FairPay for The Subscription Economy -- My Dinner with Zuora and Friends

Zuora is a hot new company, an offshoot of Salesforce.com, that is focused on what they call "The Subscription Economy." This is very much in tune with the ideas about FairPay that I am developing, and I recently had a very nice chat with their regional account executive. He invited me to a very informal dinner he had been planning for some local customers and prospects, with the idea that they would find it interesting to hear about FairPay, and that that would be a good conversation-starter for some information exchange on subscription services in general.

The dinner proved very enjoyable, and generated much good discussion.  It reinforced the idea that FairPay might help solve many difficult problems related to pricing of content and services, and that it offers a very promising re-architecting of how subscriptions can work. As always, I enjoyed interacting with bright people facing the real challenges of digital commerce, and helping them to see things from new angles.  We discussed many of the themes covered in this blog and on the FairPay Web site, and the positive feedback was gratifying.

"The Subscription Economy" is directly supportive of my suggestion that the solution to many current problems is to shift from a transaction-level view, to an overall relationship view.  With digital offerings, it is not important that every transaction be priced right, but rather that the entire relationship be managed to grow in mutual value, and to move toward more effective pricing over the life of the relationship.  It is a matter of managing a subscription relationship.  What FairPay adds is a radically new concept of just how subscription relationships can work, and be managed, more effectively.  FairPay emphasizes that such relationships should continually adapt to current needs and future expectations, based on a dialog by both parties, and provides a new paradigm for doing that in a more win-win manner.

Zuora offers a nice white paper on "The Subscription Economy" on its Web site.  As it says, the old model is linear, one-time transactions that go from lead to cash. Subscription Commerce refocuses the objective to not just seek cash from the transaction, but to seek renewal.  That leads to ongoing revenue streams that can be grown, in terms of frequency, add-ons, usage, and upgrades.  That, in turn, leads to much greater revenue opportunity, and involves changes (and ongoing adaptation) in product and pricing strategy, customer subscription management, billing and payments, and analytics. Zuora offers SaaS services to facilitate those changes.  FairPay is based on the same ideas, with some further variations, and it can fit very nicely on top of a rich subscription platform like Zuora.  (Of course FairPay should fit well with any reasonably flexible subscription platform.)

I look forward to further discussions with Zuora and its customers.  As noted before, I will be on a panel with Shawn Price, President of Zuora, presented by the MIT Enterprise Forum of NYC the evening of 12/1, on "Better Strategies for Monetizing Digital Offerings."  If you have read this far, you should attend!

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[More recent posts also discuss Zuora and my involvement speaking on FairPay at their events.]

Paywall 2.0 ...and Paywall 3.0 -- Focus on the Customer!

Recent presentations by Zuora, the champion of The Subscription Economy, and its president Tien Tzuo, describe "Paywall 2.0," as "why focusing on customers is the only way to win" in a blog at The Guardian, "The Reinvention of Media" on Slideshare, and "The Future of Publishing" in a longer white paper.  There is also a 20 minute video.

This as an excellent foundation for what I see as the next step, FairPay, which I am suggesting as Paywall 3.0.  Zuora is right about Paywall 2.0, and FairPay builds on that to deepen -- and center on -- the customer relationship. 

[Update:]  I should be clear from the start that The first rule of Paywall 3.0 is that There is no Paywall -- as will be seen below, there is a FairPay Zone in which readers may pay or not ("fair pay what you want"), and publishers decide case by case, and month by month, on what basis to maintain the relationship with each reader. This goes way beyond "soft" and "porous" and brings in aspects of a membership model. (The paywall is retained only for those who do not cooperate fairly.) [added in response to feedback 3/29/13]

As noted by Zuora (in The Guardian version),

...as the demise of Variety shows, paywalls are not enough. That's because it's never been just about the paywall – it's about publishers viewing readers not as anonymous demographic statistics to sell to advertisers, but as customers who are willing to pay for something of value. In this changing customer-centric world, media and publishing companies need to adopt a more data-driven approach to understanding customers, design bundles and pricing plans that meet their needs, and strengthen their relationships with customers to ensure a they'll keep coming back for more. Let's call it Paywall 2.0...

Now starts the hard road to recovery. And that recovery will come from a truly customer-centric approach. It is about building customer relationships, finding ways to build loyalty, having a range of offerings from free to paid-for that make sense...

