Wednesday, December 20, 2017

The Ghost of Pricing Future -- A Thought Experiment

In the spirit of Dickens's Ghost of Christmas Future, I thought again of the "demon" that I have outlined as a simple but over-arching vision of ideal pricing.

It is easy to get lost in the many currents of discussion about the strategy and tactics of pricing -- and to lose sight of the deep connection of pricing to how enterprises think about their business, their customer relationships, and the marketing, production, and design of their products and services.
  • There are many strategies for more effective pricing, such as based on value, performance, solutions, and outcomes. These relate to broader business directions, such as one-to-one, customer-first, and customer-value-first, as well as the growing focus on customer experience
  • While these generally point in the right direction, we often fail to see the forest for the trees. We need a fundamental principle to guide us, and to make it clear how to align all aspects of a business. 
  • My demon illuminates that driving principle.
Think of the Value-Pricing Demon outlined below -- What would the demon do? 

If your pricing stays true to that, success will follow.


(Prolog to the book, FairPay: Adaptively Win–Win Customer Relationships, by Richard Reisman)

A Thought Experiment -- Imagine a Value-Pricing Demon…

Imagine a demon that might power a system of commerce.  Imagine that this demon has perfect ability to observe activity and read the minds of buyers and sellers to determine individualized "value-in-use" -- the actual value perceived and realized by each buyer, at each stage of using a product or service.
  • The demon knows how each buyer uses the product or service, how much they like it, what value it provides them,* and how that relates to their larger objectives and willingness/ability to pay. It understands the ever-changing attributes of current context, where the value of a given item or unit of service can depend on when and how it is experienced.
  • Furthermore, this demon can determine the economic value surplus of the offering -- how much value it generates beyond the cost to produce and deliver it.
  • The demon can go even farther, to act as an arbiter of how the economic surplus can be shared fairly between the producer and the customer. How much of the surplus should go to the customer, as a value gain over the price paid, and how much should go the producer, as a profit over the cost of production and delivery, to sustain their ability to continue those activities.
Such a commerce demon might thus serve as the brains of a system that sets prices that are adaptive and personalized -- to set a price for each person, at each time, that is fair to both the producer and the customer.  Imagine we could build an e-commerce system, with advanced programming and data that worked as an artificial intelligence version of this demon. Prices would not be pre-set by the seller, but would be set dynamically by the demon for each item or unit of service, at levels that would be fair and acceptable to both the buyer and seller.

Actually, a rather different pricing demon has long been widely accepted as central to our economics.  Isn’t Adam Smith’s invisible hand just the hand of a demon that guides the setting of prices based on a balance of supply and demand?

So if we have Adam Smith’s demon, why do we need my demon?  Because the invisible hand works nicely for markets of scarcity, but in the digital era, we face markets of abundance.  The task of these new markets is not how to allocate scarce goods, but how to sustain the creation of services that can be replicated without cost or limit.  What we now need to allocate is a fair share of the customer’s wallet. 

This book shows how thinking about my demon can help us do that. FairPay is a business architecture centered on a new value feedback process that adaptively seeks to approximate what the demon knows

(More on thought experiments and this demon in Chapter 5.)

*[Update 12/5/19:] I should have said: "...what value it provides to them (or to others they wish to benefit)..." The point is that this applies to social value, donations, and non-profits, where the value a benefactor cares about may be value they wish to support for the benefit of others.


This Prolog to my book, FairPay: Adaptively Win–Win Customer Relationships is also online. I first posted about my demon (with added commentary) in 2015:  Harnessing the Demons of The Digital Economy.

(A note on ghosts and demons:  Of course my demon is a converse of Dickens' ghost, which pointed to the dark scenario -- my demon points to the ideal scenario -- but both serve as thought experiments. I call it a demon in the same spirit as the well-known benign demons of physics:  Maxwell's demon and Laplace's demon -- those have long served as very useful thought experiments.


For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at There is also a guide to More Details (including links to a video). 

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

(FairPay is an open architecture, in the public domain.)

Tuesday, October 31, 2017

"Invisibly"? -- Or Visibly? ..."Finding the New Revenue Stream Publishers Dream Of"

"Can startup Invisibly be the new revenue stream publishers dream of?" asks Ken Doctor in his very interesting Newsonomics piece last week.
Led by the cofounder of Square, Invisibly promises “four-figure CPMs” and a way to make big money off readers who won’t subscribe. It says it has most of the U.S. digital news industry on board. But is it just “an ad network dressed up as a savior for news sites”?
(This post is based on the comment I made on Ken's piece.)


There is much positive here -- but there is one fundamental concern at the heart of this -- the "invisibly" part!

The name relates to the handling of what is described on Invisibly's FAQ:
A digital wallet will accompany visitors as they navigate content across the internet. As the visitor happens upon participating sites, the digital wallet will invisibly keep a ledger of earnings from brand engagements and expenditures from content. At the optimal time, the system will prompt visitors to sign up and improve their experience, by giving them a choice of watching or avoiding ads. If a visitor wants to avoid ads, they can add payment (i.e. a credit card) that can process all of their content and subscription purchases in one bill.
Thus, as Ken fills in, based on his interviews: 
A reader/consumer’s "wallet" will fill up silently in the background — invisibly, you might say — depending how much value his attention to commerce is affording advertisers. Consumers won’t see these wallets, or how much content these value holders will offer them. Why? In showing actual value gained, consumers will try to 'game' the system.
But I say, "On the contrary!"

Hiding the wallet (ledger) seems inevitably to harm cooperation, loyalty, and willingness to pay a fair price for value -- the willingness to contribute funds that sustain the continuing creation of such value. The value of of a consumer's attention and how it affects the price they are asked to pay is secret??? How would that make you feel? Would you want to do business with a company that hides your account balance and history? a bank that wants to hide your balance from you?

Consumers will feel gamed, and that will lead them to feel justified in seeking to game the system against the publisher in return. They will seek to avoid paying a fair share -- or just not buy at all -- because they feel any publisher who is hiding this ledger of value exchanged is not playing fair with them. The same reason current experiments with dynamic pricing are hated so much -- it is done invisibly, often secretly, with no apparent justification -- just a devious game of extracting the most possible from one's wallet.

Visibly (= Transparently)

The publishing world (much like the larger business world) is recognizing the need to be customer-value-first -- to build a true "social contract" around their relationships and value propositions with their readers/members/customers. That requires transparency.

Most of the rest of what Ken reports of Invisibly seems to be a smart combination of many of the strategies of FairPay (an open architecture that I have proposed): flexible exchange of value personalized to individual reader behavior, based on "a new business model stack" that goes beyond "the binary subscribe/don't subscribe" model. An approach that seeks "a newer kind of advertising engagement" that is factored into a reverse meter to give credit for attention to ads. The difference is that FairPay seeks to transparently justify its new forms of personalized pricing -- doing it in ways that customers can participate in and recognize as fair -- not by "invisibly" imposing pricing that will seem arbitrary and exploitative.

"What will the readers think?"

As Ken pinpoints, the big question is one of "consumer acceptance and adoption." Hiding the accounting for the exchange of value seems bound to intensify the zero-sum conflict between publishers and their readers.

Maybe Invisibly can play its game cleverly enough to work better than the badly broken model we have now. There is much that is smart and forward looking here. But there is this fundamental turn toward the dark side...

