important vector).

Seeing this invisible handshake work will help create a climate for the more broadly systemic changes in business (and how it is regulated) that Tim points to. Businesses and the capitalist system will find themselves driven closer to our heart's desire. That will reduce the need for external remedies, and will create a more cooperative climate in which those remedies that are still needed will be seen as less objectionable.

...All it takes is one company to give this a try. (...Maybe O'Reilly Media?)

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On a personal note -- as one who has spent his career watching, developing, forecasting, and inventing the future since the 1960s -- I very much relate to Tim's perspectives. I hope many will think seriously about this future and "why it is up to us." Now, more than ever, our future depends on that.

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For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video).

Even better, read my highly praised new book: FairPay: Adaptively Win-Win Customer Relationships.


(FairPay is an open architecture, in the public domain.)

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*A preview of WTF? is provided in Tim's August post on Medium (which I commented on). A sample chapter is also available. Publication date is tomorrow, 10/10/17.

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**[UPDATE -- comment from Tim O'Reilly] 
Thanks very much Tim!  To your very relevant point of concern, I should expand on how FairPay enables customers to have a much greater say about that...

FairPay seeks to define value to "include not only the narrow aspects of value addressed by the invisible hand, but whatever human and social values the customer wants to factor in (including people, planet, and purpose, to the extent the business will agree that is reasonable)."

When pricing is sufficiently participative, through a process like FairPay, customers can nudge businesses to have their price factor in whatever aspects of value they want it to include. That can be soft customer values like service and support, but can also include broader social factors like how a company treats its employees, sources its goods, supports its community, and protects the environment. It can include bonuses to journalists or musicians or other contributors. It can factor in credits for being a good corporate citizen (much as some companies already enjoy a level of premium pricing because of their good reputation), and, conversely, can factor in debits for bad behavior (much as the market now punishes known bad actors). Just as old fashioned negotiation or tipping often factor in such broader considerations, the new invisible handshake of FairPay can do that in a way this is more explicit and powerful.

This is not to suggest such "customer nudging for good" will fully address all important aspects of human and social values, but that it can lead to enough of a shift in how prices reflect such values to have dramatic effect -- and thus can reduce the need for external measures (and "multiple bottom lines").

This is expanded on in my post, How Market Commerce Can Become More Cooperative, Fair, and Human.

[UPDATE 1/16/18] 
An interesting complement to WTF? is Niall Ferguson's new book, The Square and the Tower: Networks and Power from the Freemasons to Facebook. It provides interesting historical perspective, which I explore and expand on in a review on my other blog: "The Square and the Tower" — Augmenting and Modularizing the Algorithm (a Review and Beyond)

Tuesday, October 3, 2017

No, Peggy, That is Not "All There Is" to News Reader Revenue!

In his Newsonomics series, Ken Doctor asks "is that all there is to reader revenue?" -- and reviews some signs of hope that there is more. I suggest there is actually much more -- because we are just beginning to rethink our value propositions for the strange new world of digital.

In homage to Peggy Lee's classic song, "Is that all there is?," Ken asks that specifically as it relates to "Who killed the new subscriber?" He answers that while we still hear Peggy's heartbreak, "we can also hear...the hum of new reader revenue strategies." He finds reason to be hopeful in the variety of emerging new models, but describes serious difficulties and gaps that leave a "great potential in-between." He ends on a more hopeful note from another Peggy Lee song, "somebody loves me, I just wonder who."

So the question is: how can I as a publisher get more people "to love me?" What Ken's review makes clear (in that article and its companion) is that we seem to be stuck with narrow point solutions that each address a segment of the market for a given publisher:

  • publisher paywalls that work marginally well for the most dedicated 1-4% of readers (at least for national/global news leaders, not so well beyond that), 
  • platform-based alternatives (including nascent platforms like Scroll, LaterPay, and Blendle, and, less satisfactorily, Google and Facebook) that seek to attract casual readers, 
  • but very little to address the missing middle. 

There is much ingenuity going into alternative models to address parts of this gap, but still, they are point solutions. Ken talks of going beyond "the binary world of pay/don't pay." He quotes Cosmin Ene of LaterPay: “Walking the walk would require a diversified approach to monetizing content, allowing individual sales and time-based models and not just trying to push towards subscriptions only. There is a whole universe living between ads and subscriptions.” True, but is this just a wider range of point solutions? Isn't there a more coherent solution? ...one family of solutions that can effectively serve a wide range of readers all the way from casual to dedicated? ...one that keeps publishers in a relationship with their readers all the way through each reader's life-cycle (the funnel into the loyalty-loop) as it grows (or not)?

How to get more readers "to love me"

To deal with this whole universe of readers in a coherent and effective way, publishers need to deeply rethink the fundamental economics and value propositions that underlie their relationship with each reader.

