Sunday, June 20, 2010

Introducing FairPay: An adaptive pricing process that can change the game in the media/content industry

The Internet has led to a crisis in revenue models for media/content -- but the Internet also enables a way to create a radically new kind of pricing process.

What is needed in a revenue model, is not to choose the right price for digital products (free or not), but to create an adaptive pricing process.
  1. Selectively offer to let the buyer set any price he considers fair after the sale (Pay What You Want, post-sale).
  2. Let the seller (or a collective of sellers) track that price and use that information to determine whether to make further offers of that kind to that buyer in the future.
Instead of a fixed price, this process generates a cooperative and adaptive series of pricing actions, each based on feedback on how fairly the buyer sets his prices.

Call this enhanced process Fair Pay What You Want, or FairPay for short.

Because FairPay variations on Pay What You Want set prices after the sale, the buyer can have the product, use it, and verify its value, with no risk -- and then pay whatever he thinks fair.
  • By adding FairPay feedback, the seller gains reduced risk and indirect control. The buyer develops a history, a FairPay reputation, that affects his future opportunities.
  • That gives the seller the control needed to make FairPay offers only where his expected risk/reward profile is attractive. Instead of static pay walls and freemium schemes, this process supports seamless and dynamic hybrid models. Those who pay fairly, rise above the pay wall -- those who do not, must face it.
FairPay creates a win-win dynamic that can make both buyers and sellers much happier, and the economy much more productive.
  • Sellers can profitably sell to everyone who sees a potential value, at a price corresponding to the perceived value to that individual buyer.
  • Some will pay well, some will not. But sellers can expect that many more people will buy, and they will pay a fair price because their reputation is at stake.
  • FairPay can take many forms, and can enable free sampling and blends of free and paid that are more dynamically adaptive and effective than ordinary “freemium” models.
The result is that total revenue, and total profit, might be significantly higher than with a fixed price (at least for products with low marginal cost, as with digital media) -- and that total value created can be maximized.

A fuller introduction to FairPay is provided at the FairPay Web site.

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