Paywall 1.0 was a good start, but isn't enough. Publishers need to move towards the second iteration...

I firmly believe we live in a world where success is not about how many products you ship. It's about how strong your customer relationships are, and how well you are monetising those relationships. 

As described in this blog and related Web site, FairPay reinvents the architecture of digital commerce to focus completely on the customer relationship.  It does this by shifting from a short-term transaction view of pricing to a long-term relationship view, and empowering the customer to engage in meaningful "dialogs about value."  It is this FairPay dialog that generates the price, with deep participation by the customer.  FairPay works as an adaptive value discovery engine that sets the price -- and how the product is offered to the customer -- to match what the individual customer wants and values.

Zuora rightly focuses on the many challenging aspects of subscription operations and how to build a business around ongoing subscriptions.  FairPay is fully consistent with that. In fact Zuora has expressed an interest in adding FairPay into their offering, as an alternative approach to pricing that their clients can apply as an option.

Paywall 3.0

FairPay can be viewed simply as just another pricing model that Zuora's subscription services can offer (one based on pricing and payments in arrears, with a decision process for renewals based on user pricing behavior).  That is fine, but consider how FairPay points to deeper strategic opportunities.

I suggest the historical perspective is:

• We shifted about a century ago from negotiated (participatory) prices to seller-imposed prices that enabled efficient mass marketing, but distanced the seller from the consumer.  The costs of that have been lack of knowledge of the customer and lack of loyalty from the customer that have been hard to compensate for (such as with remedial market research and loyalty programs).  
• Now the new phenomena of digital products and networks have disrupted commerce again, with movements to free, "freemium," and even "pay what you want" and "name your own price."  Businesses have found it challenging to adjust to this, and no current models really do the job well (most obviously in information and content industries).  The Subscription Economy can help (as for Netflix and Pandora), but getting consumers to pay for information and services that obviously have near-zero marginal cost remains very problematic (and relationships are critical, as Tien had previously observed with regard to Netflix's serious pricing missteps).

From that broader perspective, FairPay is a radically new architecture for deep two-way relationships between consumers and businesses - dialogs about value, as actually realized by each buyer in their specific, day-to-day contexts.  This is done by applying a structured balance of powers in an ongoing relationship (such as by subscription), in which:

• the consumer sets an individualized price they think fair, after use, and 
• the business continues to permit FairPay transactions/renewals as long as they agree that consumer is "fair" about the price (in their individual context). 
• this continues in an ongoing and adaptive process.  (Unfair buyers are downgraded to lesser offers or conventional fixed-price--providing an incentive to be fair.)

The overall impact is that:

• FairPay participatory processes can bring in far more customers (over a wide range of price points), increase profits (by capturing more latent value), and empower win-win relationships based on fair value exchange. Think of a privilege that is earned and maintained - a zone of pricing freedom, a "FairPay Zone."  
• Much like custom negotiation (but with important differences), this participatory process can also be far more economically efficient than set prices, by including flexible consideration of all relevant dimensions of value, usage, context, ability to pay, etc.

As noted above, Zuora has expressed an interest in adding FairPay into their offering, as an alternative approach to pricing that their clients can apply as an option.  Building a FairPay offering to customers on a strong infrastructure base like Zuora's makes a great deal of sense.

We are looking for companies interested in trying this new step forward.  (Please contact us if you have an interest:  fairpay [at] teleshuttle.com)


[UPDATE:]
Newer posts expand on this from the perspective of customer journeys and loyalty loops:

• Win-Win Customer Journeys -- With Dialogs on Value
• Customer Journeys of Value -- Measuring the Elements of Value 

The Relationship Economy -- It's All About Valuing Customer Experiences

Few grasp how fundamentally the dynamic richness of computer-mediated relationships is changing the very nature of business. We see that we are shifting from a world of products sold in one-shot transactions to a world of "Anything as a Service" delivered in recurring revenue relationships. We see that subscription businesses are emerging in all kinds of industries and growing at much faster rates than their more conventional competitors.

It is less apparent is how deeply this changes the nature of businesses relationships, and how all aspects of a company are transformed by the shift from a linear product pipeline to the cycle of a recurring relationship. What we have seen is just the beginning. First a look at how far we have come, then a look toward the next level.

