Thursday, November 15, 2018

"Information Wants to be Free; Consumers May Want to Pay" -- My Article in Techonomy

Techonomy has just published my latest article on rethinking how to sustain information businesses.
  • It examines the challenge of our age: reconciling the abundance of “free” digital content with the cost of creating valuable content.
  • It outlines a new way to do that by building win-win relationships that re-establish a "social contract" for cooperation, trust, and transparency -- to nurture customer lifetime value (CLV).

Tuesday, November 13, 2018

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

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

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

The problem as we now conceive it

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

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

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

The pricing theory of relativity -- removing surprise and fear

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

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

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

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

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

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

Subscription hell -- the case against flat-rate subscriptions

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

Relationships and share of wallet -- a unifying perspective

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

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

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More about FairPay

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

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

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


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

Friday, November 9, 2018

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

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

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

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

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

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

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

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

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

Mass-customizing price over subscriber lifetime

OK, how can they do that?

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

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

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

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More about FairPay

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

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

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


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

Monday, October 1, 2018

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

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

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

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

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

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

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

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

------------------------
More about FairPay

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

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

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

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

Tuesday, August 28, 2018

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

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

The story so far

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

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

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

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

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

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

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More about FairPay

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

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

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

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

Friday, August 17, 2018

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

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

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

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

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

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

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

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

------------------------
More about FairPay

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

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

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

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

Wednesday, August 15, 2018

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

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

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

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

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

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

------------------------
More about FairPay

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

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

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

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

Tuesday, June 26, 2018

An Open Letter to Influencers Concerned About Facebook and Other Platforms

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

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

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

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

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

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

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

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

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

Friday, June 22, 2018

Upending the TV Pricing Model -- Why Pay For What You Don't Watch???

AT&T reportedly will "upend the established model in which cable and satellite-TV companies pay programmers fees based on how many subscribers have a channel accessible in their bundle, regardless of whether they watch it." AT&T's new "'skinny bundle' of channels" will be free to subscribers on unlimited data plans Drew FitzGerald reports in the WSJ, and "...the free version that comes with unlimited-data plans would only count subscribers that spend significant time using the app, according to a person familiar with its plans."

This seemingly simple change represents an important break from tradition -- a necessary step toward more sensible, value-based pricing models for TV/video. It opens the way for a variety of new consumer-value first pricing models.

I have written about why this is urgently needed and where this should go, in “Post-Bundling – Packaging Better TV/Video Value Propositions with 20-20 Hindsight.”  Updates to that post explain why this is increasingly a life or death issue for pay-TV providers.

("Post-bundling," alone, is a fairly straightforward half-step toward the much more advanced customer-value-first models suggested by my FairPay strategy -- as also noted in that prior post.)

Let's hope this crack in the dam of tradition will lead to an increasing range of better offerings.

Thursday, June 14, 2018

Cool Hand Zuck -- What We Have Here is Failure to Innovate / Looking Toward a Better, Fairer Future

"Senator, we run ads" -- "Facebook's fundamental problem? Mark Zuckerberg can't innovate"

As one who has been a voice in the wilderness -- not only suggesting the need for new business models (as do many*), but actually proposing a new approach described as “an innovative and visionary methodology” that "promises to transform business" -- I have been captivated by the Facebook fiasco, and how much of it centers on the ad model as "the original sin of the web."

Many have pointed to the ad model as Facebook's fatal flaw, and called for more creative business models. This week's Wired UK opinion piece by James Williams provides a particularly concise and current summary of the issue -- and of the stubborn denial of its importance by "the billionaire CEO of a media platform whose design constraints shape the daily thoughts and actions of over two billion people."

