Wednesday, March 16, 2011

Reinventing Subscription Platforms With FairPay -- for Apple, Google, and others...

In the emerging battle of subscription platforms between the Apple iTunes App Store, Google One Pass, and others, the radically new FairPay pricing process offers a better way to play the game, one that benefits the platform provider, the seller, and the buyer in new ways.

As widely reported, Apple has the dominant position, and is using that power to pressure sellers, and claims to be making things good for buyers.  Google is seeking to be more seller-friendly, and to allow more freedom, which might ultimately be better for buyers as well. The larger issues relating to this battle promise to help shape how digital content is sold, and how a major portion of our economy evolves.
  • Subscriptions are a critical battleground for competing platforms and business models, one that could set the ground-rules for monetizing digital content and services at the broadest level.  
  • Subscriptions get at the heart of ongoing customer relationships, and provide an aggregation structure that works for a broad swath of content and services.
  • Subscriptions relate closely to the major pricing alternatives of free and freemium.
FairPay is particularly relevant to subscription businesses, especially those based on cross-vendor subscription platforms (such as those offered by Apple and Google and others).

FairPay is based on some very simple principles, with the idea that what is needed in a revenue model, is not to choose the right price, but to create an adaptive pricing process.
  1. Let the buyer set any price he considers fair after the sale (Pay What You Think Fair, 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 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. Using this buyer reputation enables sellers to go beyond freemium to offer adaptive hybrids of free and paid service.  FairPay can be used as a complement and enhancement to conventional fixed-price subscription pay walls: Those who pay fairly, rise above the pay wall -- those who do not, must face it. (A diagram of core steps in this process is in a previous post.)

In the context of a subscription, this process unfolds on a (more or less) month-to-month basis:
  • As an alternative to the fixed pay wall, a new user can be offered a trial month of unlimited use of a basic class of service, on the basis that at the end of the month they will set a price for what they used, on a Pay What You Think Fair basis.
  • The buyer will be told up-front that renewals for additional months will depend on whether the price they set is deemed fair by the seller.
  • As the process continues after initial use, buyers will be asked to set their price, and could be given usage reports to remind them of what they used, and how that compares in quantity and value to typical subscribers. 
  • The seller can frame the offers and the pricing requests with background on standard set prices, suggested prices, and typical FairPay prices actually set by other buyers, all with respect to the types and volumes of usage by the consumer (such as basic and premium tiers).
  • Buyers can be encouraged to give reasons  for why the chose to price as they did, including low or high usage, low or high quality, low or high value realized, economic circumstances (student, unemployed, retired, business use), etc. (all or mostly multiple choice, for automated scoring).
  • As long as the buyer sets prices that seem reasonable considering all these factors, the seller offers FairPay renewals, and the buyer enjoys the freedom of the FairPay Zone.  
  • For those that fail to pay acceptably, it is back to the pay wall (at least for a time, possibly to be given another chance in the future).
  • As this continues, each buyer establishes a FairPay Reputation that characterizes how well and fairly they pay, and whether they do so consistently or erratically.
  • Based on this FairPay Reputation, the seller can upgrade or downgrade their subscription offers to include more or less premium tiers of content or service, and added perks.
  • At the same time the buyer learns both the value of the service, and the expectations for fair pricing.
  • As buyers establish good FairPay Reputations, the seller can extend more FairPay "credit" to include longer periods between pricing, and more value that can be enjoyed before it must be priced.
FairPay takes conventional approaches to subscription pricing and stands them on their head.
  • The buyer, not the seller, sets prices (for himself, as a market segment of one). 
  • The seller gates the offers to specific buyers, and thus manages the value at risk, at any given time, to each buyer.
  • Pay What You Think Fair largely eliminates risks of buyer remorse.
  • Price it Backward (after usage) further reduces risks of buyer remorse.
  • Buyer price-setting accommodates a wide range of price sensitivities to ensure that anyone who gets reasonable value from a product/service can afford to buy it.
  • Sellers need not cut off potential buyers (who may not appreciate the potential value), only buyers who have proven to not value the product (as realized) at an acceptable level. 
  • The impossible task of setting a price that is "right" for all is replaced by the manageable task of understanding specific buyers and their sensitivities through a structured dialog.
Given its roots in Pay What You Want, it may take some thinking to appreciate how FairPay can not only result in acceptable prices, but actual profit maximization, and do this with needed simplicity.  Some deeper insight into this is provided in my previous post, Cutting the Gordian Knot of Price Setting: FairPay, Pay Walls, Hurdles, and Simplicity.

FairPay has even more power in the context of a cross-vendor subscription platform:
  • FairPay Reputations for individual buyers can be tracked and applied across sellers.
  • Sellers can maintain control of offer terms and gating, but manage this better based on a shared FairPay Reputation database.
  • Sellers encountering a new buyer (to them) can see if the buyer has already developed a good or bad FairPay Reputation in relationships with other sellers, and frame their offers accordingly.
  • Buyers know that their FairPay Reputation is a valuable asset, that enables them to get more and better offers, and that compromising that Reputation can have real consequences, by limiting future offers from other sellers
  • The FairPay Reputation database becomes a valuable asset to the platform provider, attracting sellers, and creating a significant barrier to competitors. This can work much like a credit rating database.
  • Consumer privacy can be protected by opt-in provisions, and by limiting what data individual sellers can see from other sellers (including the option of none at all other than a simple rating or go/no-go indicator).  
Of course, FairPay can be implemented by a single seller, for use just with their own subscriptions (as long as the platform does not prohibit that, as Apple seems to, but Google does not).  But the power of a common platform and a shared FairPay Reputation database greatly expand on that.

At both the marketplace platform and seller levels, FairPay creates a whole new way to achieve and manage a nearly optimal exchange of value.  FairPay thrives on:
  • Ongoing buyer-seller relationships, as opposed to isolated one-purchase stands.
  • Aggregation of items in subscription or other bulk purchase contexts.
  • Rich dialog on product/service value (as it is realized by the buyer, and with respect to the costs incurred by the seller).
  • Building a knowledge base on buyer FairPay Reputations (with full consideration to buyer needs, values, and circumstances).
FairPay processes and platform services can begin with relatively simple structures and criteria, to accommodate initial usage.  As platforms, sellers, and buyers gain experience and familiarity with how the process works, they can evolve toward increasing layers of nuance and sophistication in:
  • How offers are managed and framed to users. 
  • How prices are set, explained, and tracked.
  • How FairPay Reputations are determined.
  • Doing all of this with full consideration of all relevant factors and circumstances.
Additional background on the general concepts of FairPay, its grounding in behavioral economics, and its application in various business contexts is provided at the FairPay Web site, and in the many other postings on this blog.

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