Foundations: "The Subscription Economy"

A thought-provoking view of how deep this change already is, is in the new book, Subscribed: Why the Subscription Model Will Be Your Company's Future and What to Do About It. I read a pre-release copy and see it as a must-read for anyone with responsibility for designing, managing, or even just executing on business models of any kind -- even if you think subscriptions are not relevant to your business.

Author Tien Tzuo (with Gabe Weisert) speaks in terms of "subscriptions," but this book is is very relevant to recurring business relationships more broadly. Relationships are the future of business. Call it a subscription, a membership, or just a loyalty loop in the customer journey. In our connected digital world, relationships will deepen -- or they will die.

Tien applies the experience of his journey from the very early days of Salesforce to founding Zuora and its fast growth to a recent $1.4B IPO -- where he has had a unique view into the guts of thousands of subscription businesses and their growing pains. Zuora has popularized the term "The Subscription Economy" and provided thought leadership in this space, including well-attended conferences and a rich body of Web resources. (I have spoken several times at Zuora events, beginning in 2011.) Zuora also provides rich data on "The Subscription Economy Index," drawn from the anonymized system activity of hundreds of subscription companies around the world (summarized in the book). His book provides a compelling call to arms and compendium of key concepts and best practices.

The next level -- it's all about valuing customer experiences

This book also provides an excellent foundation for looking further ahead, to a next level in recurring business relationships. My work on FairPay suggests that next step is a sharper, deeper, and more cooperative focus on the value of experiences. I see that shift of focus, leading to a deepening of relationships in which customers are more equal partners. Subscriptions are the most explicit form of recurring relationship, but the essence of what we must now seek to master is how to value experiences, in what I would describe as The Relationship Economy (or The Relationship Value Economy).

We all know that the essence of business is value exchange, but how deeply and broadly do we think about value? How often do we ask our customers about value as they see it? 

I build on what Tien covers, adding exploration of the largely neglected layers of value, and how closer attention to value can enhance relationships.

My focus here is primarily, but not entirely, about B2C relationships. Those are generally asymmetrical, with a human on one side, and an organization on the other side. Our current mind-set is that businesses set the rules of the game, and consumers play their role within those rules. But I suggest that is a temporary anomaly that will revert to a more balanced model.

From products to services -- from transactions to relationships -- Service Level Agreements

Tien quotes Forrester as calling this "The Age of the Customer," and explores how this involves a shift from the old linear flow business model of products through channels to customers, to a new cyclical flow business model that puts the customer at the center -- surrounded by a customer journey cycle of interactions (supported by a corresponding cycle of back-end business processes). (Forrester describes this as a transformation that is driven both from top-down and from bottom up -- drawing on a mind-shift, big-data-based business insights, and transformation of the customer experience, all based on digital transformation.)

Tien describes the thought experiments his team did in the early days of Zuora, thinking about what the limits of subscriptions might be -- could you apply it to refrigerators? floors? elevators? roofs? "Here's the secret we used to answer all of them in the affirmative -- tease out the service-level agreement that sits behind the product. It works for everything. So instead of a refrigerator, it's the guarantee of fresh, cold food..."

Recurring relationships as a repeated game

Whether you think of it as a subscription, or a membership, or just a service agreement, the essence is this recurring cycle of interactions -- the result is that the flow of business changes from linear to circular. This has deep implications, both as to operations, and as to the nature of the relationship. Game theory tells us that one-shot games create very different player behaviors from repeated games. All recurring business has elements of a repeated game, but effective game design can make the game more productive, cooperatively win-win, and long-lived. Let's start with the operational aspects, then consider the broader game.

[Zuora]

Tien explains how recurrence changes business operations to center on the customer interaction cycle, as shown in his diagram (here). He explores how this changes all functions, from innovation, marketing, sales, finance, and IT.

For example he explains how a fundamental change in finance is needed, from the backward view of one-shot product sales inherent in Generally Accepted Accounting Principles (GAAP), to a new kind of accounting that is forward looking toward Customer Lifetime Value. A meaningful accounting must recognize that what matters is not the revenue in the last quarter, but the recurring revenue stream for many quarters forward (decreased by churn, and increased by customer acquisition and up-selling/cross-selling). He explains how he convinced his investors that growth expenses are much like capital expenses, in that they pay off not in the next quarter, but over an extended time -- and that Wall Street has been slow to recognize this.  Similarly, he explores how this cyclical pattern affects all other functions, and requires greater cross-functional cooperation to assure a good customer experience at each touch-point.

