Reinventing Subscription Platforms With FairPay -- for Apple, Google, and others...

In the emerging battle of subscription platforms between the Apple iTunes App Store, Google One Pass, and others, the radically new FairPay pricing process offers a better way to play the game, one that benefits the platform provider, the seller, and the buyer in new ways.

As widely reported, Apple has the dominant position, and is using that power to pressure sellers, and claims to be making things good for buyers.  Google is seeking to be more seller-friendly, and to allow more freedom, which might ultimately be better for buyers as well. The larger issues relating to this battle promise to help shape how digital content is sold, and how a major portion of our economy evolves.

• Subscriptions are a critical battleground for competing platforms and business models, one that could set the ground-rules for monetizing digital content and services at the broadest level.  
• Subscriptions get at the heart of ongoing customer relationships, and provide an aggregation structure that works for a broad swath of content and services.
• Subscriptions relate closely to the major pricing alternatives of free and freemium.

FairPay is particularly relevant to subscription businesses, especially those based on cross-vendor subscription platforms (such as those offered by Apple and Google and others).

FairPay is based on some very simple principles, with the idea that what is needed in a revenue model, is not to choose the right price, but to create an adaptive pricing process.

1. Let the buyer set any price he considers fair after the sale (Pay What You Think Fair, post-sale).
2. Let the seller (or a collective of sellers) track that price and use that information to determine whether to make further offers to that buyer in the future.

Instead of a fixed price, this process generates a cooperative and adaptive series of pricing actions, each based on feedback on how fairly the buyer sets his prices. Using this buyer reputation enables sellers to go beyond freemium to offer adaptive hybrids of free and paid service.  FairPay can be used as a complement and enhancement to conventional fixed-price subscription pay walls: Those who pay fairly, rise above the pay wall -- those who do not, must face it. (A diagram of core steps in this process is in a previous post.)

In the context of a subscription, this process unfolds on a (more or less) month-to-month basis:

• As an alternative to the fixed pay wall, a new user can be offered a trial month of unlimited use of a basic class of service, on the basis that at the end of the month they will set a price for what they used, on a Pay What You Think Fair basis.
• The buyer will be told up-front that renewals for additional months will depend on whether the price they set is deemed fair by the seller.
• As the process continues after initial use, buyers will be asked to set their price, and could be given usage reports to remind them of what they used, and how that compares in quantity and value to typical subscribers. 
• The seller can frame the offers and the pricing requests with background on standard set prices, suggested prices, and typical FairPay prices actually set by other buyers, all with respect to the types and volumes of usage by the consumer (such as basic and premium tiers).
• Buyers can be encouraged to give reasons  for why the chose to price as they did, including low or high usage, low or high quality, low or high value realized, economic circumstances (student, unemployed, retired, business use), etc. (all or mostly multiple choice, for automated scoring).
• As long as the buyer sets prices that seem reasonable considering all these factors, the seller offers FairPay renewals, and the buyer enjoys the freedom of the FairPay Zone.  
• For those that fail to pay acceptably, it is back to the pay wall (at least for a time, possibly to be given another chance in the future).
• As this continues, each buyer establishes a FairPay Reputation that characterizes how well and fairly they pay, and whether they do so consistently or erratically.
• Based on this FairPay Reputation, the seller can upgrade or downgrade their subscription offers to include more or less premium tiers of content or service, and added perks.
• At the same time the buyer learns both the value of the service, and the expectations for fair pricing.
• As buyers establish good FairPay Reputations, the seller can extend more FairPay "credit" to include longer periods between pricing, and more value that can be enjoyed before it must be priced.

FairPay takes conventional approaches to subscription pricing and stands them on their head.

• The buyer, not the seller, sets prices (for himself, as a market segment of one). 
• The seller gates the offers to specific buyers, and thus manages the value at risk, at any given time, to each buyer.
• Pay What You Think Fair largely eliminates risks of buyer remorse.
• Price it Backward (after usage) further reduces risks of buyer remorse.
• Buyer price-setting accommodates a wide range of price sensitivities to ensure that anyone who gets reasonable value from a product/service can afford to buy it.
• Sellers need not cut off potential buyers (who may not appreciate the potential value), only buyers who have proven to not value the product (as realized) at an acceptable level. 
• The impossible task of setting a price that is "right" for all is replaced by the manageable task of understanding specific buyers and their sensitivities through a structured dialog.

Given its roots in Pay What You Want, it may take some thinking to appreciate how FairPay can not only result in acceptable prices, but actual profit maximization, and do this with needed simplicity.  Some deeper insight into this is provided in my previous post, Cutting the Gordian Knot of Price Setting: FairPay, Pay Walls, Hurdles, and Simplicity.

