Zucked -- Roger McNamee's Wake Up Call ...And Beyond

Zucked: Waking Up to the Facebook Catastrophe is an authoritative and frightening call to arms -- but I was disappointed that author Roger McNamee did not address some of the suggestions for remedies that I shared with him last June (posted as An Open Letter to Influencers Concerned About Facebook and Other Platforms).

Here are brief comments on this excellent book, and highlights of what I would add. Many recognize the problem with the advertising-based business model, but few seem to be serious about finding creative ways to solve it. It is not yet proven that my suggestions will work quite as I envision, but the deeper need is to get people thinking about finding and testing more win-win solutions. His book makes a powerful case for why this is urgently needed.

McNamee's urgent call to action

McNamee offers the perspective of a powerful Facebook and industry insider. A prominent tech VC, he was an early investor and mentor to Zuckerberg -- the advisor who suggested that he not sell to Yahoo, and who introduced him to Sandberg. He was alarmed in early-mid 2016 by early evidence of manipulation affecting the UK and US elections, but found that Zuckerberg and Sandberg were unwilling to recognize and act on his concerns. As he became more concerned, he joined with others to raise awareness of this issue and work to bring about needed change.

He provides a rich summary of how we got here, most of the issues we now face, and the many prominent voices for remedial action. He addresses the business issues and the broader questions of governance, democracy, and public policy. He tells us: “A dystopian technology future overran our lives before we were ready.” (As also quoted in the sharply favorable NY Times review.)

It's the business model, stupid!

McNamee adds his authoritative voice to the many observers who have concluded that the business model that serves advertisers to enable consumers to obtain "free" services distorts incentives, causing businesses to optimize for advertisers, not for users:

Without a change in incentives, we should expect the platforms to introduce new technologies that enhance their already-pervasive surveillance capabilities...the financial incentives of advertising business models guarantee that persuasion will always be the default goal of every design."

He goes on to suggest:

The most effective path would be for users to force change. Users have leverage...

The second path is government intervention. Normally I would approach regulation with extreme reluctance, but the ongoing damage to democracy, public health, privacy, and competition justifies extraordinary measures. The first step would be to address the design and bushiness model failures that make internet platforms vulnerable to exploitation. ...Facebook and Google have failed at self-regulation.

My suggestions on the business model, and related regulatory action

This is where I have novel suggestions -- outlined on my FairPayZone blog, and communicated to McNamee last June -- that have not gotten wide attention, and are ignored in Zucked. These are at two levels.

The auto emissions regulatory strategy. This is a simple, proven regulatory approach for forcing Facebook (and similar platforms) to shift from advertising-based revenue to user-based revenue. That would fundamentally shift incentives from user manipulation to user value.

If Facebook or other consumer platforms fail to move to do that voluntarily, this simple regulatory strategy could force that -- in a market-driven way. The government could simply mandate that X% of their revenue must come from their users -- with a timetable for gradually increasing X.  This is how auto emissions mandates work -- don't mandate how to fix things, just mandate a measurable result, and let the business figure out how best to achieve that. Since reverse-metered ads (with a specific credit against user fees) would count as a form of reader revenue, that would provide an immediate incentive for Facebook to provide such compensation -- and to begin developing other forms of user revenue. This strategy is outlined in Privacy AND Innovation ...NOT Oligopoly -- A Market Solution to a Market Problem.

The deeper shift to user revenue models. Creative strategies can enable Facebook (and other businesses) to shift from advertising revenue to become substantially user-funded. Zuckerberg has
thrown up his hands at finding a better way: "I don’t think the ad model is going to go away, because I think fundamentally, it’s important to have a service like this that everyone in the world can use, and the only way to do that is to have it be very cheap or free."

Who Should Pay the Piper for Facebook? (& the rest), explains this new business model architecture -- with a focus on how it can be applied to let Facebook be "cheap or free" for those who get limited value and have limited ability to pay, but still be paid for, at fair levels for those who get more value and who are willing and able to pay for that. This architecture, called FairPay, has gained recognition for operationalizing a solution that businesses can begin to apply now.

