Wednesday, June 30, 2010

FairPay for The Times?...for JournalismOnline newspapers?...or Google Newspass?

Newspapers feel they must charge for Web content or go under. My radical new FairPay pricing process could provide an important tool for doing that.

Major players are moving from free to freemium combinations of limited free access (to some small number of articles per month), with a "pay wall" requiring paid subscriptions for more access. The New York Times has committed to this (as nicely described by David Carr), and News Corp recently bought into Journalism Online, which is building a similar platform for other newspapers. Most recently, reports are that Google will jump into this game as well, with a similar platform called Newspass.

Clearly this could be a wrenching change, and reflecting that, talk has shifted in nuance from the rigidity of a "pay wall" to the idea of "dialing" pricing policy into a "metering" system that can be adjusted to market conditions.

FairPay puts the objective of flexibility on steroids, by shifting toward a Pay What You Want model that give readers more control, while still giving publishers the last word (over time). How can that be? FairPay develops a buyer reputation for payment, based on direct feedback on pricing, to a dynamically adaptive hybrid of free and paid content. My article on FairPay explains this radical "Fair Pay What You Want" pricing process in some depth.

Here are some comments relating to this class of newspaper models and how FairPay could be used as a complement to their metered offering (as suggested in this diagram).

How it works:
1. Selectively offer to let the reader set any price he considers fair after each month of subscription (Pay What You Want, post-sale).
2. Let the publisher track that price and use that information to determine whether to make further offers of that kind (FairPay renewals) to that buyer in the future.
Those who pay fairly, rise above the pay wall -- those who do not, must face it.

First, an experimental program might be offered to a selection of readers based on FairPay pricing. This might be aimed at regular users on the following terms:
  • Unlimited access is offered on a month-by-month basis upon subscription.
  • Before the start of the next month, the user decides on a FairPay price to pay for the current month (with a usage report provided to the user for reference).
  • Depending on the FairPay price set by the user, the publisher decides whether the subscription offer will or will not be extended for the next month.
  • By coexisting with the paid subscription model, users will have a reference price, and the usage report might indicate how their usage compares to averages (and to the standard number of free articles).
Once tested, this FairPay subscription plan might be enhanced and offered more broadly, with more varied levels of service:
  • Price setting might gradually be reduced to a quarterly or yearly cycle for established subscribers with good FairPay reputations, easing the hassle of price setting, and extending "FairPay credit."
  • Usage reports would be provided to assist in the pricing reviews.
  • Payments might be monthly (even if price setting is yearly), for better cash flow and flexibility.
  • The options offered to any user on each renewal/pricing cycle could be adjusted based on their payment history (with consideration of any relevant circumstances known or reported). Those who pay better than average might get added rewards, and those who pay less might get less.
Thus those who pay fairly get increasing levels of trust and other rewards, and float above the pay wall, but those who do not get kicked back down into the pay wall.

This benefits both the publisher, and readers:
  • Users feel more respected and empowered by the added trust and flexibility.
  • Some will pay less than the standard subscription rate, but some will pay more.
  • Relating pricing to usage might help get heavy viewers to pay more, compensating for those who pay (and/or use) less.
  • Many who might refuse the conventional subscription service might be willing to pay something reasonable for a FairPay service -- added revenue to the publisher.
  • The details of the offers and the process can be individually and dynamically tuned to encourage good payment levels, and to send free-riders back into the hard pay wall of the standard plan.
Bottom line:
  • an even more nuanced and individually set dial that give readers some say in pricing, but leaves ultimate control with the publisher.
  • more happy users, plus more revenue to the newspaper to support quality journalism.
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A rough sample of how a FairPay offer might be presented to subscribers is on the FairPay Web site, along with an FAQ and other details.

The Long Tail of Prices -- Uncoil it with FairPay

Just as Internet-based retailing allowed Chris Anderson's Long Tail (of Items) to be uncoiled, I suggest that Internet-based pricing is poised to enable the uncoiling of a similar Long Tail of Prices.

Anderson’s Long Tail is a tail of items ranked by units sold. As described in his Wired article and book, online merchants like Amazon and Rhapsody can stock many times more titles than brick and mortar stores, since they have essentially no limit to shelf-space. A result, it turns out that half of Amazon's total sales are accounted for by books that are not even stocked by a Barnes and Noble store. The well-known curve shows a plot of the number of items sold, ranked by popularity.

Similarly, The Long Tail of Prices is a tail of potential buyers ordered by the price they are willing to pay.
Conventional set prices lop off the tail by refusing to make sales to those unwilling to pay the set price. This eliminates a potentially significant market, out of fear that selling to those buyers will cause the other buyers to demand lower prices. Conventional set prices also lop off the top of the fat head, since the seller gets only the set price, even from those who might be willing to pay more. So revenue is only the green box, even though there is a red surplus at the top of the head, and a long amber tail to the right. This shows the huge opportunity that FairPay opens up.

With FairPay, prices are individually set, based on what buyers are willing to pay (subject to sellers using feedback on FairPay reputation to weed out free-riders who don't pay at an acceptable level, as explained more fully in my FairPay introduction). For digital products with near-zero marginal cost, the acceptable price level, for at least some buyers, might be very low.

This means that the Long Tail of Buyers might turn out to contribute a very large portion of total revenue. Large numbers of buyers at low prices, who would not otherwise be buyers, can add up to a very large revenue figure.

Yes, there is a concern that sellers might find that revenue from some of their current market drops (the curve shifts downward), because buyers have freedom to pay less than the conventional set price. It may at first seem that sellers could not tolerate the risk that many FairPay buyers might pay well under standard prices. That is the usual problem with Pay What You Want pricing.

