Monday, December 3, 2018

Reverse the Biz Model! -- Undo the Faustian Bargain for Ads and Data

It is time to reverse the fundamental premise. Many now see that the long-popular model of free digital content (or other services) -- in exchange for advertising and personal data -- has become a Faustian bargain with the devil. It is bad for both users and their service providers. We are losing our souls to empty but addictive engagement -- and to destructive disinformation. Journalism is failing, music is reeling, video is struggling to find viable subscription models, and Facebook is poisoning our democracy.

The public barely took note when newspapers could no longer live off the fat of classified ads. Then "digital pennies" replaced "analog dollars" more widely, and, still, few cared. But now the devil has come for all of us. The increasing price of this deal with the devil has reached crisis levels. The recent PBS Frontline documentary, The Facebook Dilemma, reports in depth on how Facebook sold its soul and still seems to only barely realize it. Or, as the NY Times reports, maybe they do. Why should they care, when they are making billions?

The press and government may investigate, but what can anyone do? Governance, regulation, or breakup do not get to the root of the problem. What we have here is a business model problem. What we need is a business model solution. That is not as hard as it seems. 

And the problem goes far beyond Facebook. Most ad-supported business models suffer from mis-aligned incentives.

Getting to the heart of the problem ... and some alternative paths to a solution

In "A Blueprint For A Better Digital Society" (in HBR), Jaron Lanier and E. Glen Weyl provide a thorough analysis of why these ad-supported services have proven so harmful -- and offer their blueprint for a much better model.

Here, I draw on that as background, to outline a simpler and more immediate path -- one that enables individual businesses act on their own to credit consumers for the value of their data. Starting there would shift incentives to better-enable the wider market in data that they propose.

Lanier and Weyl provide an excellent primer on the problem:
...the dominant model of targeted advertising derived from data surveillance and used to fund free-to-the-public services like social media and search is increasingly viewed as unsustainable and undesirable.
Today, internet giants finance contact between people by charging third parties who wish to influence those who are connecting. The result is an internet — and, indeed, a society — built on injected manipulation instead of consensual discourse. A system optimized for influencing unwitting people has flooded the digital world with perverse incentives that lead to violations of privacy, manipulated elections, personal anxiety, and social strife. 
They set the stage for a proposed solution (emphasis added to points I will address) :
As we wait helplessly for more elections to be compromised, for more nasty social divisions to be enflamed, for more invasive data surveillance, and for more workers to become insecure, the widespread assumption that no other models are possible leads to a state of despair.
But there is an alternative: an emerging class of business models in which internet users are also the customers and the sellers. Data creators directly trade on the value of their data in an information-centric future economy. Direct buying and selling of information-based value between primary parties could replace the selling of surveillance and persuasion to third parties. Platforms would not shrivel in this economy; rather, they would thrive and grow dramatically, although their profit margins would likely fall as more value was returned to data creators. Most important, a market for data would restore dignity to data creators, who would become central to a dignified information economy.
These models have been discussed widely for years. Here, we describe a future based on them by exploring the business and societal structures that will be required to bring them to life. In the process, we will advocate for a more coherent marketplace. Without one, no corrective measure stands a chance.
...A coherent marketplace is a true market economy coupled with a diverse, open society online. People will be paid for their data and will pay for services that require data from others. Individuals’ attention will be guided by their self-defined interests rather than by manipulative platforms beholden to advertisers or other third parties. Platforms will receive higher-quality data with which to train their machine learning systems and thus will be able to earn greater revenue selling higher-quality services to businesses and individuals to boost their productivity. The quality of services will be judged and valued by users in a marketplace instead of by third parties who wish to influence users. An open market will become more aligned with an open society when the customer and the user are the same person.
They refer to this kind of "market economy for information" as providing "data dignity" and note some important challenges:
The foremost challenge in implementing data dignity is the yawning gap between big tech platforms and the individuals they harvest data from. If we asked big tech alone to make the change, it would fail: Too many conflicts of interest exist, and the inevitable concentration of power these platforms create is inimical to competitive markets and an open society.
For data dignity to work, we need an additional layer of organizations of intermediate size to bridge the gap. We call these organizations “mediators of individual data,” or MIDs. A MID is a group of volunteers with its own rules that represents its members in a wide range of ways. It will negotiate data royalties or wages, to bring the power of collective bargaining to the people who are the sources of valuable data. It will also promote standards and build a brand based on the unique quality and identity of the data producers they represent. MIDs will often perform routine accounting, legal, and payment duties but might also engage in training and coaching. They will help focus the scarce attention of their members in the interest of those members rather than for an ulterior motive, such as targeted advertising. 
Boiling the ocean of two-sided markets -- Faust wins the world (for a time)

This vision of MIDs is a worthy one, and one I hope will succeed. But I suggest a path that traverses its way up this hill in a more indirect path might be more feasible.  That still faces challenges, but they may be far more easily overcome.

Lanier and Weyl point out that MIDs are not a new concept, referring to pre-Internet examples. But I find a more concerning case in point to be the still-thought-provoking proposal for "infomediaries" in the 1999 book, Net Worth, by John Hagel and Marc Singer of McKinsey. That drew attention when published, but got little traction in practice. That history seems largely forgotten by those now proposing similar ideas. Their infomediaries seem to be much the same as Lanier and Weyl's MIDs.

I have been wondering for years why this vision did not come to be. I have seen no clear answer, other than that no one found a path to achieve the critical mass needed to establish such a multi-sided market for consumer data. MIDs face the same problem of critical mass.

Instead, the path taken was that the ad model proved wildly successful for Facebook and Google. That gave them the critical mass of users, and huge financial clout. That now makes it even more challenging to introduce infomediaries or MIDs -- whether by convincing the dominant platforms to enable that, or by competing with them.

The "reverse meter" as the essence of a market economy for information

FairPay suggests an alternative path toward a market economy for information -- one that may not go as far as infomediaries or MIDs, but which can be pursued unilaterally by individual businesses, in direct cooperation with their customers. That could set the stage for more customer-driven solutions.

Infomediaries and MIDs are, in essence, a way to create a "meter" for the value of data and attention:
  • Data and attention go from the consumer to the businesses that want to use it, and in exchange, funds go back to the consumer. That reverses the normal "metering" of service to the consumer, in exchange for funds to the business.
  • But we don't need infomediaries or MIDs to do that. A more basic kind of reverse meter can be applied by any paid Web service business to compensate users for their data and attention. That reverse meter offers direct benefit to those businesses and their customers.
The basic idea of the reverse meter is much like reverse metering of co-generated power when it is fed back to a power company's grid -- instead of paying the power company, the consumer gets paid. (Jeff Jarvis of CUNY School of Journalism suggested using reverse metering for online newspapers in 2011, when "metered paywalls" were a new thing.)

The first businesses to offer such reverse metering have not been in social media or search, but as the model is proven effective, it can motivate similar changes in those business sectors. The easiest place to start is in businesses that already charge users -- data/attention credits can simply offset fees for service, so no funds need be paid out directly. Thus services for news, music, video or social media that now charge users -- as alternative to showing them ads -- can offset those charges using a reverse meter that meters the value of attention they provide. (Some already do, as noted below.)

The beauty of the reverse meter, much as Lanier and Weyl explain, is to make for an exchange that benefits all parties of that exchange. The consumers gets credit for their attention and data (as quantified by the meter). The advertiser or data user gets value that they are willing to pay for. The service provider profits from operating this marketplace. This has great power because it aligns the incentives of all three parties:
  • Now the deal is obscured, arbitrary, and one-sided -- "We give you free service and you surrender whatever amount of your attention and data that we extract. We hope you will just accept that."
  • With a meter, the deal is quantified -- "For X units of attention or data we give you $Y of credit against the fee for our service. The meter will quantify that."
Reverse metering can be simple, done by any business

There are already many basic examples of reverse metering:
  • A number of services (such as Hulu, Spotify, USA Today) already offer a simple alternative to advertiser-supported "free" service:  instead, opt for ad-free service with a paid subscription. That puts a specific value on advertising, and gives consumers a basic level of choice over whether to accept that value proposition.
  • Some ad-blockers offer similar options to control ads, and some publishers are participating.
  • One clever new service, Paytime, offers a kind of reverse metering that entirely decouples the advertising from the primary service (a bit like a very simplified infomediary or MID). Consumers with more time than money can watch video ads to get credit, to use to subscribe to Netflix, Spotify, or other services. Instead of interrupting the primary service experience, the consumer can watch the ads whenever they wish, and has some choice as to which ads they watch. Equivalent functionality could also be integrated directly into an individual service business.
Win-win-win for consumer, provider, and advertiser

Think about how even a simple reverse meter changes advertising. Now:
  • Consumers are annoyed by intrusive and annoying ads and abuse of their personal data. 
  • Advertisers are frustrated that they cannot get their message through, even at high cost.
  • Publishers/service providers are caught in the middle, as ad rates fall, customers get angry and install ad blockers, and their business suffers on many fronts. 
With a reverse meter, consumers are compensated for their attention and their data. Just having such a meter quantifies the value of data and attention, and implies a price for that value. So once it is metered, consumers will see that, and can judge if the price is right. If the price seems fair, they will accept the ads, if not, they will pay to avoid them. (FairPay provides advanced methods for setting this price for value from the consumer, as well as the price of metered value to the consumer, but even simple methods change the game.)

Once we begin to think in terms of metering the value of attention and data, we are able to get far more efficient in maximizing that value, even within a single service business:
  • For consumers, what is the value (or cost) of the ad to the user?  Is the message relevant, timely, interesting, entertaining, useful? Or is it a just annoying. Is the delivery of that message intrusive? Can I enhance that by having some say in what messages I get, and when I get them?
  • For  advertisers, what is the value of a more balanced relationship with the consumer? Am I getting my message to a good prospect, in a way that builds my brand? Can I build a relationship with the consumer, so that they help me craft just the right message? Can I get a direct response to my ad (including simple feedback, even if there is no purchase). Or am I turning off the people I want to reach, and wasting money on the wrong ones? 
  • For  publisher/service providers, how can I maximize that shared value so that I can earn a share for myself, and make my service more popular (to get more value share from more consumers)? Do my customers feel that the ads add value or subtract it? 
Remember that advertising can be valuable when relevant and useful, or entertaining. Don't you get value from ads for products you want, or may want -- or those that make you feel good? There are many examples of valuable ads: just look at magazines for fashion, style, travel, sports, lifestyle, or hobbies. Some buy them mainly for the ads. Why do people like to watch and talk about Super Bowl ads? (some watch just for the ads). With simple reverse metering, service providers can provide a basic marketplace where their customers can interact with their advertisers to maximize value all around.

Economics and business models are all about aligning incentives. Metering data and attention enables everyone to manage incentives so they can all maximize value. That is the sustainable path to long term profit. Quietly addicting users to engagement, by spreading disinformation and sensationalized content, provides no real value -- it destroys it. Sooner or later, that model will self-destruct.

Customizing services and prices to serve all

If we can bring this kind of flexibility and economic efficiency to the reverse meter, why not the primary meter? To fully align incentives, we must customize the value proposition to optimize all forms of value for each party. Why should all consumers pay the same? Why should we all get the same level of advertising? Why should we have few choices about how our data is used, and get no compensation, whatever the level of data usage?

This is the age of "mass customization" and "one to one marketing," but we are not being creative about that. Zuckerberg admits the problem applies to Facebook, but sees no solution. He described his dilemma to the Times:
…having [Facebook] be free and have a business model that is ad-supported ends up being really important and aligned…Now, over time, might there be ways for people who can afford it to pay a different way? That’s certainly something we’ve thought about …But I don’t think the ad model is going to go away, because I think fundamentally, it’s important to have a service like this that everyone in the world can use, and the only way to do that is to have it be very cheap or free.
But the with the reverse meter, an array of variable options can be provided. A full ad load for free access, a full price for ad-free service, and a range of options in between. 

FairPay expands on this idea of tracking value and giving consumers more choice about the value propositions they are offered. It provides an architecture for metering and setting a price on value in the individual context of each customer. An example that explores use of the reverse meter is Patron-izing Journalism -- Beyond Paywalls, Meters, and Membership

Self-regulation, government mandate, or new market structures?

The big question is how we get from where we are to "a coherent marketplace" for data and attention:
  • Introducing infomediaries/MIDs has the problem of critical mass that is inherent in any two-sided marketplace.
  • Simple, company-specific reverse meters do not require a critical mass, only enough scale to justify building the reverse metering system. Very simple forms are already finding success in practice (as noted above). FairPay will take somewhat more effort to develop, but still can be within reach for many businesses (especially if supported by SaaS providers). That can begin to establish a more level market for data and attention. If the marketplace is level for all participants, including consumers, "data dignity" will be a natural by-product.
  • Facebook (and similar consumer platforms) could voluntarily begin to experiment with reverse metering now, starting with narrow trials, then learning, and expanding. Premium services could be offered to introduce the idea of consumer fees (offset by the reverse meter). As consumer revenue increased there would be less need for ad revenue. They could start simply, ins specific segments, and then expand and add the richer functions of FairPay. Change at the scale of Facebook might have to be gradual, but it is in their interest to start somewhere. This is explored further in Who Should Pay the Piper for Facebook? (& the rest).
  • If Facebook or other consumer platforms fail to act voluntarily, a simple regulatory strategy could force that -- in a market-driven way. Instead of mandating how to fix their business model, the government could simply mandate that X% of their revenue must come from their users -- with a timetable for gradually increasing X.  This is much like how auto emissions mandates work -- don't mandate how to fix things, just mandate the result, and let the business figure out how best to achieve that. Since reverse metered ads would count as a form of reader revenue, that would provide an immediate incentive for Facebook to provide such compensation. This strategy is outlined in Privacy AND Innovation ...NOT Oligopoly -- A Market Solution to a Market Problem.)
  • All of the above partial steps would create a market for data that infomediaries/MIDs could compete in. By introducing reverse metering for the value of attention to ads and release of personal data, we would begin to establish a market value for it. Once that value is established, then we have a clear motivation to look to infomediaries or MIDs -- if they can exchange that value more efficiently. 
  • If we already have SaaS services that operate reverse meters for multiple consumer service businesses, such SaaS services could, themselves, expand to add infomediary/MIDs functionality. That provides a natural path for evolving into a multi-sided marketplace for all of the consumers and businesses (service providers and advertisers) that they serve.
FairPay is agnostic as to whether that market is directly between businesses and consumers, or includes MIDs.  But FairPay explicitly puts the value of attention and data into the overall value proposition.  Consumers will be able judge to what degree a business compensates fairly for their attention and data, and decide whether they are satisfied with that.  If so, fine -- they can work with them directly.  If not, then they will be motivated to use an infomediary or MID.  In that way a “coherent market” (or at least a more level one) can come first, and so provide fertile ground for the emergence of MIDs.

Of course there may be many paths to this goal, but this one seems to go where we want, in manageable steps. It promises to change the nature of business relationships in a way that enables a more human form of market capitalism. And, at the same time, it can lead to increased profit in the long term -- by being more economically efficient in serving a very wide range of customers with individually customized value propositions.*


--- 
*On that final point I think Lanier and Weyl may understate the business profit value of their proposal. They say (emphasis added):
Platforms would not shrivel in this economy; rather, they would thrive and grow dramatically, although their profit margins would likely fall as more value was returned to data creators.
I submit that the economic value of advertising can be increased significantly by being better targeted and better received, and using more productive and appealing formats -- all driven by aligned market incentives. That might well increase platform profit margins, since advertisers will be justified in spending more than they do now. And as Lanier and Weyl hint at, but do not emphasize, even at lower unit margins, more customers can mean higher total profit margin.

---
More on this theme from Lanier and Weyl

Those authors have collaborated with others in other important works that explore the transformative potential of the economics of reverse metering.
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More about FairPay

A concise introduction is in Techonomy"Information Wants to be Free; Consumers May Want to Pay"

For a full introduction see the Overview and the sidebar "How FairPay Works" (just to the right, if reading this at FairPayZone.com). There is also Selected items (including links to videos and decks). 

The Journal of Revenue and Pricing Management, "A Novel Architecture to Monetize Digital Offerings" provides a scholarly but readable overview. 

Or, read my highly praised book: FairPay: Adaptively Win-Win Customer Relationships.

(FairPay is an open architecture, in the public domain. My work on FairPay is pro-bono. I offer free consultation to those interested in applying FairPay, and welcome questions.)


Thursday, November 15, 2018

Tuesday, November 13, 2018

"The Case Against Micropayments" -- From Fear and Surprise to The Comfy Chair

Micropayment hope springs eternal. Clay Shirky and Andrew Odlyzko drove a stake in its heart way back in the dot-com era, but here it is again -- with new, more frictionless payment solutions and new content aggregators, some counting on the magic of blockchain and cryptocurrencies. Some micropayment content services have gained limited traction, primarily in Europe. But as Shirky said, "their weakness is systemic." Decades later, these systemic problems remain unsolved.

But that is true of micropayments as currently conceived: small payments at pre-defined rates. When the rates at which micropayments are charged become more reflective of the dynamics and behavioral economics of actual value -- as received and perceived by the customer -- that systemic problem can be solved. How can that be?

The problem as we now conceive it

Shirky summarizes the systemic problem:
The Short Answer for Why Micropayments Fail
Users hate them.
The Long Answer for Why Micropayments Fail
Why does it matter that users hate micropayments? Because users are the ones with the money, and micropayments do not take user preferences into account.
In particular, users want predictable and simple pricing. Micropayments, meanwhile, waste the users' mental effort in order to conserve cheap resources, by creating many tiny, unpredictable transactions. Micropayments thus create in the mind of the user both anxiety and confusion, characteristics that users have not heretofore been known to actively seek out
Odlyzko pinpoints the behavioral problem, drawing on the century old history of micropayments, and quoting Kara Swisher:
What was the biggest complaint of AOL users? ...Their overwhelming gripe: the ticking clock. Users didn’t want to pay by the hour anymore. ... Case had heard from one AOL member who insisted that she was being cheated by AOL’s hourly rate pricing. When he checked her average monthly usage, he found that she would be paying AOL more under the flat-rate price of $19.95. When Case informed the user of that fact, her reaction was immediate. ‘I don’t care, I am being cheated by you.’
Odlyzko's conclusion: "The lesson of behavioral economics is thus that small payments are to be avoided, since consumers are likely to pay more for flat-rate plans/"

Now it is not so much the "ticking clock," as "the ticking meter," but the problem remains. Much like Monty Python's Spanish Inquisition: "surprise and fear." Fear that we may be surprised to have run up a large bill without realizing it. It may be only a little regrettable, or it may be very seriously regrettable.  We will be stuck with that (or try to plead with the Inquisition's customer service department for forgiveness).

Even if you make the micropayment process totally frictionless, surprise and fear remain.

The pricing theory of relativity -- removing surprise and fear

We think of micropayments as immutable quanta of price. So many cents or micro-tokens for so many units of service. But why are we stuck with such Newtonian pricing, when Einstein showed us that clocks and meters can expand or contract relativistically?

We forget that prices need not be pre-set, but can be dynamic, and that they should adapt to whatever the customer and the business agree is fair. Prices should be relative to value, as I said above: reflective of the dynamics and behavioral economics of actual value -- as received and perceived by the customer.

The most systemic solution to the problem with micropayments is to apply post-pricing, in the form of post-bundling. We are talking about micropayments for digital "experience goods," which are unlike traditional "goods:"
  • They have little marginal cost.
  • Their value is not really known until after the experience. 
  • They are typically bundled such that the mix of items and amount to be metered is not known until the entire bundle is chosen by the customer, on demand, during the course of a billing period.
Why should such services be metered and priced at a pre-set rate? That is antiquated thinking:
  • The vendor can afford to take on most of the pricing risk (since the marginal cost of service is negligible).
  • The unit price should be discounted to provide quantity discounts (and to adjust for items sampled but not finished).
  • Price caps can be applied to ensure reduce surprise and fear. Such a cap might be higher than the corresponding rate for a simple flat-rate subscription, to compensate for the expectation that the customer will often pay less than the cap or even the usual flat-rate, but still low enough to eliminate the customer's fear.
I have written about simple forms of doing this:
The need for a relationship perspective

The core idea is that micropayments are most relevant to recurring business relationships, whether with a single content/service provider, or with an aggregator of such content/services. In either case we need to look beyond individual transactions to the aggregate value transfer over a period, in the context of the ongoing relationship. Subscription businesses already recognize that Customer Lifetime Value (CLV) is their primary success factor.

Advanced forms of FairPay take this farther, eliminating fear by allowing the customer to pay no more than they think fair for any given billing period -- as long as they do not abuse that privilege. That is just another level at which to leverage the "free" replication of digital content/services to eliminate the customer's pricing risk.

Whatever degree we take it to, when we shift to this relationship view, we realize that the vendor can absorb most of the short-term pricing risk, as long as the overall relationship is profitable over the lifetime of the customer. They can use the meter as just a guide, applying it to get a price that is adaptive to the nature of the relationship. The business can track each customer's fairness reputation over time, and use that to decide how much pricing power to grant and when. That enables prices to be set in a way that eliminates the customer's fear of nasty surprise. If we can remove that "anxiety and confusion," users' hatred of micropayments will turn to love. Good relationships build and thrive on comfort -- give customers the comfy chair!

Subscription hell -- the case against flat-rate subscriptions

Interestingly enough, the critics of micropayments argue that the success of flat-rate subscriptions dooms micropayments, but now it is becoming apparent that the success of subscriptions is self-limiting. So many services are turning to flat-rate subscriptions that consumers are facing what Danny Crichton called "Subscription Hell."
Another week, another paywall. ...I’m an emphatic champion of subscription models, particularly in media. Subscriptions align incentives in a way that advertising can never do, while also avoiding the morass of privacy and ethics that plague ad targeting. ...Incentive alignment is one thing, and my wallet is another. All of these subscriptions are starting to add up. ...Worse, subscriptions aren’t getting any cheaper. ...I’m frustrated with this hell. ...And I’m frustrated that subscription pricing rarely seems to account for other subscriptions I have, even when content libraries are similar.
...For product marketers, the default mentality is to extract a lot of value from the 1% of readers or users that are going to convert to paid. Subscriptions are always positioned as all-or-nothing, with limited metering or tiering, to try to force the conversion. To my mind though, the question is not how to get 1% of readers to pay an exorbitant price, but how to get say 20% of your readers to pay you a cheaper price. It’s not about exclusion, but about participation.
...Subscription hell is real, but that doesn’t mean the business model is flawed. Rather, we need to completely transform our thinking around these models, including the marketing behind them and the features that they offer. We also need to consider consumers and their wallets more holistically, since no one buys a subscription in a vacuum. For too long, paywall playbooks have just been copied rather than innovated upon. It’s time for product leaders to step up and build a better future.
I have made similar points in a number of posts, most pointedly in Beyond the Deadweight Loss of "All You Can Eat" Subscriptions.

Relationships and share of wallet -- a unifying perspective

With a broader relationship view, we see that the apparent dichotomy between flat-rate subscriptions and discrete "pay per view" micropayments is an artifact of our narrow, transaction-level thinking.
  • We think of micropayment transactions as isolated quanta that add up in ways that cause "anxiety and confusion" because we do not think about how the metered units map to actual value.
  • We think of flat-rate subscriptions from the isolated perspective of a single provider, because our vendors do not think about the whole customer, and what other subscriptions make competing demands for "share of wallet." 
But if we look past those blinders, we see that we exchange variable levels of value, and each should draw a fair share from the consumer's painfully finite wallet. To solve the systemic problems of payments that sustain the creation of digital services -- whether micropayments or subscriptions -- we must take a systemic view of value, share of wallet, and pricing risk. That is why my book has the subtitle "Adaptively Win-Win Customer Relationships."

Most of us can have nearly all of the content and services we want, at a fair and affordable price -- if businesses get smarter about sustainably exploiting the nature of digital services in a cooperative relationship context. Total removal of surprise and fear from pricing is inefficient and impractical, and benefits few. Even with flat rate, we have the converse fear that we will not get our money's worth in any given month. But businesses can leverage digital abundance (that costs them nothing) to put limits on the fear. They can seek to put each of their customers into a comfy chair that is cooperatively and adaptively designed to fit them just right. Failing to do that will be a tragic waste, for businesses and consumers alike.

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More about FairPay

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). 

My article in the Journal of Revenue and Pricing Management, "A Novel Architecture to Monetize Digital Offerings" also provides an overview of FairPay (summarized more briefly in the ESADE Knowledge article "Three building blocks to monetize a digital business," and previously in Harvard Business Review, "When Selling Digital Content, Let the Customer Set the Price.").

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


(FairPay is an open architecture, in the public domain. My work on FairPay is pro-bono. I offer free consultation to those interested in applying FairPay, and welcome questions.)

Friday, November 9, 2018

Goosing the Sacred Cash Cow -- Foreplay Begun, When Do We Get to First Base?

Digiday reports "To goose subscriber growth, The New York Times plans to try a flexible meter."

A quick note to suggest how much farther they should be going in making flexible offers...

The Times is trying to get smart about enticing a few more potential subscribers in to their paywall. The problem is that after the introduction ends, they then hammer them with the standard full price deal that makes no sense for many of them. It is time they begin to get flexible in lifetime pricing that maps to lifetime value to the customer.

The Times now sees that one size introductory offers do not fit all. When will they see that one size ongoing offers do not fit all? When will they mass-customize prices to match the widely differing value that different readers get from the Times?

The article quotes Ken Doctor: “In almost a decade of paywalls, the nuance that can be brought to digital subscriptions is far greater than most people have used. The idea is, you’re not dealing with one size fits all. You have ways to test their propensity to subscribe based on price, what kind of content they read, how much. You can try all kinds of marketing offers.”

And quoting Tony Halle: “The crucial challenge is how to maximize subs at the right paywall level without sacrificing your future audience development.”

Doctor reported a year ago that Halle's data showed that "about 1.8% of their audience are digital-only subscribers." Since even fewer are print subscribers (4 million total, 3 million digital-only), it is clear that among the 97% or so of non-payers in their audience, a very significant number could be convinced to pay at a profitable level -- if the price was right.

Why shouldn't the Times easily reach their 10 million subscriber goal (and more), if they were able to mass customize their pricing effectively? Even at lower average prices, they might double or triple their profit.

Mass-customizing price over subscriber lifetime

OK, how can they do that?

  • The short answer is to use an adaptive, value-based model for subscription pricing.

The set-price subscription seems to be a sacred cash cow. It is understandable that any business would fear messing with that. It is much less threatening to mess with introductory discounts and meters. But where is the lifetime value? ...in a lifetime of subscriptions!

When will publishers like the Times get beyond the foreplay, and get serious about designing the right value proposition for each of their customers -- and potential customers -- in a more extended interplay?  We have progressed from a blunt "wham, bam, thank you ma'am" to a few months of more responsive foreplay that abruptly cuts back to the standard "wham, bam, thank you ma'am." When do we move on to continually seeking affirmatively mutual value?

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More about FairPay

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). 

My article in the Journal of Revenue and Pricing Management, "A Novel Architecture to Monetize Digital Offerings" also provides an overview of FairPay (summarized more briefly in the ESADE Knowledge article "Three building blocks to monetize a digital business," and previously in Harvard Business Review, "When Selling Digital Content, Let the Customer Set the Price.").

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


(FairPay is an open architecture, in the public domain. My work on FairPay is pro-bono. I offer free consultation to those interested in applying FairPay, and welcome questions.)

Monday, October 1, 2018

NYCML18 Workshop Deck - "21st Century Customer Relationships, Value Propositions, and Pricing - A New Economics for Digital Services" (A FairPay Perspective)

My deck is now available on SlideShare – it contains many thought-provoking links...

I had the pleasure of presenting a wide-ranging workshop -- designed to break through old biz-model blinders -- to a very engaged audience at NYCML18 (the annual summit of NYC Media Lab) on Friday, 9/21/18.

We are now at a critical juncture in business, marketing, and broader aspects of market capitalism. If we do not rethink some dangerous unspoken presumptions, we will fail to reap the true promise of this emerging digital era.

The workshop was an exploratory “think tank” discussion on future directions in Customer Relationships, Value Propositions, and Pricing, which had been billed as follows.
  • Participants will learn to see through presumptions now obsoleted by the new economics of digital content and services -- and make that concrete with the example of one promising architecture for a new logic.  
  • From there we will explore in open discussion how to chart a strategic path that (1) rethinks conventional approaches and (2) points to incremental steps toward a deepening transformation. 
  • This workshop relates to AI/ML and ethics in business models, and the “relationship economy” in which recurring revenue, subscription, and membership models are becoming mainstream, all driven by the “post-scarcity” economics of digital.

Our focus was on rethinking how we do business, earn profits, and create value in our new digital world. We considered a wide range of current and emerging models in terms of a "Ladder of Value" -- including subscriptions (unlimited, and usage-based), paywalls, freemium, membership, crowdfunding, patronship, pay what you want, micropayments, dynamic pricing, blockchain, and paying consumers for their data and attention. It drew on a perspective based on the FairPay architecture for win-win, customer-value-first relationships (described in depth in this blog) that spans a wide range of commercial services, journalism, the arts, and non-profits.

Similar perspective is conveyed in my post, The Relationship Economy -- It's All About Valuing Customer Experiences -- plus the "Ladder of Value" section at the end of Finding Value in The Subscription Economy

NYCML'18 is a snapshot of the best thinking, projects and talent from across the City's industry and university ecosystem. Through thought-provoking discussions, hands-on workshops, and 100 innovative demos, attendees will consider pressing issues related to digital media innovation.

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More about FairPay

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). 

My article in the Journal of Revenue and Pricing Management, "A Novel Architecture to Monetize Digital Offerings" also provides an overview of FairPay (summarized more briefly in the ESADE Knowledge article "Three building blocks to monetize a digital business," and previously in Harvard Business Review, "When Selling Digital Content, Let the Customer Set the Price.").

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

(FairPay is an open architecture, in the public domain. My work on FairPay is pro-bono. I offer free consultation to those interested in applying FairPay, and welcome questions.)

Tuesday, August 28, 2018

BuzzFeed, Google, Testing Recurring 'Pay What You Want' Membership -- Steps in the Right Direction

Digiday reports that BuzzFeed is working with Google to pilot a recurring "pay what you want" membership program. Here is a quick recap and outline of how FairPay points the way to future improvements.

The story so far

Digiday's Lucia Moses explains (emphasis added):
BuzzFeed News is adding messaging to pages that solicits small donations of $5-$100 as seen [to the right]. The initial benefits will be updates on big investigations and new video programming. (There’s no member-only content for now; if the program is successful, BuzzFeed News hopes to add perks that will come on top of its news content, that will remain free.)
BuzzFeed News, like The Guardian, has staunchly adhered to the idea of being part of the free and open web. But... it’s eager to capitalize on people’s growing willingness to pay for quality news.... 
BuzzFeed News said it’s working on its membership program as part of the Google News Initiative...Google helped BuzzFeed with tech and market research; it’s unclear if Google is planning to expand its subscription program to accommodate publishers that have reader donation or membership programs. A Google rep confirmed the company is working with Buzzfeed to help it explore different business approaches and understand how its readers would react to this kind of model
Moses refers to her previous report on "a textbook turnaround" with a similar program in the Guardian US (1/26/18) (emphasis added):
Guardian US was primarily ad-driven; philosophically, the Guardian has eschewed the more common paywall model because it believes its journalism should be as widely accessible as possible...
The challenge with one-off contributions is replenishing them. Most of the 300,000 US supporters (230,000) are one-off contributions; the rest are recurring subscribers. The reader support is mostly one-offs because the ability to make recurring contributions was just added a few months ago. The plan is to move people toward recurring contributions, which creates a more predictable revenue stream.
To that end, Guardian US has two people dedicated to reader revenue, which it plans to double to four in the next fiscal year starting in April. They’re identifying topics U.S. readers care about and are more inclined to support with their wallets, and they’re testing everything about the way it solicits contributions, from the color to placement to language of the message, which is typically British in its politeness, from a U.S. audience.
We could be a little bit more assertive in the way we canvass,” [Guardian US CEO] Webster, a U.K. native , acknowledged.
 Some key points as I read this:
  • Little or no news is locked behind a paywall.
  • Payments are entirely voluntary. Emphasis is on being a patron or benefactor, not a quid pro quo.
  • The contribution amount is not pre-set by the publisher, but varies from reader to reader based on what they think fair and affordable.
  • Payments may in future bring perks, but still only a loose degree of quid pro quo (which encourages contributions under communal norms of fairness, altruism, and generosity, rather that exchange norms of bargaining).
  • "Prices" are set by the customer, at whatever level they think fair.
  • The publisher can nudge the customer to pay generously -- just how to do that nudging most effectively is something to be tested and refined.
  • The recurring payment model not only adds predictable revenue, but builds a relationship that increases loyalty and fosters communal norms.
  • These voluntary payments in a relationship context provide a rich field for learning, for each reader, what "readers care about and are more inclined to support with their wallets" and "testing everything about the way [the publisher] solicits contributions." 
FairPay points to sensible next steps

The FairPay strategy and architecture that I have been developing with colleagues shows how to extend this early success with more win-win models. 