This deep enterprise strategy focus draws on Tien's role at Zuora, competing with the likes of Oracle and SAP. That focus makes his book a strong complement to the excellent existing books in this space that are more marketing-focused, including Anne Janzer's Subscription Marketing and Robbie Kellman Baxter's The Membership Economy.

Pricing and packaging as "one of the most powerful growth levers"

In his discussion of marketing, Tien highlights the importance of a topic few businesses think very much about:

"Pricing and packaging" is an old-fashioned-sounding term that might remind you of stocking grocery store shelves, but for subscription business it is one of the most powerful growth levers you can have...In fact pricing is the most important of the four P's [Product, Price, Promotion, Place, from Marketing 101]. 

... Subscription pricing is trickier...at the end of the day, you're not pricing an object, you're pricing an outcome...what do you do about the fact that customers may assign different value to the same outcome? This ambiguity is intrinsic to the subscription model, and it can be either empowering or paralyzing.

...But what happens when you get it right? Whoo boy. Well, customer acquisition gets much easier, and churn gets reduced. Better yet, as your relationship with each subscriber deepens, as you become a bigger part of their lives, that value is translated into revenue...creating a virtuous cycle...You can create intuitive customer journeys...with relevant tipping points along the way. And when your pricing model locks into that subscriber journey, this is when (click) your business model locks into subscriber relationships, and a valuable company is born.

That nicely sets the stage for the next level, which we will get to shortly (but first a broader view).

Customer journeys and loyalty loops -- virtuous cycles

The description above shows how pricing and packaging is what powers the customer journey. The essential issue is the recurring business relationship, and this applies more broadly -- whether a "subscription" or not. In fact, even in product businesses that have no explicit recurrence, modern marketing has recognized the critical importance of repeat customers to profitability. This is seen in  how customer journeys form loyalty loops, as Edelman and Singer explained in HBR:

Rather than merely reacting to the journeys that consumers themselves devise, companies are shaping their paths, leading rather than following. Marketers are increasingly managing journeys as they would any product. Journeys are thus becoming central to the customer’s experience of a brand—and as important as the products themselves in providing competitive advantage.

In the classic journey, consumers engage in an extended consideration and evaluation phase before either entering into the loyalty loop or proceeding into a new round of consideration and evaluation that may lead to the subsequent purchase of a different brand.

The new journey compresses the consider step and shortens or entirely eliminates the evaluate step, delivering customers directly into the loyalty loop and locking them within it.

Thus, recurring relationships are based on "locking" customers into this loyalty loop. The question is whether you try to lock them in by using zero-sum manipulative strategies, or by gaining their trust and cooperation with win-win strategies that deliver value to the customer. As Tien points out, early subscription businesses such as book or record of the month clubs "shipped products by default and made customers pay the price...when they fail to cancel in time... Sadly, lots of companies still depend on customer neglect in order to sustain their zombie business models." Manipulation can work in the short-run ("you can fool all of the people some of the time..."), but which path leads to winning in the long term?

Rooting the customer journey in value

Smart marketers increasingly recognize the importance of customer journeys and loyalty loops. Tien and the others teaching us about these subscription and membership models clearly argue for customer experiences that build trust and loyalty. Tien and many others see value-based pricing as a key factor in doing that.

To that end, I suggest we focus on the unseen connecting layer in Tien's diagram. It shows the inner circle of the customer's view (subscribe, renew, ...) and the outer circle of the business operation's view (quote, order, provision, ...). But what connects these layers?

• Operationally, it is dialog between the customer and the business. This is increasingly a digital connection that can become much more fully bi-directional and nuanced. We are just beginning to tap the power of these connections, using CRM systems (now mostly just for problem handling) and social media (still erratic and largely decoupled from operations), and nascent uses of chatbots (voice and text, powered by AI) that will give this more depth, breadth, and nuance -- and more bi-directionality.

• But what is the substance of these interactions? Value exchange and value propositions that underlie the interactions. Customer consider, evaluate, buy, enjoy, advocate, and bond because they are seeking value. Everything else is just a a means to that end. There is specific monetary quid pro quo (typically in the form of price per unit of service), but that is judged in terms of a rich world of factors such as usage, outcomes, service, and support -- and fuzzier values such as responsiveness, risk, social values, transparency, and trust.