The trick to making FairPay work is that it gives the seller a new ability to selectively manage the offer process by framing the offer and using feedback effectively to incentivize most buyers to pay at a reasonable level, and to screen out those who do not (again, see my article, and some of the other posts here). To the extent that is done, the new revenue from their previously non-addressable market can become a very large total. And also, even though many current buyers might pay a bit less, some might be motivated to pay more. FairPay changes pricing from a seller's game to a cooperative dialog with buyers, leading to a mutually beneficial exchange.

So the areas under the curve in red and amber potentially represent found money, money that would otherwise be left on the table. Why not sell to all who will pay more than the marginal cost of the product? Since prices are individually set, low prices to some need not imply low prices to all. If you can get buyers to consider fairness, and to look at this value exchange, most will accept that there are reasons why some deserve lower prices than others.

And why not try to motivate your happiest customers to pay a bit more? If you position that payment as going to a good cause (like museums and artists do), some who can afford to pay more will see reason to do so. Enlightened businesses recognize the value of likability -- this is a way to capitalize on being likable.

It is not a matter of altruism, but simply of practical economics, on a basis that takes broader market factors and behavioral economics into the equation, and using a more dynamic and cooperative process.

Friday, June 25, 2010

FairPay for Hulu? (or YouTube, or...) -- A better way to charge...

With the recent reports of a pay-to-view subscription (Hulu Plus, $9.95/mo.) planned to be added to Hulu's free (ad-supported) video plan, FairPay offers a very timely way to ease the pain all around. FairPay develops a buyer reputation for payment, based on Internet feedback, to go beyond freemium, to an adaptive hybrid of free and paid content. My article on FairPay explains this radical "Fair Pay What You Want" pricing process in some depth.

Here are some brief comments relating to Hulu, and how FairPay could be used as a complement to their planned Hulu Plus offering (as suggested in this diagram).




How it works:
1. Selectively offer to let the subscriber enter the FairPay Zone, where he can set any price he considers fair after each month of subscription (Pay What You Want, post-sale).
2. Let the seller track that price and use that information to determine whether to make further offers of that kind (FairPay renewals) to that subscriber in the future.
Those who pay fairly, rise above the pay wall -- those who do not, must face it.

First, an experimental program might be offered to a selection of Hulu users based on FairPay pricing. This might be aimed at heavy users, and offer ad-free access to both current and new premium content on a subscription basis on the following terms:
  • Ad-free* unlimited access is offered on a month-by-month basis upon subscription.
  • Before the start of the next month, the user decides on a FairPay price to pay for the current month ending (with a usage report provided to the user for reference, and considering both basic and premium content viewing).
  • Depending on the FairPay price set by the user for the previous month, Hulu decides whether the subscription offer will or will not be extended for the next month.
  • By coexisting with the conventional paid subscription model, users will have a reference price, and the usage report might indicate how their usage compares to averages (for basic and premium content).
  • FairPay might be applied just to basic content, possibly in an ad-free version, to allow for a more basic FairPay service to those who don't want or qualify for the premium version.
Once tested, this FairPay subscription plan might be enhanced and offered more broadly, with more varied levels of service:
  • Price setting might gradually be reduced to a quarterly or yearly cycle for established subscribers with good FairPay reputations, easing the hassle of price setting, and extending "FairPay credit."
  • Usage reports would be provided to assist in the pricing reviews.
  • Payments might be monthly (even if price setting is yearly), for better cash flow and flexibility.
  • The options offered to any user on each renewal/pricing cycle could be adjusted based on their payment history (with consideration of any relevant circumstances known or reported). Thus those who pay better than average might get added rewards, and those who pay less might get less.
Thus those who pay fairly get increasing levels of trust and other rewards, and float above the pay wall, but those who do not get kicked back down into the pay wall.

This benefits both Hulu, and users:
  • Users feel more respected and empowered by the added trust and flexibility.
  • Users might get ad-free basic content [as a future enhancement*], at some modest cost, presumably less than the $9.95/mo. Hulu Plus rate.
  • Some will pay less than $9.95 for the premium content, but some will pay more.
  • Relating pricing to usage might help get heavy viewers to pay more, compensating for those who pay (and/or use) less.
  • Many who might refuse the conventional Hulu Plus premium service might be willing to pay something reasonable for a FairPay basic service -- added revenue to Hulu and its content partners.
  • The details of the offers and the process can be individually and dynamically tuned to encourage good payment levels, and to send free-riders back into the hard pay wall of the standard Hulu Plus (or basic Hulu) plans.
Bottom line: more happy users; more revenue to Hulu.

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*Update 6/30/10: As announced, Hulu Plus is not ad-free. That does not materially change any of the points above --there is still a pay wall separating basic from premium content, and FairPay can rise above it, as outlined (simply ignore the references to "ad-free"). Future ad-free offerings might also fit in as described, as another premium segment, or as a bonus reward to those who pay better than average.

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.

The FairPay Zone Blog -- Why not?

This blog is intended to promote a new approach to pricing that I hope might remedy the current crisis in revenue models for content (and other products/services), and to stimulate discussion on its practical application.

This “modest proposal” may seem na├»ve and impractical. But I suggest the impediments can be overcome, and the potential benefits to some businesses, and to society, can be huge.

If you agree that this is promising, I ask your support to help take our digital economy to a new level. If you think not, I would be interested to understand exactly why not. Your input is welcome.