• A reverse meter for ads and data. This FairPay architecture still allows for advertising to continue to defray the cost of service, but on a more selective, opt-in basis --  by applying a "reverse meter" that credits the value of user attention and data against each user's service fees -- at agreed upon terms and rates. That shifts the game from the advertiser being the customer of the platform, to to the advertiser being the customer of the user (facilitated by the platform). In that way advertising is carried only if done in a manner that is acceptable to the user. That aligns the incentives of the user, the advertiser, and the platform. Others have proposed similar directions, but I take it farther, in ways that Facebook could act on now.

• A consumer-value-first model for user-revenue. Reverse metering is a good starting place for re-aligning incentives, but Facebook can go much deeper, to transform how its business operates.The simplest introduction to the transformative twist of the FairPay strategy is in my Techonomy article, Information Wants to be Free; Consumers May Want to Pay   (It has also been outlined in in Harvard Business Review, and more recently in the Journal of Revenue and Pricing Management.) The details will depend on context, and will need testing to fully develop and refine over time, but the principles are clear and well supported.
  
  This involves ways to mass-customize pricing of Facebook, to be "cheap or free" where appropriate, and to set customized fair prices for each user who obtain real value and can be enticed to pay for that. That is adaptive to individual usage and value-- and eliminates the risk of having to pay when the value actually obtained did not warrant that. That aligns incentives for transparency, trust, and co-creation of real value for each user. Behavioral economics has shown that people are willing to pay and will do so even voluntarily -- when they see good reason to help sustain the creation of value that they actually want and receive. We just need business models that understand and build on that.

Bottom line. Whatever the details, unless the Facebook shifts direction on its own to aggressively move in the direction of user payments -- which now seems unlikely -- regulatory pressure will be needed to force that (just as with auto emissions). A user revolt might force similar changes as well, but the problem is far too urgent to wait and see.

The broader call -- augmenting the wisdom of crowds

Shifting to a user-revenue-based business model will change incentives and drive significant progress to remedy many of the problems that McNamee and many others have raised. McNamee provides a wide-ranging overview of many of those problems and most of the initiatives that promise to help resolve them, but there, too, I offer suggestions that have not gained attention.

Most fundamental is the power of social media platforms to shape collective intelligence. Many have come to see that, while technology has great power to augment human intelligence, applied badly, it can have the opposite effect of making us more stupid. We need to steer hard for a more positive direction, now that we see how dangerous it is to take good results for granted, and how easily things can go bad. McNamee observes that "We...need to address these problems the old fashioned way, by talking to one another and finding common ground." Effective social media design can help us do that.

Another body of my work relates to how to design social media feeds and filtering algorithms to do just that, as explained in The Augmented Wisdom of Crowds:  Rate the Raters and Weight the Ratings:

• The core issue is one of trust and authority -- it is hard to get consistent agreement in any broad population on who should be trusted or taken as an authority, no matter what their established credentials or reputation. Who decides what is fake news? What I suggested is that this is the same problem that has been made manageable by getting smarter about the wisdom of crowds -- much as Google's PageRank algorithm beat out Yahoo and AltaVista at making search engines effective at finding content that is relevant and useful.
  
  As explained further in that post, the essence of the method is to "rate the raters" -- and to weight those ratings accordingly. Working at Web scale, no rater's authority can be relied on without drawing on the judgement of the crowd. Furthermore, simple equal voting does not fully reflect the wisdom of the crowd -- there is deeper wisdom about those votes to be drawn from the crowd.
  