Williams pointedly analyzes Zuck's stance in responding to Tim Cook's recent criticism (my emphasis added):
“You know, I find that argument, that if you’re not paying that somehow we can’t care about you, to be extremely glib and not at all aligned with the truth. The reality here is that if you want to build a service that helps connect everyone in the world, then there are a lot of people who can’t afford to pay. And therefore, as with a lot of media, having an advertising-supported model is the only rational model that can support building this service to reach people. [...] If you want to build a service which is not just serving rich people, then you need to have something that people can afford.”
“An advertising-supported model is the only rational model” – is this not a remarkable statement coming from a titan of innovation, especially one in an industry where disruption of the status quo is often viewed as inherently valuable? Imagine if an automobile magnate were to declare, “The internal combustion engine is the only rational means of locomotion”. Or if a scientist were to claim, “A p-value of 0.05 or less is the only rational standard for statistical significance”. Or if the lord of a medieval manor were to state, “Serfdom is the only rational model for enabling the masses to subsist”. It’s remarkable how quickly one can lose one’s imagination when power and money are on the line.
The obvious spin in these arguments can be easily dispensed with. No one is arguing that the advertising business model inhibits employees’ ability to care about users; rather, the argument is that it creates organizational priorities that incentivize downstream designs which run counter to users’ interests — regardless of how much individual employees might care about users. As W. Edwards Deming said, “A bad system will beat a good person every time”.
We can also sidestep several false assumptions that are doing background work here. For one, people already do pay for Facebook: not with their money, of course, but with their time and attention. Second, if Facebook were to charge its users money, Zuckerberg unnecessarily assumes that it would have to charge all its users money, and that this would need to be the only way anyone could pay for Facebook. Similarly, he assumes that whatever amount of money might be charged, only ‘rich’ people would be able to pay it...
How my suggestions for new business models add specificity to this issue in a moment, but Williams lays even deeper groundwork for that:
There may be an important implication lurking in this last point: Zuckerberg seems to be implying that ‘just serving rich people’ would not merely be undesirable in a business sense, but would in some way be unfair. Elsewhere in his interview with Klein, Zuckerberg admits, to his credit, that Facebook now in many ways resembles a government more than a traditional company. Its goal, he says, is to connect everyone in the world. And yet he has resisted the suggestion that this amounts to any sort of monopoly.
However, to the extent that his argument about the inevitability of advertising does rest on an appeal to fairness, would it implicitly grant the notion that users have no meaningful alternatives to Facebook? Fairness is a principle of justice, not typically a consideration among competitors in a market setting. For example, if Coca-Cola were to stop selling its products in low- and middle-income countries, we might say that it had reduced consumer choice—but would we say that it was unfair?
In any event, in the wider injury to both choice and fairness here exists in the fact that users have no meaningful alternative to a type of advertising that is fundamentally extractive of their attentiona type of advertising which, in the era of digital technology, has transformed into something else: a form of intelligent, adversarial persuasion. The ostrich-headed reluctance of Zuckerberg and others to seriously entertain any alternatives to it serves as one more reason why we ought to seek its urgent disruption.
Fairness as "a consideration among competitors in a market setting"

All very well put by Williams, and most notable to me is the very common assumption that "Fairness is...not typically a consideration among competitors in a market setting." That is the central assumption that FairPay challenges.

I have pointed out that fairness was actually typical as a "consideration among competitors in a market setting" until the last century or so. Competition in market settings was traditionally a very personal process, with significant elements of one-to-one negotiation in which fairness was a significant factor.

We are so accustomed to the impersonal but highly scalable alienation of modern mass-market businesses from their customers that we fail to grasp how new digital technology is enabling us to reverse that. Not to restore old fashioned negotiation at a transaction level (in which businesses are likely to retain an asymmetric AI and big data-fueled advantage over individuals) but at a relationship level (in which the game is inherently more equal, if enough customers insist on that, to make that the best path to sustained profit).

That is our deeper failure to innovate. Many business executives have heard about the alternatives I propose, and seen that FairPay's repeated game structure (a direct extension of proven methods) has intuitive appeal, and has support in behavioral economics and in the small successes of baby steps already taken in this direction. But, so far, all who have the resources to test this have fallen back on their assumptions that consumers don't really care about reciprocal fairness, and cannot be motivated to be fair. Like Zuckerberg, they do not even bother to test those assumptions in the face of competing short-term objectives.

But as with Zuckerberg as the most exposed offender, the rumble of the once distant drum of market fairness at a one-to-one level is getting louder for all of us. The time to test our assumptions about how we can use the technology of computer-mediated commercial dialog to find new levels of fairness between businesses and individual customers is upon us. FairPay is one promising architecture for finding the way -- if we find that is not quite the right path, we need to seek and test others.

But now is time to try to find a fairer one-to-one future. Our welfare and our very freedom now clearly depend on that.

How can we do that?

That is addressed in other posts on this blog listed here (and in my book and journal article below):

With respect to Facebook and other ad-based platforms:
More broadly, plus more about just how:

And some suggestions on starting with low-risk trials that can begin with low-hanging fruit:
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More about FairPay

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

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

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

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

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*A few of the notable calls for more creative business models for social media: