Monday, August 29, 2011

Re-inventing Value Exchange For Digital Offerings -- A Radically New Approach to Business Relationships

Imagine a market Nirvana for digital offerings. Think beyond the traditional value exchange processes and protocols and re-envision how buyers and sellers might interact in a world with a networked marketplace.

I suggest FairPay offers the path to that market Nirvana, and that it is now very practical. Here is an overview (based on the recent rework of the FairPay home page).

First let us look at what the consumer wants, and FairPay delivers:

Consumers  -- Pay only what seems fair to you:
  • Pay what you want for products or services -- after you try them
  • Make every purchase on a trial basis--so you can always be sure to get fair value for your money
  • Agree to set your price fairly--in your judgment--and explain why you think it is fair
  • Do that as long as you can convince the seller that you are being fair

Of course free is even more ideal (for the buyer alone), but we know there is no free lunch -- someone pays. The question is how to make the market work for the consumer, and still motivate sellers to sell and creators to create. "Fair Pay What You Want" (as just described in the box) clearly comes rather close to a practical ideal for a large mass of consumers.

The bigger challenge is how to make our new "ideal" market system work for businesses? -- to ensure that they get a fair price, to enable them to stay in business and continue to deliver value. Here is how FairPay does that, as well:

Businesses  -- Get the most revenue from the most customers by continuously learning what each one values:
  • Engage in real dialog with each of your customers on the value they get from your products or services
  • Make a trial offer to every potential customer who sees potential value and is fair-minded
  • Let your customers self-select into segments (based on usage, value perception, willingness and ability to pay, ...)
  • Limit your risk from those trial offers by tracking the results for each buyer, and limiting future offers if you judge that buyer to not pay fairly
  • Continue to make every offer a trial... long as each buyer continues paying fairly--in your judgment

Ordinary "Pay What You Want" pricing  has been shown to work well for special offers.  ...With FairPay (short for "Fair Pay What You Want"), every offer is a special offer.  
  • FairPay changes the game from single transactions to an ongoing relationship of continuing transactions. 
  • That enables a whole new balancing dynamic that drives to a better market equilibrium, over a wide range of relationships and value perceptions.

FairPay works through a very simple balancing dynamic:

1. Selectively offer to let the buyer set any price the buyer considers fair -- after the sale (Fair Pay What You Want, post-sale).

2. Track that price and determine whether the seller agrees that is fair, and use that information to let the seller decide whether to make further offers of that kind to that buyer in the future.

I suggest this gets us as close as possible to market Nirvana. The buyer always pays a price he considers fair, and seller gets to sell to every buyer who set prices fairly (in the seller's judgment).  The seller is also able to limit his risk, in way that trades a managed level of small loses for a large expansion of his market to the entire population who value his offering. Some will pay better than others, but for all who pay fairly, the seller gains revenue. And for those who the seller judges to not pay fairly, FairPay offers are restricted, and conventional set-price selling remains the fallback.

Thus FairPay exploits the power of the networked marketplace to offer as a participative pricing process that combines the user freedom of pay-what-you-want pricing, with a new level of feedback, accountability, and seller control of future offers to make it fair to both buyers and sellers.

For more on how that works, see the FairPay site (How Does FairPay Work?), and many of the posts on this blog.

Monday, August 22, 2011

FairPay “Free Trial”/“Survey” Mode – Easing into the Waters -- And Understanding Your Customers

[***Update 8/11/17 -- Voluntary Payment Mode:

Most of the focus of FairPay is on a balanced use, as a repeated game in which the buyer has full power to set the price after each cycle of experience, but the seller maintains equal power over the pricing relationship by continuing the game to offer ongoing experiences only if they judge pricing to be sufficiently fair (referred to below as Full FP (Revenue-Gated) Mode). The criteria for fairness can be as strict or lenient as the seller wishes.

However, there are important use cases where a more purely voluntary payment regime is desired permanently, such as for public service journalism and many non-profit services. For example many membership-oriented journalism services are happy to make membership payments purely voluntary, and still provide access to their journalism to those who choose not to pay. A simplified variation on FairPay supports such a Voluntary Payment Mode -- described below as Real-Payment Survey Mode. This uses much the same process as full FairPay, but simplifies the seller controls to apply soft nudging to personalized suggested contribution levels, still based on individual value factors, but using only carrots, and not the stick of withdrawing FairPay privileges.]  


I have recently been working with a startup company that is working toward introducing FairPay pricing for their new service (details on that to follow).  That collaboration has led me to some interesting ideas on how you can best phase FairPay in, to get some basic functions at low cost -- and to learn a great deal about your market, so you can better manage your investment and your risk -- and improve your business overall.

Whether for an entirely new business, or for a new pricing approach in an established business:
  • key questions about FairPay are how hard is it to integrate with your pricing systems, and to what extent might it put revenue at risk?
  • key benefits of FairPay are as a learning process, centered on dialog with your customers, about what they want from you, and how they value it.
Here is a way sellers can begin to get the benefits, without incurring much of the cost, and none of the risk.

(Note, this post deals with strategies for introducing FairPay in a gradually phased manner, and assumes a basic understanding of FairPay concepts -- see the sidebar, and other posts and the FairPay Web site for the basics.)

The idea is to use FP in a startup mode to provide ongoing on a “free trial” basis, while a new service is in a “provisional use” mode, and then, after that, to phase in use of the full FP feedback and control processes.
  • This approach is especially suited to new lines of business where the value proposition may be uncertain or temporarily limited (such as beta tests, pilots, etc.).  Limitations may be due to lack of system function or lack of critical mass network effects, such as those affecting content richness, community participation, etc.  
  • This provisional use of a subset of FP processes can be beneficial, even before full use of FP is pursued.  This opportunity may be common to many startup businesses, or to new services within existing businesses. It can also be applied in existing businesses by taking services that had been in a standard service tier, and shifting them to a premium tier on a trial basis.
The objective is to position FP pricing to provide benefits (and not impediments) even in early stages, and to set the stage for a transition to full function as the service matures:

·         Initially, FP Free Trial Mode should stay largely out of the way, behaving generally as a conventional “free trial,” with the addition of some key features:
o   The initial objective is to serve as a learning platform, apart from any revenue generation, to obtain customer “survey” data related to the potential value of the service.  This role can integrate with other customer feedback to focus on the perceived value exchange, to better understand the benefits and problems in using the service by the consumer -- both reflecting the current state of the service (and its content and community), and looking forward to what can be expected when it matures. 
o   From this perspective, FP Free Trial Mode can be thought of also as a FP Survey Mode, in which data on willingness to pay is collected, but is not used to limit continuing use, even if users do not pay.  Depending on the situation--or in successive phases--users might be asked:
1.      to simply say what they “would” be willing to pay without actually making any payment (No-Payment Survey Mode),. 
2.      to actually pay what they think fair (Real-Payment Survey Mode), with the understanding that all payments are entirely voluntary (pure PWYW, in arrears, or "pay as you exit") and there are no adverse consequences (no reputational harm) for non-payment. [***As per the above update, this can also be applied permanently, as Voluntary Payment Mode.]
o   A secondary objective is to set the stage for Full FP (Revenue-Gated) Mode use, by facilitating learning by both customers and the service provider on how FP is best applied to the particular services.  This would educate customers on basic concepts of the FP process, and help the service provider learn where to apply FP, how to frame offers, how to suggest prices and assess fairness, and the like, in the context of their particular services and customer base.
o   To aid in customer understanding, it might be clearly stated that FP is currently in Free Trial Mode for some or all services, and that a future transition to Full FP Mode was planned.
These modes can be enabled before a full FP system infrastructure is built, since they require none of the real time feedback analysis, buyer fairness reputation rating, and reputation-based offer gating of a full FP service.  Thus this level of FairPay requires modest development investment.

·         As the service matures, the Full FP (Revenue-Gated) Mode can be completely implemented and gradually turned on--with any desired phasing as to customer segments and service categories.  Full FP (Gated Revenue) Mode would enforce FP “fairness-gating”-- limiting access by buyers that develop a reputation for failing to pay fairly.  This can overlap with continuing use of FP Trial Mode for other customers and/or other service categories.
o   The shift to FP Gated Revenue Mode might be related to achieving a level of maturity as to service robustness, critical mass scale (in content and/or community), initial education of customers on FP concepts--and to scale-driven needs for revenue. 
o   This shift can be phased in (sector-by-sector, if desired), using an appropriate change management process.  Customer communications and dialog can be applied to prepare customers for this change (to include customer reputation rating and gating of offers), to identify any issues or concerns and ensure that they are recognized and addressed.   It would be made clear to users that gating was being activated, why the time for that was right, and what changes to expect.

The result of this staging approach is that FairPay can begin quickly to create a lightweight dialog with customers about value, and to generate valuable data long before it is integrated into actual payment processes.  In this way it imposes minimal burden on customers, and also allows the development work of building the full FairPay infrastructure to be phased.

Wednesday, August 10, 2011

Indie Games Generate $ Millions with Pay What You Want

For those that think there is no real money in Pay What You Want (PWYW) pricing, the growing success of the Humble Indie Bundle suggests otherwise. Their first four promotions have raised over $6.1MM,** with the last one just ending at $2.2MM [now much more**].  It has been reported that the venture behind these offers has raised $4.7MM in VC funding [now more**]. Their model includes payments to the game developers, the distributor, and charities including EFF.*

EFF has posted a nice summary, observing that "While the record labels, movie studios, and video game producers have not figured out a way to compete with free, others the Humble Bundle has shown us, it is possible, with creators and distributors finding new and exciting ways to compete with free. ... when done right – developers, content providers, and even those who provide the business model can successfully compete with free." Additional details are in a Wikipedia entry.

All of this adds to my suggestion that FairPay (which augments PWYW with feedback processes that incentivise buyers to be fair to sellers, as described on the sidebar) can take this from a promotional tool to a mainstream business model for ongoing use.  Indie games and music are a great place to start, since that Long Tail content is where basic PWYW selling is already gaining traction.***

My previous post, How Indies Can Disrupt the Disruptor - A Disruptive Revenue Model for Music and Games, addresses this in more detail -- suggesting how indie distributors can take on iTunes to change the game, starting with the Long Tail, and moving toward the mainstream.

(*The charitable element is also a notable factor in the Humble Indie Bundle, at two levels. One is true charity, in the form of EFF and others. The other is a charity-like feature, in that the structure of the Humble Bundle revenue is for lightweight (and buyer controllable) contributions to the distributor, such that the significant share to the game creator ("developer"), analogous to the artist, musician, etc., provides a social-benefit motivation to pay -- rewarding the creator, and enabling further creation.  See other charity-related posts.)


**[9/21/14:  Wikipedia on Humble Indie Bundle reports this as a total of $30MM, in addition to $20 million to charity, as of 8/23/13.  CrunchBase reports funding of $9.2 million. Check there for further updates.] 

***[1/17/12:  For general insight into real uses and experiments see "Pay What You Want -- Still Crazy After All These Years?," and Wikipedia on PWYW.]