  Some of the crowd are more equal than others. Deciding who is more equal, and whose vote should be weighted more heavily can be determined by how people rate the raters -- and how those raters are rated -- and so on. Those ratings are not universal, but depend on the context: the domain and the community -- and the current intent or task of the user. Each of us wants to see what is most relevant, useful, appealing, or eye-opening -- for us -- and perhaps with different balances at different times. Computer intelligence can distill those recursive, context-dependent ratings, to augment human wisdom.

• A major complicating issue is that of biased assimilation. The perverse truth seems to be that "balanced information may actually inflame extreme views." This is all too clear in the mirror worlds of pro-Trump and anti-Trump factions and their media favorites like Fox, CNN, and MSNBC. Each side thinks the other is unhinged or even evil, and layers a vicious cycle of distrust around anything they say. It seems one of the few promising counters to this vicious cycle is what Cass Sunstein referred to as surprising validators: people one usually gives credence to, but who suggest one's view on a particular issue might be wrong. An example of a surprising validator was the "Confession of an Anti-GMO Activist." This item is  readily identifiable as a "turncoat" opinion that might be influential for many, but smart algorithms can find similar items that are more subtle, and tied to less prominent people who may be known and respected by a particular user. There is an opportunity for electronic media services to exploit this insight that "what matters most may be not what is said, but who, exactly, is saying it."

If and when Facebook and other platforms really care about delivering value to their users (and our larger society), they will develop this kind of ability to augment the wisdom of the crowd. (Similar large-scale ranking technology is already proven in uses for advertising and Google search.) Our enlightened, democratic civilization will disintegrate or thrive, depending on whether they do that.

The facts of the facts. One important principle which I think McNamee misunderstands (as do many), is his critique that "To Facebook, facts are not absolute; they are a choice to be left initially to users and their friends but then magnified by algorithms to promote engagement." Yes, the problem is that the drive for engagement distorts our drive for the facts -- but the problem is not that "To Facebook, facts are not absolute." As I explain in The Tao of Fake News, facts are not absolute --we cannot rely on expert authorities to define absolute truth -- human knowledge emerges from an adaptive process of collective truth-seeking by successive approximation and the application of collective wisdom. It is always contingent on that, not absolute. That is how scholarship and science and democratic government work, that is what the psychology of cognition and knowledge demonstrates, and that is what effective social media can help all of us do better.

Other monopoly platform excesses - openness and interoperability

McNamee provides a good survey of many of the problems of monopoly (or oligopoly) power in the platforms, and some of the regulatory and antitrust remedies that are needed to restore the transparency, openness, and flexibility and market-driven incentives needed for healthy innovation. These include user ownership of their data and metadata, portability of the users' social graphs to promote competition, and audits and transparency of algorithms.

I have addressed similar issues, and go beyond McNamee's suggestions to emphasize the need for openness and interoperability of competing and complementary services -- see Architecting Our Platforms to Better Serve Us -- Augmenting and Modularizing the Algorithm. This draws on my early career experience watching antitrust regulatory actions relating to AT&T (in the Bell System days), IBM (in the mainframe era), and Microsoft (in the early Internet browser wars).

The wake up call

There are many prominent voices shouting wake up calls. See the partial list at the bottom of An Open Letter to Influencers Concerned About Facebook and Other Platforms, and MacNamee's Bibliographic Essay at the end of Zucked (excellent, except for the omission that I address here).

All are pointing in much the same direction. We all need to do what we can to focus the powers that be -- and the general population -- to understand and address this problem. The time to turn this rudderless ship around is dangerously short, and effective action to set a better direction and steer for it has barely begun. We have already sailed blithely into killer icebergs, and many more are ahead.

---
This is cross-posted from both of my blogs, FairPayZone.com and Reisman on User-Centered Media, which delve further into these issues.

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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.)