A new logic (a new business model stack) that is win-win

Why not apply these sophisticated strategies in a more cooperative manner? It is time for publishers to embrace the idea that in our new world of digital, the only truly winning game is a win-win game with readers/viewers/customers. Many publishers are beginning to warm to that more customer-value-first logic. They should learn from what Invisibly has right, but in a way that is more transparent.

As I said in a LinkedIn message to Invisibly founder Jim McKelvey, "You seem to be on the right track, but with one more twist needed to be win-win. (Maybe Invisibly 2.0, if not now...)" I hope McKelvey and Invisibly's launch partners will look carefully at this issue, and realize that zero-sum games of hidden manipulation are not the way to sustain a publishing business. Invisibly seems an otherwise well-conceived and formidable effort to help publishers. But that needs to be done visibly and transparently.

In these times of existential threat to publishers -- in which both publishers and readers increasingly recognize a need for "a new social contract" that is win-win -- it would be a shame to turn publishers toward a darker direction that is in direct conflict with that. Invisibly seems to be smart, but what is needed is to be wise.

The only way publishers will find the new social contract needed to win with their customers in a scalable and sustainable way is visibly!


For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at There is also a guide to More Details (including links to a video).

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

(FairPay is an open architecture, in the public domain.)

Monday, October 16, 2017

Thaler's Nobel, Surge Pricing, Fairness, and Long-Term Relationships

Some very nice insights on this theme are woven together in the latest Upshot reporting by Neil Irwin. It shows how Richard Thaler's behavioral economics adds deeper dimension to the debates about surge pricing -- and how that ties to underlying issues of fairness and long-term relationships, beyond the usual conflicting simplistic responses ("not fair"/"sound economics").

My congratulations to Thaler on winning the 2017 Nobel Prize in Economics last week for his work in creating the field of behavioral economics. That is a key foundation for my work on FairPay, and I am very appreciative to have gained his encouragement, as noted below.

When we look beyond the surface, we see that fairness in long-term relationships is what really matters for economics to work well, and that leads to the values (fairness) that we all seek. Thaler developed behavioral economics to look deeply at those deeper issues of human value and behavior. FairPay makes that the center of an new logic for consumer commerce that is badly overdue in our new digital age.

Some relevant quotes from Irwin's article:
For artists, no one show exists in a vacuum. And the things that might maximize revenue for any given night might not be the elements that matter in the longer term in developing devoted fans.
...So one view of the Springsteen approach is that it is economically irrational. But another is that it is part of a long-term relationship between a performer and his fans.
...Utilities and regulators, in other words, have to think a little like Mr. Springsteen: It’s not just about maximizing the efficiency of the energy market on any one day, just as the Boss isn’t trying to maximize his revenue from any one concert. Rather, it’s about maintaining a relationship in which people do not feel like they have been exploited.
...People’s perceptions of what is fair and just are not set in stone; they evolve over time. But companies looking to use variable pricing have to be cognizant of how important it is to respect those perceptions.
...What the successful examples of variable pricing have in common is that they treat customers’ desire for fairness not as some irrational rejection of economic logic to be scoffed at, but something fundamental, hard-wired into their view of the world. It is a reality that has to be respected and understood, whether you’re setting the price for a highway toll, a kilowatt of power on a hot day, or a generator after a hurricane.
“If you treat people in a way they think is unfair, then it will come back and bite you,” Mr. Thaler said. And it doesn’t take a Nobel to understand that.

Numerous posts on this blog address similar underlying issues related to consumer perceptions of price discrimination (including surge pricing) -- and how a more enlightened variation that I call "value discrimination" can be very fair and broadly beneficial to consumers.

I was privileged to get Richard Thaler's attention and encouragement when I wrote to him in 2015 about how nudging is a key aspect of the FairPay strategy, referring to my blog post, How Consumers Can Nudge Corporations for Good (which commented on a piece by him in the NY Times). He then connected me to his colleague, Heather Caruso, executive director of the Center for Decision Research at the University of Chicago Booth School. After some encouraging discussion, she indicated that their center would be interested in possibly being a resource for help in conducting experiments when a company is ready to do a trial.

With regard to trials, businesses, entrepreneurs, researchers, or others who might have interest in applying FairPay or related strategies are invited to contact me for pro-bono assistance. (FairPay is an open architecture in the public domain.)

More detail on how behavioral economics supports the strategies that underlie FairPay is in my earlier post, Thinking Fast and Slow about FairPay: A New Psychology for Commerce in a Networked Age, and in Making Customers Want to Pay You -- Research on How FairPay Changes the Game. (I previously had brief interchanges with Daniel Kahneman, the first winner of a Nobel for related work in behavioral economics, and author of Thinking Fast and Slow.)

We are just beginning to see the real world results of the more human side of economics that Kahneman, Tversky, and Thaler shined their light on.


For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at There is also a guide to More Details (including links to a video).

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

(FairPay is an open architecture, in the public domain.)

Monday, October 9, 2017

WTF?: A New, Better, Warm-Blooded Capitalism -- Linking Profit to Human Values

We can start now, one company at a time. What company will take that step? -- to shift from the cold-blooded zero-sum logic of dinosaurs, to the more dynamic and cooperative logic of mammals? All it takes is one imaginative business to lead the way (most likely starting in digital).

I just finished an advance copy of Tim O'Reilly's important new book, WTF?: What's the Future and Why It's Up to Us.* My focus was Tim's perspective on how we are now confronting "the beginning of the end of a failed economic theory," because my work on FairPay is aimed at a simple change in how we structure customer relationships that can enable individual companies to lead toward "an economy where people matter, not just profit."

Tim's WTF? provides a sweeping and insightful synthesis of how technology has been reshaping all aspects of our civilization -- not all for the best. It paints a compelling picture of the forces driving the problems we now face, and of the wide variety of hopeful vectors for change that are emerging. But it only hints at the idea that there are simple things that companies can do now on their own initiative (with the aid of consumer support) to begin to change the game unilaterally, in a way that can begin to shift perspectives more broadly. Just as Eastern sages say "there is nothing you must do first to achieve complete and perfect enlightenment," there is nothing we must do first to allow companies to align profits with human values (at least to a far greater degree than we do now, in some contexts).

First some initial comments on why Tim's book is important and compelling, then some observations on how FairPay highlights possibilities now at hand that promise to enable us to change direction even faster than Tim seems to suggest.

WTF?: What's the Future and Why It's Up to Us

Tim draws on his established position as thought leader with ties to the increasingly broad range of "alpha geeks" and entrepreneurs that have shaped our digital world, and his perspective as a publisher and communicator concerned about the broad human effects of technology on our civilization. He richly explores the double-edged effects of technologies such as platforms, automation, algorithms, and AI, and how they seem to be making life worse in many ways, even as they work miracles.

Tim makes his case in terms of a fitness function, the quantified objective function that guides the evolutionary optimization of an organism (or a system) to fit an environment. Through a wide range of contexts and examples, Tim suggests that we need to change the rules and incentives of our markets -- not only markets for goods and services but also financial markets -- and layers of internal and governmental rules that regulate them -- to better address the conflicts between people and profit, to turn the invisible hand to guide corporations fairly. On the long-term effects of algorithms and automation, he wisely observes that we need to not only manage these to protect and augment people (rather than simply replace them), but also to shift our focus to not simply protect jobs, but to the guide ourselves to the work that needs doing.

Tim points not only to emerging problems, but also to many signs of hope, and to how to build on that. He draws our attention to the many vectors of change (forces characterized by both intensity and direction) that shape the future. He points to both the urgent need, and the rich potential, that we have at this pivotal time, to remold the world closer to our heart's desire.