  • The problem underlying this narrow market for reader payments is not an inherent refusal to pay for news, but a problem of value propositions -- resulting from the rigidity of one size fits all pricing
  • For publishers it is a high all you can eat price, for Scroll it is a standard $5 shallow dive, up to the meter -- and for LaterPay and Blendle it is a high set price per article. 
  • Both publisher and Scroll subscription solutions may be bargains to some (not good for the publisher), but overpriced for many (also not good for the publisher, since readers cancel or never even subscribe), depending on usage any given month -- and LaterPay and Blendle are not very fair to any reader.
  • The "binary world of pay/don't pay" ignores the willingness of some (but not all) readers to accept some ads -- if they add value rather than subtract it, and if they get credit for their attention.
  • Adding a broader array of distinct point solutions will just confuse everyone.

Scroll and publisher subscriptions are nicely complementary, but both take a narrow approach to matching the price to an individual reader's value proposition. Scroll has a strategy that seems promising for the low side of usage, and publisher subscriptions are more or less workable at the high side, but, as Ken makes clear, both leave a big value-pricing gap in the middle. I suggest more variably-priced models are now workable and could be efficient and attractive across the full spectrum of usage.*

A more economically efficient solution would factor in usage -- not at a fixed price for any given article like LaterPay or Blendle, but rather, on a discounted sliding scale. Undiscounted per-article pricing makes consumers very fearful of the ticking meter, because it leads to overpricing and nasty usage shocks (which is why classic micropayment models have a history of failure). Conversely, even Spotify and Netflix (which publishers look to with envy) find that all you can eat subscriptions are underpriced for heavy users, and overpriced and shunned by many would-be casual users. That inefficiency is costly all around.

Why not a sliding scale of volume-discounted prices? Small numbers of articles would be at a relatively high unit price (much like LaterPay and Blendle, but preferably not that high), but increasing numbers of articles can be discounted to gradually approach the price per article that applies to a subscription -- less at moderate usage, but comparable at high usage. (And there could be price caps to avoid high-usage surprises.) Variable pricing may seem complex, but it can be made simple enough -- another post explains how this could be done for the very similar case of TV bundles.

This is really just a matter of value-based pricing, and of publishers taking more of the pricing risk from their readers. That will take new thinking and experimentation, but those risks are not really as great as the risk of not learning to apply a customer-value-first approach (for all of the reasons Ken outlines). The modern technology of customer journeys now makes personalized pricing very workable.

A shift toward more flexible pricing can also bring other important aspects of value and ability to pay into the picture -- to make prices fair for the fullest range of readers. Those who get high value and those who have high ability to pay can be reasonably expected to agree to pay more than those who get less value and who have lower ability to pay. Those willing to pay attention to acceptable levels of ads should reasonably expect a credit for that. Since replication of news is nearly free, the real objective to to get readers to sustain more creation -- and every contribution helps. Behavioral economics shows that people understand and respond cooperatively to that kind of logic -- if pricing is value-based, transparent, and framed properly. The FairPay strategy outlined on this blog points to new ways to do that efficiently on mass scale.

Love is a two-way street

Do better at offering each reader the value they want, at a fair price for each of them, and maybe publishers will find much more often that "somebody loves me."

After all, pricing, like love, is "a two-way street" (more songs). If you want someone to love you, you must think not of what they can do for you, but of what you can do for them. You must view your customer relationships (and how they center on value) through the eyes of the customer. Publishers still have far to go toward a customer-value-first mind-set, but the general direction is clear.**

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For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video).

Even better, read my highly praised new book: FairPay: Adaptively Win-Win Customer Relationships.



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*Set pricing is a relic of the age of physical newspapers -- now obsolete. Readers got entire newspapers delivered (or at a newsstand). (And a few other readers bought single article reprints.) Not much opportunity there to price based on personalized value. But now news is an experience good, accessed on-demand from the cloud, in highly individualized usage patterns that are tracked in great detail. Value is much more highly variable, and no longer hard to determine.

**Another hint of progress is in the Google announcement yesterday about their efforts to cooperate with publishers on more flexible and simple subscription models. The Times quotes Google as moving from "one-size-fits-all" models, and as "looking at ways to help people subscribe to publications more easily, including using machine learning to help publishers tailor options to a reader’s preferences and behavior." But again, the big question is whether this gets applied with a publisher-first mind-set, or the customer-value-first mind-set that is really needed.