"The Case Against Micropayments" versus "Subscription Hell" -- Finding Flexibility

This was initially published as"The Case Against Micropayments" -- From Fear and Surprise to The Comfy Chair

Both subscriptions and micropayments, as currently applied, are far too inflexible to satisfy more than a small fraction of potential paying customers. What is needed is a more flexible strategy that blends elements of both in a way that minimizes risk to the customer -- whether they access, and enjoy more or less than they expect in any given period. This more descriptive title reflects that core message. [2/1/19]

...and, see the update at end on how the beautiful theory of NFT micropayments is being murdered by a brutal gang of customers. [1/18/22]

Part 1: Micropayments  
(Followed by Part 2: Subscriptions and a unifying perspective)

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:

• How Blendle Could Do Much Better with FairPay explores the example of Blendle, one of the more prominent uses of micropayments for news (which had some success in Europe, but now seems to be stalled in the US). (I comment on Blendle's "instant refund" feature as one valuable step toward reducing fear a bit, one that even Clay Shirky was impressed by, but I suggest it is too binary.)
• Post-Bundling -- Packaging Better TV/Video Value Propositions with 20-20 Hindsight explains how this could be applied to TV subscription bundles.

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!

Part 2: Subscriptions and a unifying perspective 

"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.

[Update 2/16/19:] Many advanced examples of better flexibility are on this blog, but one of the simplest is this one: Post-Bundling – Packaging Better TV/Video Value Propositions with 20-20 Hindsight.

[Update 7/2/19:] FairMicroPay -- simple, relationship-value-based adjustments to micropayments. Simplified forms of FairPay might be applied to make micropayments more flexibly value-based. Consider how this might be done in a blockchain-based micropayment system. Relationship-value-based adjustments can be overlaid on micropayment models.  The idea is to add a FairPay layer that identifies the user, and that allows the user to modify a standard base price within limits permitted by a smart contract -- downward as a refund/discount for lack of desired value, or upward as a value-based bonus or sustaining contribution. 

[Update 1/18/22:] Crypto Enthusiasts Meet Their Match: Angry Gamers: "Game publishers are offering NFTs, but skeptical gamers smell a moneymaking scheme and are fighting back...Much of their resentment is rooted in the encroachment of micro transactions in video games." It seems the beautiful theory of NFT micropayments is being murdered by a brutal gang of customers.

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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.)

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 fullest description of such models are in my book, and in my post, Patron-izing Journalism -- Beyond Paywalls, Meters, and Membership (and elsewhere on this blog).

• The most scholarly presentation is in my article in the Journal of Revenue and Pricing Management, "A Novel Architecture to Monetize Digital Offerings."

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.)

"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.)

Invisibly?

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!

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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).

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

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

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? ...one family of solutions that can effectively serve a wide range of readers all the way from casual to dedicated? ...one 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.**

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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).

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

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*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.

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".]
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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 IndieGogo. Ben 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.

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More about FairPay

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

• More in the Overview and the sidebar "How FairPay Works" (just to the right, if reading this at FairPayZone.com). 
• There is also Selected items (including links to videos and decks). 
• And these journal articles, A Novel Architecture to Monetize Digital Offerings and Pricing in Consumer Digital Markets: A Dynamic Framework. 
• Or, 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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Background on how the FairPay relationship pricing strategy can transform the sustainability of journalism:

• Patron-izing Journalism -- Beyond Paywalls, Meters, and Membership – a summary.
  …and some related aspects
• FairPay Changes the "Game" of Commerce – details of the core operational process. 
• Finding Good and Fair Customers -- Where Are the Sweet Spots? – starting with low risk trials.
• What Lies Beyond Paywalls -- A Better Way – win-win relationships, not transactional sales.
• How Blendle Could Do Much Better with FairPay – complementary discussion of aggregators, micropayments, and “post-pricing.”
• Finding Value in The Subscription Economy - a value perspective on conventional strategies
• "Why should I pay you?" - Bezos' Washington Post - a New Business Model for Journalism 
• Pierre Omidyar: Adventures in New Business Models for Journalism
• Times Premier? [/Insider?] -- What is it really worth? ...FairPay can tell 
• More detail and newer items.

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.

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Addendum
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.”