WTF?: What steps can a business take now to jump-start  that future?

My focus here is to synthesize and build on some of the vectors that are already pointing to ways to do this without waiting for systemic change in the underlying rules and regulations of our markets. There are already shoots we can build on, to work within the logic of our markets, to be more focused on human values.

There is nothing we must do first: we have already entered an age where profit can be increased by better serving customer values. Just be customer-value-first. 

What does that mean? Many businesses are realizing that it is not enough to be customer-centered (just seeking to extract maximum value from customers). We are entering an age of relationship capitalism -- most visibly in the emerging subscription economy where it is now understood that the key metric is not quarterly profit but customer lifetime value (CLV). Companies of all kinds are looking to customer journeys and loyalty loops, and seeing the need to be customer-value-first -- to work with each customer to maximize the value they perceive (and thus get the most from them in return). CLV is maximized when the company looks not to what its customers can do for it, but what it can do for its customers.

Value-based pricing has emerged in the B2B world as a way to align the business with the value it co-creates with its customers, to share fairly in that value surplus, and to drive that directly to the bottom line of pricing and thus profits. Less need for multiple bottom lines that tack on social values, if those values are priced in to the financial bottom line. Less need for external controls to manage externalities, if those are baked into value-based prices. Less conflict with investor demands, if prices and profits are aligned with customer values.

Translating that value mind-set into the B2C world has lagged because doing value-based pricing in a scalable way for mass-consumer markets has seemed so impractical that few even think about it. But we are seeing hints of a sea-change. Tim mentions Patreon and other new crowdfunding strategies for consumer funding of creation as "having a lot to teach us about [the economy's] future direction." Similar shoots can be seen in the move toward membership models in which readers fund journalism (or other services) that they care about. Behavioral economics has studied such participative pricing models (including the often-too-extremely customer-value-first model of pay what you want) to find that they are surprisingly effective, and that the classical economic model of a purely financially motivated homo economicus misses the actual behavior of real people. (Tim also mentions cooperatives, like the Green Bay Packers, REI, and Vanguard, and how they succeed at better aligning profit with human values.)

It is encouraging that a theoretical base for deep changes in corporate mind-set has been coalescing in the work of some marketing scholars and businesses who are re-examining the “goods-dominant logic” of the past, versus the “service-dominant logic” that we now are faced with. This meshes with recognition that value is not created by “producers” and purchased by “consumers,” but that “actors” in ecosystems work together to co-create value, which flows in multiple directions. Customer-value-first thinking is just one aspect of that (and platforms are another).

Tim quotes William Gibson, "The future is already here -- it's just not evenly distributed." My work on FairPay seeks to build on these shoots of a more participative, win-win future, to drive simple changes to the structure of the game that a business offers to play with its customers, changes that can make that relationship far more cooperative in seeking a fair sharing of the business and consumer surplus.

FairPay and the invisible handshake

Tim describes how the invisible hand of competition in our markets does its work to balance supply and demand. The invisible hand works by rationing scarce supply against demand. But, increasingly, we have markets in which supply is not scarce, but essentially infinite (especially markets for digital goods and services). Furthermore, increasingly we expect our markets to work for goods and services that are not commodities, but experiences that have very different values to different people.

We still think with the economic logic of the invisible hand, but it no longer works so well in many domains (especially digital). For example, many digital businesses feel driven to create artificial scarcity, in an effort to prop up the invisible hand to maintain their profits under this obsolete fitness function. Customers easily see through that, and wonder why they should pay what is demanded (or anything at all) -- they resent being manipulated in ways that they see as patently unfair. Even publishers are realizing that information wants to be ubiquitous (except in special markets like time-sensitive financial information in which customers want scarcity and are willing to pay a premium for that). Furthermore, artificial scarcity is an enemy of the economies of scale that benefit business, customers, and society alike -- it limits the fruits of creation to those with high ability to pay.

Tim says "I am a strong believer in the social value of business done right. We should aim to build an economy in which the important things are a natural outcome of the way we do business, paid for in self-sustaining ways rather than as charities to be funded out of the goodness of our hearts." I agree completely -- that is the objective of FairPay.

Tim is concerned about how capital markets get distorted to focus on the narrow interests of shareholders (and management), and looks to ways to change that. That is a deep and urgent concern -- I do not mean to suggest any weakening of Tim's points regarding that. But I suggest there are complementary ways to make our fitness functions work better -- for businesses, customers, and society -- from inside our businesses, in the current market environment. Let's do what we can to change from inside, now!

FairPay builds on the recognition that many businesses are now much more strongly a matter of relationships. Subscription businesses are beginning to see that they are living a new kind of social contract with their customers. Customers rightly question why they should pay for existing content (since it can be provided at negligible cost). They understand what they need to pay for instead is the continuing creation of more such content. (The recent dramatic increases in news subscriptions is an example.)

A business applying FairPay makes this social contract explicit, in the form of a repeated game that motivates cooperation. "I will be more flexible (and give you more say) in how I price my services, as long as you are fair about paying for the value you receive" (as explained in FairPay Changes the "Game" of Commerce). Instead of an invisible hand, think of this social contract as an invisible handshake that drives pricing toward equitable sharing of the value surplus, however that varies in any specific context (including widely varying abilities to pay). (This is explained in An Invisible Handshake for The Digital Wealth of Nations and Harnessing the Demons of The Digital Economy.)

No one else needs to change any rules to apply this invisible handshake -- it is just a matter of a single business being clear about the structure and intent of the game it offers to play, and being smart about framing its offers, learning what the customer values and working to deliver it, and nudging the customer to accept and hold up his end of this social contract. This can be done in many market sectors, among selected segments of users who (1) value the service, (2) want more flexibility in pricing and offers, and (3) are willing to make an effort to be fair about it.

Businesses of all sizes using current emerging models like Patreon and membership are pointing in this direction already. (And effective SaaS platforms can facilitate this to make it easy for small businesses and even individuals -- with significant scale economies and data network effects -- a major entrepreneurial opportunity there! Think not just of CRM, but of pricing and relationships as a service.)

Tim emphasizes the importance of tight feedback loops to achieve fitness functions, and to ensure product-market fit. FairPay is driven by an adaptive feedback loop that underlies every touch-point between the customer and a business and its products/services, to seek to jointly measure and maximize value at all levels -- as both the business and customer agree to define it.

Tim explores the dark side of business models that seek engagement (like Facebook and other ad- or commerce-driven businesses). FairPay fosters a form of consumer engagement that is win-win for all of us.

Tim suggests thinking of the economy as a game. FairPay shifts our micro-economics to see commercial relationships as a repeated game that works not for single transactions, but over a relationship, to align business and customer incentives to produce what we want, when and how we want it, for everyone who values that -- and to divide the surplus value so that both profit well from doing that. That harnesses the law of attractive profits to incentivize companies to profit from competing on creating customer relationships that maximize human values. That in turn leads to a macro-economics in which bottom-line revenues and corporate profits correlate with the creation of real human value.

A vector to broader human values (and other WTF? improvements)

Taking this farther will take skill and continuous learning and refinement, but, if done with care on the part of the business, customers will increasingly see that it delivers the value they seek, on terms they are be happy with. That value can include not only the narrow aspects of value addressed by the invisible hand, but whatever human and social values the customer wants to factor in (including people, planet, and purpose, to the extent the business will agree that is reasonable).** All of the vectors that Tim describes support and facilitate moving in this direction. Early success will lead to wider use across broader segments of consumers. Even costly real goods can be partly amenable to this logic, especially if they are based on human creative work (which Tim points to as another important vector).