Monday, September 25, 2017

Open Letter to Robert Iger on "Designing" the ESPN Fan's Experience

Robert Iger of Disney recently made a very interesting statement about where ESPN will be going:
You'll be able to pick and choose over time what it is you want, it won't necessarily be a one-size fits all. … the goal eventually is to create something that a sports fan can essentially use to design what their sport media experience can be.
...you will be able to...buy...a sport, a sporting event, a season, a league, maybe a conference.
This represents a big step forward -- but it is just a beginning. I assume this means not just old-fashioned a la carte (at single-item prices), but some kind of pricing for personalized bundles -- with bundle discounts that make the monthly cost reasonable.
  • That would be a step toward more customer-value-first thinking about selling digital content. 
  • It recognizes that the future of media is in building relationships with each customer that recognize that each customer is different, and needs a different package of value
  • ...and that each personalized package should be priced in the context of the relationship, not just as one-off transactions.
That is certainly a big step from where Disney and most media companies are now, but I am hopeful that Disney is thinking still farther ahead, to the next step -- also a big one.

Not "to design" -- the way to design is to be

That next step forward will be to recognize that the sports fan does not want “to design what their sport media experience can be” – they just want it to be what they want it to be. Designing it is a hassle -- and has risk. How can a fan know what they want their package to be until the time comes? Good post-pricing can let them just experience it as their desires take them, then pay a reasonable price (after the fact). That removes the hassle and risk of “designing” the experience in advance.

According to The Way of Life, the founding wisdom of Taoism, "the way to do is to be." If we try to design how we will be, that is distracting, and makes it hard to "be here now." Of course it is desirable that ESPN move toward letting fans "design what their sport media experience can be." But they don't really want to have to think about designing it, and they can't really know in advance how they will want to design it.

Reducing the pricing risk

So what fans really want is to just let their experience be what they want it to be -- as that varies through time and circumstance -- as long as they have some confidence they will not regret how much it costs.

The challenge is in enabling that confidence. We do a poor job of that now, but we can do much better, by applying more flexible and adaptive strategies for setting prices.

Now:  Current subscription bundles for TV (and other kinds of content) require customers to pre-select a bundle of services they will pay for -- excluding other services they don't think they want to pay for (during that pre-selection). For cable TV bundles, that defines which channels I can and cannot watch. For the new ESPN service, it may be which sports, leagues, or teams I can and cannot watch. Of course I may have a good idea of what I expect, but things change over the course of a season. Some things get less interesting and some more interesting, in ways that are unpredictable.

Soon?: A relatively simple "post-pricing" strategy that I have proposed -- "post-bundling" -- sets a framework for finalizing prices after each month of viewing, but still applying volume discounts and price caps comparable to those for a conventional, pre-set bundle. That would enable ESPN to retain full control of how it prices these bundles, but give the customer free range, run-of-the-house access to compose the bundle on the fly. The experience could just be, with a level of confidence the price will be reasonable. (Perhaps I am just reading what I want into that quote, but I hope that is what Iger plans to offer.)

And beyond?:  A further step toward letting the experience be, with assurance the price will be fair, is something like the FairPay strategy. That recognizes that the value of the experience is co-created with the customer, and that only the customer knows how much value they actually obtained. That depends on how they watch (engagement, replays, etc.), who they are, what they value, and their ability to pay. The business can infer some of that (from usage stats and other data), but some of it is known only to the customer. To achieve a level of value discrimination that fully takes that into account -- to set prices that neither leave money on the table nor exclude customers who could be profitable -- the customer must participate at some level in how the price is set. FairPay offers an architecture for variable levels of customer participation -- at the discretion of the business. The business can maintain more or less strict control (for customers it lacks confidence in), or can give up various degrees of control (for customers who prove they use their power fairly). This blog and my book explain how that can be done in a relationship that works as a repeated game -- a game that motivates cooperation over a relationship, based on trust and reputation.

I do not know what Disney plans to do, but the ideas I suggest here have been out there -- in Harvard Business Review, on my blog, and in my book, and in other publications. Many of the underlying concepts of customer-value-based and participative pricing are becoming widely accepted as best practice. I have had discussions (at least elevator pitches) with top executives at many of the largest media companies, and many consultancies. Many are already tuned in to these general directions and excited by the prospects, at least to some degree. Most find the new ideas in FairPay thought-provoking. They recognize that it will take time, testing, and adaptation, but see the potential to change the game (at least in some business sectors and market segments).

I take this as a sign that Disney sees the importance of this vision at the highest levels, at least in part -- it sounds like they are moving in the right direction. I hope they will fully commit to the customer-value-first path that enables each fan's experience to be what they want it to be -- with the freedom and flexibility they want, and with high assurance that the price will be reasonable. That means working with each unique customer, individually -- not just offering one or a few "one-size fits all"cop-outs. Disney has shown at least some research interest in pricing innovation along these lines -- including seminal work with leading scholars.

Many businesses are beginning to think along these lines. The path will take work, and experimentation, but the rewards are compelling: happier and more loyal customers, and more of them -- yielding more customer lifetime value -- on average, and in aggregate.  Those who move early and well stand to gain the high ground of a loyal customer base.

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For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video).

Even better, read my highly praised new book: FairPay: Adaptively Win-Win Customer Relationships.