Monday, September 24, 2012

Beyond the Ad Model - A New Economics for Media

(This was published earlier today as a contributed post on Media Magazine's Future of Media blog)
Facebook lost half its market cap because of doubts about the viability of ads as the world goes mobile. Advertising has its place, where it is non-intrusive, and when it provides valued information relevant to my current context. But that is unlikely to fully pay for the services consumers want. Similar problems are at crisis level in newspapers, video, and music.

It is time to rethink payment for media in the digital age. Most users of Facebook, or any media service, would be willing to pay a fee -- if it were commensurate with the value they actually perceive, and their ability to pay. Charging for Facebook seems impractical only because we have not figured out how to create a payment model that works for a wide range of consumers.

Instead, we look to advertising, or to selling data about consumers, both of which are largely opposed to the interests of the consumer. But consumers are coming to realize that "if you're not paying for something, you're not the customer; you're the product being sold." I suggest that by rethinking how we pay for services, we can find a much better solution.

Freemium offers a hint of the answer-- give away some product to get users to see the value and agree to pay for a service they find useful. But this still fails to match widely varying usage patterns, value perceptions, and abilities to pay.

How can a vendor understand the right price for each user, at each point in time? This seems intractable until we consider letting the user tell us -- the user knows.

The concern is that the user will not be fair, and will understate what he is willing to pay--or will fail to appreciate the cost of service. But we are in an era of relationship commerce – now we can build personalized relationships on mass scale. The solution is to build relationships with customers based on dialogs about value -- so that we can maintain relationships with those that set values fairly, nudge them to recognize the value, and cut off relationships with those who are unfair. The same technologies that enable ad targeting, individualized merchandizing, and automated customer service can enable this too. I have been talking to companies of all sizes about just such an approach -- I call it “FairPay” (short for “fair pay what you want”).

Advertising and data sales can still have a significant place in adding economic value, but can be limited to not detract from the core value proposition between the consumer and the business. The same FairPay process can let users individually determine what level of advertising and data usage they will tolerate, in return for reduced payments.

All it takes is some willingness to empower your customers, and some experimentation. Is that any more than we should expect in this new age?