Seeing this invisible handshake work will help create a climate for the more broadly systemic changes in business (and how it is regulated) that Tim points to. Businesses and the capitalist system will find themselves driven closer to our heart's desire. That will reduce the need for external remedies, and will create a more cooperative climate in which those remedies that are still needed will be seen as less objectionable.

...All it takes is one company to give this a try. (...Maybe O'Reilly Media?)

On a personal note -- as one who has spent his career watching, developing, forecasting, and inventing the future since the 1960s -- I very much relate to Tim's perspectives. I hope many will think seriously about this future and "why it is up to us." Now, more than ever, our future depends on that.


For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at There is also a guide to More Details (including links to a video).

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

(FairPay is an open architecture, in the public domain.)


*A preview of WTF? is provided in Tim's August post on Medium (which I commented on). A sample chapter is also available. Publication date is tomorrow, 10/10/17.


**[UPDATE -- comment from Tim O'Reilly] 
Thanks very much Tim!  To your very relevant point of concern, I should expand on how FairPay enables customers to have a much greater say about that...

FairPay seeks to define value to "include not only the narrow aspects of value addressed by the invisible hand, but whatever human and social values the customer wants to factor in (including people, planet, and purpose, to the extent the business will agree that is reasonable)."

When pricing is sufficiently participative, through a process like FairPay, customers can nudge businesses to have their price factor in whatever aspects of value they want it to include. That can be soft customer values like service and support, but can also include broader social factors like how a company treats its employees, sources its goods, supports its community, and protects the environment. It can include bonuses to journalists or musicians or other contributors. It can factor in credits for being a good corporate citizen (much as some companies already enjoy a level of premium pricing because of their good reputation), and, conversely, can factor in debits for bad behavior (much as the market now punishes known bad actors). Just as old fashioned negotiation or tipping often factor in such broader considerations, the new invisible handshake of FairPay can do that in a way this is more explicit and powerful.

This is not to suggest such "customer nudging for good" will fully address all important aspects of human and social values, but that it can lead to enough of a shift in how prices reflect such values to have dramatic effect -- and thus can reduce the need for external measures (and "multiple bottom lines").

This is expanded on in my post, How Market Commerce Can Become More Cooperative, Fair, and Human.

[UPDATE 1/16/18] 
An interesting complement to WTF? is Niall Ferguson's new book, The Square and the Tower: Networks and Power from the Freemasons to Facebook. It provides interesting historical perspective, which I explore and expand on in a review on my other blog: "The Square and the Tower" — Augmenting and Modularizing the Algorithm (a Review and Beyond)

Tuesday, October 3, 2017

No, Peggy, That is Not "All There Is" to News Reader Revenue!

In his Newsonomics series, Ken Doctor asks "is that all there is to reader revenue?" -- and reviews some signs of hope that there is more. I suggest there is actually much more -- because we are just beginning to rethink our value propositions for the strange new world of digital.

In homage to Peggy Lee's classic song, "Is that all there is?," Ken asks that specifically as it relates to "Who killed the new subscriber?" He answers that while we still hear Peggy's heartbreak, "we can also hear...the hum of new reader revenue strategies." He finds reason to be hopeful in the variety of emerging new models, but describes serious difficulties and gaps that leave a "great potential in-between." He ends on a more hopeful note from another Peggy Lee song, "somebody loves me, I just wonder who."

So the question is: how can I as a publisher get more people "to love me?" What Ken's review makes clear (in that article and its companion) is that we seem to be stuck with narrow point solutions that each address a segment of the market for a given publisher:

  • publisher paywalls that work marginally well for the most dedicated 1-4% of readers (at least for national/global news leaders, not so well beyond that), 
  • platform-based alternatives (including nascent platforms like Scroll, LaterPay, and Blendle, and, less satisfactorily, Google and Facebook) that seek to attract casual readers, 
  • but very little to address the missing middle. 

There is much ingenuity going into alternative models to address parts of this gap, but still, they are point solutions. Ken talks of going beyond "the binary world of pay/don't pay." He quotes Cosmin Ene of LaterPay: “Walking the walk would require a diversified approach to monetizing content, allowing individual sales and time-based models and not just trying to push towards subscriptions only. There is a whole universe living between ads and subscriptions.” True, but is this just a wider range of point solutions? Isn't there a more coherent solution? family of solutions that can effectively serve a wide range of readers all the way from casual to dedicated? that keeps publishers in a relationship with their readers all the way through each reader's life-cycle (the funnel into the loyalty-loop) as it grows (or not)?

How to get more readers "to love me"

To deal with this whole universe of readers in a coherent and effective way, publishers need to deeply rethink the fundamental economics and value propositions that underlie their relationship with each reader.

  • The problem underlying this narrow market for reader payments is not an inherent refusal to pay for news, but a problem of value propositions -- resulting from the rigidity of one size fits all pricing
  • For publishers it is a high all you can eat price, for Scroll it is a standard $5 shallow dive, up to the meter -- and for LaterPay and Blendle it is a high set price per article. 
  • Both publisher and Scroll subscription solutions may be bargains to some (not good for the publisher), but overpriced for many (also not good for the publisher, since readers cancel or never even subscribe), depending on usage any given month -- and LaterPay and Blendle are not very fair to any reader.
  • The "binary world of pay/don't pay" ignores the willingness of some (but not all) readers to accept some ads -- if they add value rather than subtract it, and if they get credit for their attention.
  • Adding a broader array of distinct point solutions will just confuse everyone.

Scroll and publisher subscriptions are nicely complementary, but both take a narrow approach to matching the price to an individual reader's value proposition. Scroll has a strategy that seems promising for the low side of usage, and publisher subscriptions are more or less workable at the high side, but, as Ken makes clear, both leave a big value-pricing gap in the middle. I suggest more variably-priced models are now workable and could be efficient and attractive across the full spectrum of usage.*

A more economically efficient solution would factor in usage -- not at a fixed price for any given article like LaterPay or Blendle, but rather, on a discounted sliding scale. Undiscounted per-article pricing makes consumers very fearful of the ticking meter, because it leads to overpricing and nasty usage shocks (which is why classic micropayment models have a history of failure). Conversely, even Spotify and Netflix (which publishers look to with envy) find that all you can eat subscriptions are underpriced for heavy users, and overpriced and shunned by many would-be casual users. That inefficiency is costly all around.

Why not a sliding scale of volume-discounted prices? Small numbers of articles would be at a relatively high unit price (much like LaterPay and Blendle, but preferably not that high), but increasing numbers of articles can be discounted to gradually approach the price per article that applies to a subscription -- less at moderate usage, but comparable at high usage. (And there could be price caps to avoid high-usage surprises.) Variable pricing may seem complex, but it can be made simple enough -- another post explains how this could be done for the very similar case of TV bundles.

This is really just a matter of value-based pricing, and of publishers taking more of the pricing risk from their readers. That will take new thinking and experimentation, but those risks are not really as great as the risk of not learning to apply a customer-value-first approach (for all of the reasons Ken outlines). The modern technology of customer journeys now makes personalized pricing very workable.