FairPay has even more power in the context of a cross-vendor subscription platform:

• FairPay Reputations for individual buyers can be tracked and applied across sellers.
• Sellers can maintain control of offer terms and gating, but manage this better based on a shared FairPay Reputation database.
• Sellers encountering a new buyer (to them) can see if the buyer has already developed a good or bad FairPay Reputation in relationships with other sellers, and frame their offers accordingly.
• Buyers know that their FairPay Reputation is a valuable asset, that enables them to get more and better offers, and that compromising that Reputation can have real consequences, by limiting future offers from other sellers
• The FairPay Reputation database becomes a valuable asset to the platform provider, attracting sellers, and creating a significant barrier to competitors. This can work much like a credit rating database.
• Consumer privacy can be protected by opt-in provisions, and by limiting what data individual sellers can see from other sellers (including the option of none at all other than a simple rating or go/no-go indicator).  

Of course, FairPay can be implemented by a single seller, for use just with their own subscriptions (as long as the platform does not prohibit that, as Apple seems to, but Google does not).  But the power of a common platform and a shared FairPay Reputation database greatly expand on that.

At both the marketplace platform and seller levels, FairPay creates a whole new way to achieve and manage a nearly optimal exchange of value.  FairPay thrives on:

• Ongoing buyer-seller relationships, as opposed to isolated one-purchase stands.
• Aggregation of items in subscription or other bulk purchase contexts.
• Rich dialog on product/service value (as it is realized by the buyer, and with respect to the costs incurred by the seller).
• Building a knowledge base on buyer FairPay Reputations (with full consideration to buyer needs, values, and circumstances).

FairPay processes and platform services can begin with relatively simple structures and criteria, to accommodate initial usage.  As platforms, sellers, and buyers gain experience and familiarity with how the process works, they can evolve toward increasing layers of nuance and sophistication in:

• How offers are managed and framed to users. 
• How prices are set, explained, and tracked.
• How FairPay Reputations are determined.
• Doing all of this with full consideration of all relevant factors and circumstances.

Additional background on the general concepts of FairPay, its grounding in behavioral economics, and its application in various business contexts is provided at the FairPay Web site, and in the many other postings on this blog.

An Open Letter to Radiohead and Seth Godin -- How to Make Much More Money

For those who have not noticed, Radiohead might be releasing another album soon, and Seth Godin is ditching his publisher and going direct. Both are in the vanguard of content disintermediation. This is an open letter to Radiohead and Seth...]

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I have a suggestion on how you (and others like you) can make much more money than you realize.

You both obviously know that by ditching the middleman and going straight to your public, you get a much larger piece of what you sell. And you both clearly know how to reach your public without the help of a middleman, and that you and your public are partners in a collaboration.

But what you probably don't know is how a radical new pricing process, a sort of Pay-What-You-Want (PWYW) on steroids, can significantly increase your total revenues -- and profits. Radiohead knows that PWYW can be a very effective way to reach your market, getting far more people to buy, and many of them to pay reasonably well. But both of you know that many pay nothing at all. ...PWYW is is participative, but flawed.

FairPay (Fair PWYW) is a radically new pricing process that builds on the flexibility and participation that PWYW offers to buyers, but motivates them to pay fairly. It works where there is an ongoing relationship of continuing sales, and tracks how fairly buyers pay. If they pay fairly, the seller continues to extend more FairPay offers to them. If they do not pay fairly, they lose the privilege of continuing to buy on a FairPay basis, and must pay a conventional set price for future purchases. Unlike PWYW, FairPay is a two-way dialog that creates consequences for not paying fairly.

Because of this cycle, this FairPay process may not work so well for single sales, like one album or one book, but can be very powerful for an ongoing series of sales. For example:

• Individual songs from a collection of albums, offered in series, one at a time, or in small bundles...
• Individual items from a catalog of book chapters, articles, podcasts, or videos...

The process begins with one of a few low-value items, to test how the buyer sets prices. If the prices are reasonable, a few more items are offered. As the buyer builds a reputation for pricing fairly, more FairPay credit is extended (but never so much that there is too much risk that the buyer is done and will pay nothing for a valuable bundle). So perhaps it might better be called Pay-What-You-Think-Fair, because that is the result.

I suggest FairPay can produce far more sales than any set-price offer, and far more revenue and profit than any simple PWYW offer.

• For Seth, this may be easy to apply now to the extensive library of materials you already offer, and have full rights to control.
• For Radiohead, this might work when you have at least a second album you have full rights to offer songs from.

This FairPay process can be even more effective if you can aggregate a larger collection of content that will sustain an even richer and more extended relationship with your buyers. This might be done by teaming up with other content creators who appeal to the same buyers, perhaps in a cooperative selling service. With such a deep (and preferably growing) catalog, buyers will have even more incentive to develop and maintain a reputation for paying fairly, and will generate more

offer-pricing-reputation

cycles for the feedback process to fully develop. The task of developing the FairPay e-commerce platform will be spread across more sellers, and the buyers' FairPay reputations will be shared by all of the sellers.

This could be a back-end service, so that you can keep your direct relationship with buyers, and you can sell to everyone interested in buying at a price they think fair -- and you control the offer decision process, to limit your exposure to the few buyers who pay what you do not think fair.

Much more detail is given elsewhere on this blog, and the FairPay Web site -- the FAQ is particularly recommended.

To Radiohead and Seth, I suggest you think about this. If you want to try it, I would be happy to assist.