The key is to leverage the relationship and the information it generates to understand: 
  • the value each reader obtains (and perceives), and how that varies over time 
  • how to maximize that value over time, 
  • how to get the reader to recognize that value, and 
  • how to nudge the reader to pay increasingly generously, at a level that fairly maps to that value.
The objective is to tailor the offers -- and the services offered -- to each user to best solicit a fair share of their wallet relative to the the value each reader enjoys -- and to nurture and grow that.

Further steps are to find perks and premiums that further demonstrate value, to remind readers of the specific levels of value they received (based on usage and other data), and to encourage more share of wallet -- to the level that offers the most value to both the business and each customer. 
  • So far in the above, all payments are entirely voluntary -- but with some level of nudging. That could be the permanent strategy. 
  • But, as a possible further step to increase revenue, some level of services could be offered with a clear expectation of fairness in the voluntary payments from the reader. After some cycles of nudging as to what value is offered and what pricing is considered fair for that reader, future offers of that kind may be withdrawn (for some period) if the publisher concludes the reader just will not be fair about their payments. This is still much more participatory than conventional pricing, in that the reader still decides (on each payment cycle) what is a fair price for them and the value they received. The publisher gets to enforce reader generosity for selected services -- at whatever customized level of gentleness or firmness seems best.
Details of these strategies are in the sources listed below. Especially relevant places to start are these posts:
Your mileage may vary!

In evaluating and testing such strategies, keep in mind that the results will be highly dependent on the "framing" -- specific design of the offers, the skill in communicating them effectively, and the selection of which services and which reader segments to apply them to.  Disappointing results may not accurately reflect the potential of such methods in general, but could just mean the test was not done in the best way possible (or that your business has far to go in getting your customers to feel you deserve their support).

There is a great deal of marketing communications, pricing theory, value proposition design, and behavioral economics to getting this right. The details may seem complex, but the basic principle is simple -- build a win-win relationship of dialog, trust, and transparency, jointly seeking to create and share value with the each customer, in ways suited to that customer.

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More about FairPay

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). 

My article in the Journal of Revenue and Pricing Management, "A Novel Architecture to Monetize Digital Offerings" also provides an overview of FairPay (summarized more briefly in the ESADE Knowledge article "Three building blocks to monetize a digital business," and previously in Harvard Business Review, "When Selling Digital Content, Let the Customer Set the Price.").

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

(FairPay is an open architecture, in the public domain. My work on FairPay is pro-bono. I offer free consultation to those interested in applying FairPay, and welcome questions.)

Friday, August 17, 2018

Challenge your ideas at my 9/21 Workshop at NYCML18: "A New Economics for Digital Services"

Come break through your old biz-model blinders -- I am leading a workshop on re-thinking basic principles at NYCML18 (the annual summit of NYC Media Lab) on Friday, 9/21:

21st Century Customer Relationships, Value Propositions, and Pricing
A New Economics for Digital Services.

This workshop is an exploratory “think tank” discussion on future directions in Customer Relationships, Value Propositions, and Pricing
  • Participants will learn to see through presumptions now obsoleted by the new economics of digital content and services -- and make that concrete with the example of one promising architecture for a new logic.  
  • From there we will explore in open discussion how to chart a strategic path that (1) rethinks conventional approaches and (2) points to incremental steps toward a deepening transformation. 
  • This workshop relates to AI/ML and ethics in business models, and the “relationship economy” in which recurring revenue, subscription, and membership models are becoming mainstream, all driven by the “post-scarcity” economics of digital.

This interactive session will be a forum for rethinking how we do business, earn profits, and create value in our new digital world. We will consider a wide range of current and emerging models in terms of a "Ladder of Value" -- including subscriptions (unlimited, and usage-based), paywalls, freemium, membership, crowdfunding, patronship, pay what you want, micropayments, dynamic pricing, blockchain, and paying consumers for their data and attention -- with a perspective that spans commercial services, journalism, the arts, and non-profits.

A preview of this perspective is in my post, The Relationship Economy -- It's All About Valuing Customer Experiences -- plus the "Ladder of Value" section at the end of Finding Value in The Subscription Economy

NYCML'18 is a snapshot of the best thinking, projects and talent from across the City's industry and university ecosystem. Through thought-provoking discussions, hands-on workshops, and 100 innovative demos, attendees will consider pressing issues related to digital media innovation.

This workshop will be 10:30am-12pm, at NYU Kimmel Center.  Registration for NYCML18 is required (and includes all workshops). (Sign-up for specific workshops will be in September, but the overall conference usually sells out, so register for that early.)

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More about FairPay

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). 

My article in the Journal of Revenue and Pricing Management, "A Novel Architecture to Monetize Digital Offerings" also provides an overview of FairPay (summarized more briefly in the ESADE Knowledge article "Three building blocks to monetize a digital business," and previously in Harvard Business Review, "When Selling Digital Content, Let the Customer Set the Price.").

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

(FairPay is an open architecture, in the public domain. My work on FairPay is pro-bono. I offer free consultation to those interested in applying FairPay, and welcome questions.)

Wednesday, August 15, 2018

Deeper Lessons From MoviePass -- From Tickets to Subscriptions to Relationships

Many have commented sagely on the folly of MoviePass, but, at a deeper level, it is something of a caricature of how we are just at the baby-steps stage of The Subscription Economy. It is easy to laugh at what seems to be a Wyle E. Coyote model: "we lose money on each customer, but we will make it up in volume."  Of course it is not quite that simple, the intent being to monetize consumer data to compensate, but still the value proposition seems to defy gravity. There are important lessons here, as recently noted in the Washington Post, Price Intelligently, and Harvard Business Review.

These commentaries point to many dots that we have yet to fully connect into the larger image. There are many excellent insights about what Tien Tzuo of Zuora calls "The Subscription Economy" in his recent book Subscribed, and in these recent articles. The bigger picture I see here is what I call "The Relationship Economy." Subscriptions are an important way to structure profitable customer relationships, but what matters is how a business co-creates value in its relationship with each customer. If you focus on creating and sharing value with each customer, the rest will follow. That is explored in some depth in my recent post, The Relationship Economy -- It's All About Valuing Customer Experiences.

The core lesson of co-creating value is the shift from the Goods-Dominant Logic of tickets, through the more Service-Dominant Logic of subscriptions, to a fuller understanding of that logic in the value of service relationships. As the head of Stanley Tools was reported to say long ago, "our customers don't want drills, they want holes."

Eddie Yoon's article in HBR lists five lessons that serve as nice examples of some of the dots I refer to -- which I would connect into this larger picture of value-centered relationships. My perspective on his five points:
  1. Price elasticity is powerful -- and highly variable -- "playing with it requires great skill and precision." The issues are so dynamic that an adaptive, mass-customized approach to pricing is needed to profitably serve more than narrow niches. We need to go much farther down that road.
  2. "MoviePass serves as a cautionary tale of treating consumers with a transactional mindset" and "seeking to monetize them through advertising." I believe the age of services that are predominantly advertising-supported is giving way to models that are predominantly customer-supported (even if they retain some advertising value exchange in a way that is more customer-value focused, such as with a "reverse meter").
  3. All you can eat models are economically inefficient for both customers and businesses. Highly engaged "superconsumers" should be a prime asset to a business, not a gaping liability. Pricing and value propositions must adapt to different consumer needs.
  4. The movie ticket is only one aspect of the consumer experience. The customer wants holes (a good experience), not drills (tickets). A service relationship, value co-creation perspective points to ways to get more "share of wallet" from each customer.
  5. Yes, "bullying is a bad business plan." Long term success models are win-win, not zero-sum -- for consumers and business partners/suppliers.
Changing an industry like movies with essential entrenched players (theaters and studios) wedded to rigidly antiquated models will be challenging, but even so, the ultimate direction of relationship=value-focus seems clear.

My work on FairPay points to how such a new logic can work, but there may be other paths. The future of The Relationship Economy will be more mass-customized, and more win-win, drawing on deeper customer "dialogs about value." The power of businesses and customers will be more evenly balanced, and cooperation in co-creating value over the ongoing relationship will be the key to success.

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More about FairPay

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). 

My article in the Journal of Revenue and Pricing Management, "A Novel Architecture to Monetize Digital Offerings" also provides an overview of FairPay (summarized more briefly in the ESADE Knowledge article "Three building blocks to monetize a digital business," and previously in Harvard Business Review, "When Selling Digital Content, Let the Customer Set the Price.").

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

(FairPay is an open architecture, in the public domain. My work on FairPay is pro-bono. I offer free consultation to those interested in applying FairPay, and welcome questions.)

Tuesday, June 26, 2018

An Open Letter to Influencers Concerned About Facebook and Other Platforms

To those concerned about Facebook (and its ilk), here are some potentially powerful new levers you can advocate, based on a more creative approach to business models.
  • Many prominent influencers have expressed concern about how the ad model perverts the incentives of Facebook (and/or Google, Twitter and others) to do serious harm to society, saying that more creativity is needed (see list below*). As Tim Berners-Lee said, "create a new set of incentives and changes...will follow."
  • My proposals go beyond those calls -- I suggest action based on a new class of user-sustained, relationship-value-first, business models that could negate those ills – and make our platforms more broadly humane and sustainable.  
  • This “innovative and visionary” FairPay architecture has been described briefly in Harvard Business Review, and more fully in the Journal of Revenue and Pricing Management, “A novel architecture to monetize digital offerings” (with eminent marketing scholar Marco Bertini as my co-author). 
  • These methods have been discussed with many companies, including vendors (such as NY Times, News Corp, Disney, Spotify, Rhapsody, IBM, Verizon, American Express, and many smaller companies), platform providers (such as Salesforce and Zuora), and market research firms (such as Forrester and MECLABS). 
  • They build on proven business trends and behavioral economics principles, but are not yet well-known. (FairPay is an open architecture in the public domain, not a product -- I am working on this as a pro-bono project.)
Immediate action can be begun:
You can help:
  • Consider why this approach is workable and powerful -- good for businesses, their customers, and society.
  • Spread the word to others who can help bring this to broad awareness.
  • Stimulate experimentation with this and similar strategies, to prove and adjust them (or to find alternatives) based on learning in varied business contexts and consumer market segments.
Learn how:

Understanding the concepts as relevant to Facebook, etc.:
Understanding the core of this new business model strategy in its deeper and broader aspects:

Understanding how to start with low-risk trials and low-hanging fruit:

***Please contact me to explore how you can help -- fairpay [at] teleshuttle [dot] com. 

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On the deeper issues of social media and digital democracy
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*A few of the notable calls for more creative business models:
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More about FairPay

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). 

My article in the Journal of Revenue and Pricing Management, "A Novel Architecture to Monetize Digital Offerings" also provides an overview of FairPay (summarized more briefly in the ESADE Knowledge article "Three building blocks to monetize a digital business," and previously in Harvard Business Review, "When Selling Digital Content, Let the Customer Set the Price.").

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

(FairPay is an open architecture, in the public domain. My work on FairPay is pro-bono. I offer free consultation to those interested in applying FairPay, and welcome questions.)