A shift toward more flexible pricing can also bring other important aspects of value and ability to pay into the picture -- to make prices fair for the fullest range of readers. Those who get high value and those who have high ability to pay can be reasonably expected to agree to pay more than those who get less value and who have lower ability to pay. Those willing to pay attention to acceptable levels of ads should reasonably expect a credit for that. Since replication of news is nearly free, the real objective to to get readers to sustain more creation -- and every contribution helps. Behavioral economics shows that people understand and respond cooperatively to that kind of logic -- if pricing is value-based, transparent, and framed properly. The FairPay strategy outlined on this blog points to new ways to do that efficiently on mass scale.

Love is a two-way street

Do better at offering each reader the value they want, at a fair price for each of them, and maybe publishers will find much more often that "somebody loves me."

After all, pricing, like love, is "a two-way street" (more songs). If you want someone to love you, you must think not of what they can do for you, but of what you can do for them. You must view your customer relationships (and how they center on value) through the eyes of the customer. Publishers still have far to go toward a customer-value-first mind-set, but the general direction is clear.**


For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at There is also a guide to More Details (including links to a video).

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

*Set pricing is a relic of the age of physical newspapers -- now obsolete. Readers got entire newspapers delivered (or at a newsstand). (And a few other readers bought single article reprints.) Not much opportunity there to price based on personalized value. But now news is an experience good, accessed on-demand from the cloud, in highly individualized usage patterns that are tracked in great detail. Value is much more highly variable, and no longer hard to determine.

**Another hint of progress is in the Google announcement yesterday about their efforts to cooperate with publishers on more flexible and simple subscription models. The Times quotes Google as moving from "one-size-fits-all" models, and as "looking at ways to help people subscribe to publications more easily, including using machine learning to help publishers tailor options to a reader’s preferences and behavior." But again, the big question is whether this gets applied with a publisher-first mind-set, or the customer-value-first mind-set that is really needed.

Monday, September 25, 2017

Open Letter to Robert Iger on "Designing" the ESPN Fan's Experience

Robert Iger of Disney recently made a very interesting statement about where ESPN will be going:
You'll be able to pick and choose over time what it is you want, it won't necessarily be a one-size fits all. … the goal eventually is to create something that a sports fan can essentially use to design what their sport media experience can be. will be able sport, a sporting event, a season, a league, maybe a conference.
This represents a big step forward -- but it is just a beginning. I assume this means not just old-fashioned a la carte (at single-item prices), but some kind of pricing for personalized bundles -- with bundle discounts that make the monthly cost reasonable.
  • That would be a step toward more customer-value-first thinking about selling digital content. 
  • It recognizes that the future of media is in building relationships with each customer that recognize that each customer is different, and needs a different package of value
  • ...and that each personalized package should be priced in the context of the relationship, not just as one-off transactions.
That is certainly a big step from where Disney and most media companies are now, but I am hopeful that Disney is thinking still farther ahead, to the next step -- also a big one.

Not "to design" -- the way to design is to be

That next step forward will be to recognize that the sports fan does not want “to design what their sport media experience can be” – they just want it to be what they want it to be. Designing it is a hassle -- and has risk. How can a fan know what they want their package to be until the time comes? Good post-pricing can let them just experience it as their desires take them, then pay a reasonable price (after the fact). That removes the hassle and risk of “designing” the experience in advance.

According to The Way of Life, the founding wisdom of Taoism, "the way to do is to be." If we try to design how we will be, that is distracting, and makes it hard to "be here now." Of course it is desirable that ESPN move toward letting fans "design what their sport media experience can be." But they don't really want to have to think about designing it, and they can't really know in advance how they will want to design it.

Reducing the pricing risk

So what fans really want is to just let their experience be what they want it to be -- as that varies through time and circumstance -- as long as they have some confidence they will not regret how much it costs.

The challenge is in enabling that confidence. We do a poor job of that now, but we can do much better, by applying more flexible and adaptive strategies for setting prices.

Now:  Current subscription bundles for TV (and other kinds of content) require customers to pre-select a bundle of services they will pay for -- excluding other services they don't think they want to pay for (during that pre-selection). For cable TV bundles, that defines which channels I can and cannot watch. For the new ESPN service, it may be which sports, leagues, or teams I can and cannot watch. Of course I may have a good idea of what I expect, but things change over the course of a season. Some things get less interesting and some more interesting, in ways that are unpredictable.

Soon?: A relatively simple "post-pricing" strategy that I have proposed -- "post-bundling" -- sets a framework for finalizing prices after each month of viewing, but still applying volume discounts and price caps comparable to those for a conventional, pre-set bundle. That would enable ESPN to retain full control of how it prices these bundles, but give the customer free range, run-of-the-house access to compose the bundle on the fly. The experience could just be, with a level of confidence the price will be reasonable. (Perhaps I am just reading what I want into that quote, but I hope that is what Iger plans to offer.)

And beyond?:  A further step toward letting the experience be, with assurance the price will be fair, is something like the FairPay strategy. That recognizes that the value of the experience is co-created with the customer, and that only the customer knows how much value they actually obtained. That depends on how they watch (engagement, replays, etc.), who they are, what they value, and their ability to pay. The business can infer some of that (from usage stats and other data), but some of it is known only to the customer. To achieve a level of value discrimination that fully takes that into account -- to set prices that neither leave money on the table nor exclude customers who could be profitable -- the customer must participate at some level in how the price is set. FairPay offers an architecture for variable levels of customer participation -- at the discretion of the business. The business can maintain more or less strict control (for customers it lacks confidence in), or can give up various degrees of control (for customers who prove they use their power fairly). This blog and my book explain how that can be done in a relationship that works as a repeated game -- a game that motivates cooperation over a relationship, based on trust and reputation.

I do not know what Disney plans to do, but the ideas I suggest here have been out there -- in Harvard Business Review, on my blog, and in my book, and in other publications. Many of the underlying concepts of customer-value-based and participative pricing are becoming widely accepted as best practice. I have had discussions (at least elevator pitches) with top executives at many of the largest media companies, and many consultancies. Many are already tuned in to these general directions and excited by the prospects, at least to some degree. Most find the new ideas in FairPay thought-provoking. They recognize that it will take time, testing, and adaptation, but see the potential to change the game (at least in some business sectors and market segments).

I take this as a sign that Disney sees the importance of this vision at the highest levels, at least in part -- it sounds like they are moving in the right direction. I hope they will fully commit to the customer-value-first path that enables each fan's experience to be what they want it to be -- with the freedom and flexibility they want, and with high assurance that the price will be reasonable. That means working with each unique customer, individually -- not just offering one or a few "one-size fits all"cop-outs. Disney has shown at least some research interest in pricing innovation along these lines -- including seminal work with leading scholars.

Many businesses are beginning to think along these lines. The path will take work, and experimentation, but the rewards are compelling: happier and more loyal customers, and more of them -- yielding more customer lifetime value -- on average, and in aggregate.  Those who move early and well stand to gain the high ground of a loyal customer base.


For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at There is also a guide to More Details (including links to a video).

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

Wednesday, August 16, 2017

The Missing Piece of the Membership Puzzle -- Agreeing on Value for Each Member

Journalism and many other digital content services face an existential threat to sustainability, and are rightly looking to membership models as a possible solution. Consumers are questioning their value propositions, and advertising and sponsorship models are highly problematic for quality journalism as well as many other kinds of creative content. 

This post looks at the membership puzzle and suggests that the missing piece is a new economic logic for membership that personalizes individual member value propositions. I write in terms of journalism -- as a special, and especially urgent use-case -- but similar logic applies to many other forms of creative content as well. As you read "journalism," think also of music, literature, video, art, or any form of content as a service. Similar models are also referred to as patronship models, and often make use of crowdfunding platforms (like Patreon and IndieGogo) that support ongoing creative efforts

[Update 8/17/17: NiemanLab reports on Press Patron, a patronship platform that is specific to journalism.]

[Update 11/16/18: The Correspondent launched in the US with a "choose what you pay" membership model. I commented on that, applauding the customized pricing, and suggesting some next steps related to nudging, and making membership "risk-free".]

The economic logic of membership sustains ongoing value creation efficiently if and only if each member feels that the price he or she is asked to pay for membership tracks well to the value he or she gets from membership. No matter how great and how engaging the value of membership, if the price to each member is not reasonably well aligned with that individually perceived value (as a fair share of wallet), the solution is ineffective.

The survival of journalism -- a guiding principle
The survival of journalism is too important to be left to the journalists! ...unless they refocus on the business and individual value propositions of journalism.  
Journalism is a service -- to individuals and to society. The current existential crisis in journalism is primarily a crisis in the economics of that service. The solution is not just better journalism (important, especially in the age of "fake news") but better economics (essential).
Finding the answer to this crisis is complex, with numerous pieces to be fit together. Many are considering this puzzle and seeking new paradigms, including "membership" -- a more relationship-oriented view of recurring subscription services that focuses on supporting them primarily by member payments (often voluntary payments) -- which requires making these services smarter, more cooperative, and more customer-first.

These efforts have identified many important pieces of the puzzle, but there is a unifying piece missing. I center on the economics of individual member relationships as the unifying piece that aligns the other pieces into their proper place, and outline some strategies for shaping that central piece.
Value exchange is core to the missing piece. That it is not simply a matter of making journalism more valuable. When a value exchange relationship involves a price, value is sustainably exchanged only if the price is right for the individual customer. That requires that value be quantified into a price, and that price be tailored to that customer. 
The missing piece is to build a process of co-creation that looks beyond the co-creation of "valuable" journalism as a thing in itself, to the nature of the co-creation of that value in economic terms, and to use that to continuously optimize the pieces to be offered to each member. The currency for this economic value of journalism is money. Creators of journalism need fees from their members to survive and continue to co-create journalism with them. Each member is different. The fundamental economic question is what should the fees be for each member, as that varies over time. It is widely recognized that trust and transparency are key elements of membership services, and I suggest that financial trust and transparency are critical to that.

For each member, we need to find a balance of value received and value given -- and to do that by adjusting the amount of any monetary payments made.
  • Without a clear understanding of the value each member perceives from the features and activities of their membership, managers of member organization are flying with blurred vision and disconnected controls.  
  • Value varies from member to member and from time to time.
  • Individual member value perceptions are determining factors in how all of the pieces should fit together for each member.
This question of individual value underlies all the decisions of what journalistic value to create, who to deliver it to, and how to manage that.
  • The old walls between the business of journalism and the craft of journalism were relevant to advertising-based journalism that needed so-called walls between "church and state" to protect journalism from pressure from advertisers.
  • Those divisions are now impediments to a reader-supported journalism business that needs to understand the dynamic and individual value exchange with the readers (members) who it asks to sustain this deeper co-creation.
While much is changing as journalism seeks to reinvent itself for the digital era, this division is deeply entrenched -- both in large established publishers, and in newer "membership"-oriented publishers.

Large news publishers are beginning to take a more business-like view of value, but often not in a very customer-first or relationship-oriented way. Directions such as those outlined by David Skok's astute NiemanLab prognostication -- and being pursued by many large publishers -- view journalism as a product to be priced using a dynamic meter, at a transactional level (often per article), drawing on the lessons of analytics-based dynamic consumer-goods pricing. While effective in many contexts, this zero-sum game is antithetical to trust and transparency, and a dead end for journalism. It may help bring in revenue from a diversity of very occasional readers, but does not build real relationships with the regular readers who are the main reservoir of sustaining support.

The membership model moves toward a more member-first, relationship-centered, co-creative view of the value proposition, but does not yet give that a necessary grounding in the core issue of member-specific value exchange. Much attention is being given to what pieces to offer and how to fit them together, to make them most valuable -- but this key piece seems to be largely missing:  value propositions have two sides: what value, for what price.
  • High value at a price that is not perceived to be commensurate to that value (for a particular member), is not really high value. 
  • Member programs are still mostly based on a one-size-fits-all price (even if that price is voluntary). Sometimes membership plans are tiered with different prices for different packages of services, but still that is generally a given package for a given price. 
  • Data on how individual members perceive those prices is very limited, and there seems to be little attention to developing that data on an ongoing basis so it can be used to continually and systematically refine what product mix is offered, to which members, when.
Membership models are based on the understanding that readers (at least a significant portion of them) should pay for the journalism they want. We can do a great job of identifying who to engage about what, and what to offer them -- but if it all devolves to a single pre-set price of membership (even if it is voluntary), we have failed to find the right value proposition.

To solve the member puzzle we need to do the best we can at managing the value propositions offered to each member -- and that centers on managing prices individually:
  • knowing how each member values each available piece/service, as well as the synergistic values of the ongoing services more broadly
  • letting the members select the pieces/services they most value (with respect to price)  
  • adaptively and dynamically adjusting the prices to meet the desires of each member (to the extent they can be profitably served), as they change over time
  • and, whether or not payment levels are voluntary, intelligently nudging each member to be appropriately supportive.
No matter how well you solve the membership puzzle, sustainable success will be all about the value that members feel they are getting -- and whether they feel they are paying a fair and affordable price for that. Some will be generous patrons of journalism, not just for themselves but for the community -- while some will be less generous, depending on their desires and means. With digital content that can be replicated at negligible cost, even those who are just marginally supportive can add sustaining profits.
  • If the price for the value proposition seems too expensive (too much share of wallet), a prospective member will not join or pay (or if they do join or pay, will not be retained) and their contribution will be lost. 
  • If the price for the value proposition is too low for a given member (less than their fair share of wallet), sustainability will be starved. 
What I propose is a new perspective on the economic aspects of the membership relationship. The core of that perspective is that (1) the basis of the journalistic relationship must be economic, and (2) that economic part sustains ongoing value creation if and only if each member feels that the price he or she is asked to pay for membership tracks well to the value he or she perceives from it. No matter how great and how engaging the value of membership, if the price to each member is not reasonably well aligned with that individually perceived value (as a fair share of wallet), the solution is ineffective.

I describe methods for continuously seeking to maximize that alignment in this blog, and in my book. More on that below, but first, some background on membership models.

The Membership Puzzle Project -- a social contract based on trust and transparency

The Membership Puzzle Project (MPP) is a new and important effort to solve the problem of finding a sustainable path for journalism. It seeks to learn from a growing body of success stories in which publishers seek deeper relationships with their readers by becoming "customer first" and seeking new, more cooperative, and more individualized ways to co-create value. I have exchanged emails with the MPP team (an extract is below), and hope to meet with them soon. I have volunteered to contribute to that effort because my work on advanced, adaptively win-win forms of subscription/membership models is very relevant to the project objectives.

The MPP is a laboratory project led by Jay Rosen's team at NYU (along with De Correspondent, an innovative Dutch publication looking to create a US edition) -- supported by $515,000 in funding from three prominent foundations. While this project is specific to journalism, I expect it to provide lessons relevant to digital content services of all kinds.