To other content creators (including video, games, apps, software, etc.), I suggest the same. Think of this as the next step in C2C (Creator to Consumer) commerce.

To entrepreneurs and developers looking for a killer business opportunity, I suggest this is it. Again, I would be happy to help.

And to Amazon and Apple, of course you could do this too, as described in an earlier post. A FairPay Zone within your store could offer products from creators and/or publishers who agree to offer FairPay pricing, and you could facilitate the offer-pricing-reputation(-offer...) cycle.

FairPay for the App Store -- A Radical Pricing Process for Higher Revenue

FairPay, a radically new spin on Pay What You Want pricing (PWYW), could transform pricing for apps. It offers a way to let developers break through the "penny gap" to get a fair price, while giving buyers a high degree of freedom to set their own price.

Apps are becoming a huge business, but the vast majority of them are free. (A recent analysis suggests 81% of iPhone app downloads by volume are free, even though other reports indicate that only about 28% are free by title. This effect has been described as the "penny-gap" -- products go like hotcakes when the price is zero, but demand drops hugely when the price increases to just 1 cent. This makes price setting a major dilemma for app developers. (One attempt to solve this software pricing dilemma was "shareware," in which buyers could Pay-If-You-Want, at a suggested price, but that has proven only marginally successful.)

FairPay can provide a way to bridge this penny gap, using a radically new variation on Pay What You Want, one that still limits buyer risk, but strongly encourages fair prices to sellers. As described elsewhere on this blog, and on the Web, this new variation, FairPay (short for Fair Pay What You Want), uses Internet feedback on what buyers pay, in order to develop a reputation for fairness. The seller (or multiple sellers) then use this FairPay reputation feedback to decide whether to extend further offers to a user based on how fairly he pays. Thus FairPay does not just rely on innate buyer fairness, but looks over their shoulder to help give that sense of fairness real teeth.

(This process also applies to other digital content, as explained elsewhere. The case of e-Books is especially similar to this example of apps. That should be fairly apparent, but I expect to do a blog post more specific to e-books in the near future.)

This process works best with an ongoing buyer-seller relationship, so in the context of an app store, FairPay would be best implemented by the store operator (Apple or Google, or whoever). That way the FairPay reputation feedback is collected across all purchases by that buyer. This enables a dynamically adaptive cycle of offers, prices, feedback, and further offers that rewards those who pay fairly, and cuts off those who do not. I suggest that app store operators should try this (and I would be happy to assist in such an effort).

Such a FairPay pricing process for an app store can be quite simple.

• The store offers to let buyers try a small number of FairPay-eligible apps on a FairPay basis, with the understanding that the buyer can try the apps for a time, see if they like them, and then set whatever price they consider fair (post-sale PWYW).
• The full FairPay process would be explained in detail up front, so buyers understand that future offers will depend on what reputation they develop for paying fairly. Their alternative will be to pay pre-set prices for future app purchases. A suggested price for each app might be provided for guidance.
• The buyer tries the apps, then sets prices, and can indicate why they paid what they did. For example a buyer might explain that they were disappointed in a product, if that is why they decided to pay little or nothing for it. (Of course they can also say the love it, and elect to pay especially well.)
• The store then assesses the prices paid, and the reasons, and decides whether to offer that buyer more items on the same FairPay basis. Criteria might include consideration of app-specific suggested prices set by the developer, and the prices set by other FairPay buyers.
• Obviously those who pay well will get a continuing stream of further FairPay offers (as long as they continue to pay reasonably well). Those who pay well for some, and explain why not for others, might also get a few further offers (effectively on a probationary basis), until it is determined by the store that they either do or do not pay fairly in general.
• Those judged by the store to generally not pay at an acceptable level can be cut off from further FairPay offers, and restricted to conventional, set-price prepaid sales (at least for some time, possibly extending a second chance to try FairPay sometime in the future).
• The cycle continues, based on these evolving FairPay reputations. The longer this process runs, the more meaningful the FairPay fairness reputations of the buyers, and the better able the store and developers are to manage revenue and risk, by controlling what offers are made to which buyers.

Presumably the store would implement and manage this process as a platform service, enabling developers to opt in to offer their apps on FairPay terms, typically in combination with the alternative of conventional pre-set prices. Developers might set suggested target prices and other evaluation parameters, and could change those parameters or opt-out, depending on results.

The result is that FairPay can be a win-win solution for both the developers/stores and for the consumers:

• Buyers will feel more respected and empowered by the added trust and flexibility.
• Some will pay less than the standard going rate, but some will pay more.
• Many who might not make a conventional paid purchase (because of the penny gap) might be willing to pay something reasonable for a FairPay purchase, once they can see that they have gotten a useful app -- the penny gap is smoothed over, and the developer and store get more revenue.
• Developers need not feel they must make their apps free in order to attract buyers (since FairPay gives a try-before-you-set-the-price option).
• The store can (with inputs from the developers) individually and dynamically tune the details of the offers and the process to encourage good payment levels, and to send free-riders back into the hard "pay wall" of the conventional pre-set price.