As stated on the project's about page,
So where is the sustainable path? It seems increasingly likely that readers who value a public service press are going to have to sustain it themselves – by contributing money, sharing knowledge, and spreading the word. A good term for this is membership. But membership won't work if it's just begging for cash. There has to be a social contract between journalists and members. Working out what that contract should say is the core challenge of the Membership Puzzle Project.
In a more recent report, "Members made a moral decision: this is something I should support."

Notice this "social contract between journalists and members." Much of what I see discussed about this social contract involves aspects of the substance and process of collaborative journalism (as outlined in this MPP post) that I am no expert in. But Jay Rosen's NiemanLab article makes it clear that a core aspect of that social contract is the "'pay' model" and whether it works "to maximize trust in a 'readers pay the freight' model." This blog, and my book, are focused on emerging strategies for doing just that.

Trust is not enough -- trust depends on value

Membership projects rightly make much of the importance of trust and transparency as central to the relationship of journalists to readers/members. A recent update by Jay Rosen, on their interviews of De Correspondent members, reports that "Trust through transparency is almost universally seen as a key principle...It shows respect for the reader, and it invites their participation, not just their attention."

That is vital, but trust in the journalistic reporting/creation process is not enough -- trust depends on value. Misaligned value weakens trust. Conversely, trust enables the transparency, responsibility, and fairness needed to agree on value. Seemingly arbitrary pre-set prices detract from perceived value and compromise trust. Even when such prices are voluntary, the process of setting prices and framing the value in the value proposition can add or detract from trust and transparency -- and from revenue.

Other current membership/patronship efforts -- in journalism ...and more broadly

The MPP builds on numerous ongoing efforts to develop membership/patronship models, both relating to journalism and more broadly. NiemanLab features Shan Wang's reports on a variety of them, including the News Revenue Hub's efforts to help news organizations in such efforts. Even well-established major publications like the Guardian are trying membership models (a voluntary, but pre-set, $84/year). Other similar ideas are being applied to a wide variety of other kinds of content.

Notably, some are supported by widely used platform services, such as those offered by Patreon and IndieGogoBen Thompson's Stratechery adds perspective, and expands on the importance of platforms to simplify and pool the mechanics of the back-end tasks needed. Much of the mechanics of FairPay that I describe here could be similarly offloaded to a platform (and some platform providers have shown interest), but whatever the back-end, the fundamental focus on member value remains core to journalists or other creators.

Valuing the pieces of the puzzle

What should the price of membership be, and how insistent should a publisher be about that? The recent update on member interviews by Jay Rosen notes that while De Correspondent charges €60 for its voluntary membership, many members said they would pay much more, €100 to €150, even though they acknowledged that asking for that much up front might have kept them from signing up. Wiktribune takes a more discretionary approach, allowing members to pay what they want. But in any case, the question is how to entice members to pay their fair share -- and to make them feel good and trusting about it, so they continue to do so.

Some of these efforts recognize the diversity of member needs by providing for multiple tiers of membership (or similar forms of patronship), often with different rewards. That is smart in recognizing that different members seek different value propositions. But it gets very complex, and the problem of individual variation is that managing this diversity (both from member to member and from time to time) gets intractable (and just leaving it to member whim risks erratic results). I addressed some examples of that in a previous post, and an interesting NiemanLab review of public media membership efforts by Melody Kramer shows just how complex this can get, (and how far afield of the core value propositions of a service -- tote bags, T-shirts, and coffee mugs -- it can devolve). Pre-set tiers are just not very workable. We need a more dynamically personalized and continuously adaptable approach.

Operationalizing member feedback -- continuing dialogs about value
Think of the membership puzzle as analogous to a jigsaw puzzle that is different for each member -- and so must be solved anew for each member. A puzzle that does not picture value (as seen by the member in question) is like a jigsaw puzzle turned upside down, so that we cannot see the desired pattern of value we seek to solve for. Not being able to see the picture makes solving the puzzle extremely hard.
Another recent post from Emily Goligoski of the MPP highlights the challenges of understanding these value propositions:
Many membership program details are treated ad hoc and roughly benchmarked to competitors’ offerings (a line of thinking that goes if the other station in town costs X per month for members and if subscribing to Spotify costs Y, then we can charge…). Most media companies don’t carefully plan the details of their social contract, including pricing and participation asks.
And this is not just a static problem. Keep in mind that that the puzzle for a given member this month may be very different from the puzzle for the same member last month. The reporting and features change, and the member's needs, attention, and desires change. To really solve this puzzle, we must evaluate the value proposition more or less continuously. Periodic member surveys (such as those being done as part of the MPP as a project effort) are an excellent start, and are current best practice. But I suggest that is just a start.

This is something that FairPay seeks to make routine, and to operationalize it into an ongoing feedback control process that is integrated with the payment request process and the creation process (in an adaptively lightweight way), in the form of ongoing dialogs about value. This ongoing operational feedback from members integrates not only with financial operations data, but also with the core operational data and analytics about member usage. This combination of data and analytics enables ongoing optimization of what services are offered (journalistic and more broadly), to what members, when.

Solving for Value -- A new social contract based on an invisible handshake

FairPay provides strategies for setting pricing and value propositions that can form the core of a new social contract for journalism. While this new logic can be approached in stages, the full form of it is that the publisher offers this social contract:
  • We seek true partners in sustaining the co-creation of journalism for you and our other readers.
  • We will seek to involve you in what we co-create with and for you, to provide you the services you most value.
  • We will permit you to participate in setting prices that correspond to that value -- considering what you get from us, what you contribute to us, and your ability to pay (and how those factors may change over time) -- in order to support our continuing work.
  • We expect you to be fair about that, at whatever level makes sense for you and is fair to us.
I call this social contract an invisible handshake, because unlike the invisible hand of traditional economics (that allocates scarce resources, in this case, news stories, to match demand at a given time), this social contract is about an agreement to find and maintain an equitable relationship:
  • Digital news stories (and subscriptions to them) cost almost nothing to distribute, so are not scarce and cannot be priced by the invisible hand. 
  • What is scarce is the fair share of a reader's wallet that is needed to continue to co-create more news stories
  • Any social contract that does not address payments is un-moored from the economic reality of sustaining journalism. 
  • Because individual members vary widely (and over time), a social contract that expects all members to pay the same price (and a constant price) is bound to be unfair to either the member or the publisher in most cases.
The challenge to this social contract (the invisible handshake) is that different readers (members/subscribers) perceive very different value propositions, and the fair price of membership will vary from person to person (and from time to time) in ways we currently do not get data on. While much of the information needed to assess actual value (as realized in use) can be inferred passively, key aspects of value perception can only be obtained from the beholder. The fair price depends on the nature of their experience, their willingness to pay, and their ability to pay. A publisher can seek to influence these personal aspects, but the final reckoning is best done:
  1. after each cycle of experience, when value is most fully known, and
  2. with the input of the customer, who has unique knowledge of the value as experienced.
FairPay offers a new strategy for enabling publishers to estimate these fair pricing factors through individual dialogs with members about value -- and for doing so repeatedly over the course of the relationship. An explanation of how this can be done in the context of journalism is in my post, Patron-izing Journalism -- Beyond Paywalls, Meters, and Membership. More on the mechanics of the core process, and how it builds cooperation to converge on fair pricing, is in my post, FairPay Changes the "Game" of Commerce. (These posts present the full form of FairPay that balances the pricing power of members with controls by publishers that seek to ensure minimum fairness to the publisher -- but for membership programs that prefer the greater openness and trust of a purely voluntary pricing regime, there is a simplified variant of FairPay that supports a Voluntary Payment Mode. That variant uses similar strategies for nudging members toward fairness, but without enforcing any minimum fairness level.)

Don't panic!

While FairPay may seem complex, it can readily be simplified and reduced to habit, to the point that it becomes largely automatic except when adjustments are needed, as outlined in Profiting from Habit -- Seamless Monetization. It may also seem that consumers may be inclined to be uncooperative and seek to game the system, but FairPay can be initiated for just those segments who will be most amenable, and even eager to cooperate (which is where membership models work best anyway), and then expanded from there, as outlined in Finding Good and Fair Customers -- Where Are the Sweet Spots?

Proven success with value-based pricing -- and value-based relationships

FairPay draws on the concepts of value-based pricing that have already proven very successful in many B2B businesses. It combines three key aspects that are essential to proper estimation of fair prices for individual readers:
  1. Post-pricing: Delaying final price-setting until after the experience, to enable the price to reflect the actual nature of the experience (what stories are read and engaged with, at what level and intensity, with what results).
  2. Participatory pricing: Involving the reader in assessing the perceived and personal aspects of the value exchange (value perceptions, outcomes, interests, objectives, priorities, tastes, as well as willingness and ability to pay).
  3. Bi-directional value propositions: The flow of value is not uni-directional (value to the reader and cash to the publisher). Often value flows in reverse (as Jeff Jarvis suggested), from the reader to the publisher, in the form of participation in journalistic creation, user-generated content, attention to ads (if any), use of personal data, and the many other forms of reader value contribution that are now increasingly recognized as part of the membership puzzle.
To the extent that a pricing process factors in all these aspects, it enables what I call value differentiation. Related to the traditional economic ideal of price discrimination, value discrimination seeks to find the right value proposition for each customer.
  • Price discrimination theoretically leads to an economically optimal price that maximizes revenue -- but it does that in ways that are are narrowly zero-sum and often secret and manipulative, and not reflective of the broader co-creative interests of both the publisher and the reader (detracting from trust and transparency). 
  • FairPay shows how the broader objective of value discrimination leads toward prices that seek cooperatively to optimize the value exchange in a much larger sense -- enabling us to factor in individual human and social values (to the extent mutually agreeable). This brings into the equation the social value of journalism and the need to sustain it, as well as the broader and more personal values of the reader, and solves it in a win-win, cooperative way that builds trust and transparency. 
The key point to remember is that we are not paying for current stories -- we are paying for a relationship that will continue to bring us stories -- doing investigative journalism, and providing other ongoing services in the future. That is the social contract, and its pricing must reflect that.

FairPay is a flexible architecture that a publisher can apply with any of a wide range of policies. Negotiated levels of fairness can be achieved under policies that give the publisher more or less control, using as strong or light a hand as desired. In any case, the strategy is for the publisher to seek to nudge members toward fair (or even generous) levels of sustaining support.
  • At one extreme member payments can be entirely voluntary (pay what you want -- or, more accurately, pay what you think fair) -- and at the other extreme strict fairness minimums can be enforced (mandated prices). 
  • The right choice will depend on the nature of the service and of its membership (and on the sophistication of the system implementation, which can start simply and be enhanced over time). 
  • For journalism, a balanced soft touch is likely to be best, with significant member discretion, but reasonable levels of individualized nudging for each member to to price fairly (for them)
Climbing the ladder of value

The full FairPay process applies rich dialogs about value -- but we need not apply all of its methods (post-pricing, participatory pricing, and bi-directional pricing) to see improvements in value propositions. All pricing methods can be ranked along a "ladder of value," based on the degree to which they apply these three aspects of value differentiation to find the right value proposition. By working our way up the ladder, we can improve our social contract incrementally. Some thoughts on how conventional pricing strategies can be ranked on this ladder of value are in my post, Finding Value in The Subscription Economy (I plan a more nuanced update that addresses all three aspects).

JaaS -- Journalism as a service, not a product

As is highlighted by membership models, many are coming to realize that journalism is not a product but a service, and that those services are not created by journalists alone (to be thrown over the transom at readers, for a price), but must be co-created with readers (at least in part). This parallels a broader awakening in modern marketing.
  • Many marketers are simply applying better technology to old ways of thinking, to apply old logics more efficiently (such as dynamic pricing, as set unilaterally by sellers). Unfortunately, that is a zero-sum logic that that kills trust.
  • The more seminal trend in modern marketing is a shift to a new logic. Many scholars and forward-thinking businesses have recognized that our traditional Goods-Dominant Logic (in which goods are produced by producers and then sold to consumers) is no longer relevant, and a that a Service-Dominant Logic (in which services are co-created, in a win-win process) is far more relevant and powerful. As noted above, membership models take a perspective that is very aligned with Service-Dominant Logic. I propose that value is central to this (Value-Dominant Logic).
Journalists would do well to understand this new logic of services that are co-created -- to see how broadly it can re-shape their view of their profession -- and lead to sustainable success.

Adding value to The Membership Puzzle Project

I hope the MPP team -- and others dealing with these problems (in journalism, and in other fields) -- will take a good look at these economic, business model issues -- issues of personalized value. I stand ready to assist in that.

FairPay is an open architecture, not a product, and I am working on this as a pro-bono project (in collaboration with eminent marketing scholars who can assist with trials). As noted above, even when the full FairPay strategy is not used, understanding the ladder of value can help chart the path toward solutions that get closer to the efficient value differentiation that is needed to make journalism (and other content creation enterprises) broadly sustainable in this new digital era.

More about FairPay

A brief introduction is in Techonomy"Information Wants to be Free; Consumers May Want to Pay"
(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.)

Background on how the FairPay relationship pricing strategy can transform the sustainability of journalism:
FairPay is unique in bringing new operational approaches to content businesses in a way that deeply aligns with emerging principles of marketing strategy, with strong foundations in behavioral economics.  It is a new approach to setting value-based prices for digital content (“experience goods” that are really services, not products).  This brings a deeply “member-first” approach to the operational basis of customer/member relationships.

An extract from my 3/20/17 email to Jay Rosen on the Membership Puzzle Project:

FairPay is fully aligned with, and can extend, the principles that have motivated De Correspondent -- and can point the way for others.
  • It solves the “membership puzzle” with a personalized, adaptive architecture that coexists with set-price models and encourages free viral spreading.
  • It enables memberships to be automatically customized to the interests and values of each member, founded on trust, value, fairness, and ability/willingness to pay.
  • It is driven by ongoing “dialogs about value” with each customer that take De Correspondent’s ideas about dialog to the core of the value exchange.  These include dynamically personalized value propositions (with reverse metering options to factor in the broad range of member contributions to value such as UCG, story leads, feedback, etc., and a rich concept of value that includes broad journalistic values).
  • The dialogs about value directly link members’ financial support to value --  what journalists do, in what domains, and what else is offered -- in a way that drives sustainability of the publication and deepens engagement -- at a fine granularity that optionally can be a factor in individual journalist compensation and their relationships with their “fans.”  It focuses on real value, not T-shirts.
This enables membership fees to be adaptively customized to reflect each member’s situation, as it varies over time:  how much they read, how much they support costly journalism, what they contribute back, and their ability and willingness to pay.  FairPay seeks to approximate optimal price discrimination, so that some members might pay much less that average, while others might pay much more, but with transparent agreement that it is a fair value exchange (and contribution to sustainability) for them.  This can broaden the reach of membership to a wider population of casual readers, and deepen it for “superfans.”