We need this layer of dialog about value -- in all its relevant aspects -- to build a strong loyalty loop. Much like flows through the semipermeable membrane of a cell, this dialog about value is what connects the customer to the business. If the membrane is smartly permeable in both directions, and well-centered on value, the loyalty loop grows strong, and stays strong -- a symbiosis.

How do businesses deal now with dialogs about value? Doesn't it seem that most business want to talk at the customer about value, but rarely want to hear from the customer about value? Even when there is good dialog about the trappings of value, how often does it get to the core issue? Rich dialog about value is typically limited to occasional offline focus groups that bear little relation to reality, supplemented by haphazard social media interactions.

Aligning price and value

In commercial relationships, we have a broad landscape of value, but it all comes back to the exchange -- what do I get and what do I give. Price is the monetary part of the exchange that balances all the other aspects of value.

But how do we talk about price? Businesses set price unilaterally (especially in B2C). They say what they must about price to get initial sales, then seem to avoid the topic like the plague, bringing it up only when they want to initiate a change. Prices are mostly take it or leave it -- even though subscription businesses concerned about churn sometimes negotiate discounts on an exception basis to retain a customer who seeks to cancel. The squeaky wheel may get a bit of grease, but customizing value propositions is the reluctant exception, not the rule. 

Pricing can be cost-based, competition-based, or value-based. In the B2B world, it is widely recognized that value-based pricing is most effective. The problem is that such pricing can get very complex, considering many dimensions of usage, performance, and outcomes. For large accounts there may be meaningful customer participation in pricing, with ongoing price negotiation and adjustment processes. In the B2C world, value-based solutions are generally sacrificed in the interests of simplicity and scalability.

But, as Tien observes in the passage above, pricing and packaging is too important to just take the easy way out. Now we can conduct dialogs about value that work for consumers, if we get smarter about how to do that. Many say consumers require simplicity, but they also want fairness. Dialogs about value are a traditional behavior, engaged in throughout human history. It is only in the past century and a half that we opted for the scale efficiencies of uniform, pre-set, seller-mandated pricing and sacrificed these customized dialogs about value. Having grown up with this mind-set, we forget that things were ever different.

But now we have the tools to get back to individual dialogs about value, even between a business and a mass of consumers. Computer-mediated dialogs are getting powerful, and AI support will increase that power. As Tien said, 

You can create intuitive customer journeys...with relevant tipping points along the way. And when your pricing model lock into that subscriber journey, this is when (click) your business model locks into subscriber relationships, and a valuable company is born.

How do we get that lock in? A key aspect of pricing is whether it is usage based. Tien's view across both B2B and B2C businesses reveals some key points about the metrics of value. He notes that "at its heart, usage-based billing is a way of quantifying value...how they actually use your service...a 'value metric.' Simply put, a value metric should do three things: align to customer needs, grow with customers, and be predictable (both for customers and the organization)." But his firm's analysis of the subscription businesses they track finds that "only about 27 percent...use some sort of usage-based pricing today." He finds that those who do grow significantly faster. In B2C, unlimited usage plans are generally the norm. But, referring to cable companies, Tien says "smarter usage-based billing...will make their video content services more responsive and valuable."

Conventional wisdom is that consumers don't like usage-based models, but I suggest that is just because we have not yet gotten creative about applying modern technology to let us do usage-based pricing in a smarter way. We need to find pricing strategies that are truly aligned with the value that each customer perceives.

The FairPay architecture for valuing customer experiences

FairPay is an open architecture that seek to align price with value in its broadest sense -- at all relevant stages in the customer journey -- and on an individualized, dynamic, context-specific basis. (See this article in the Journal of Revenue and Pricing Management, or this illustrated summary from ESADE Business School.) FairPay transcends profit and non-profit orientations, and applies controls that can be as tight or loose as desired by each business.  FairPay centers the customer journey on dialogs about value, and drives that by empowering the customer -- while enabling the business to maintain control based on tracking the customer's reputation for fairness. These levers are applied in a cyclic game that encourages cooperation to continue a mutually rewarding relationship. 

Value-based pricing and packaging can now be increasingly dynamic, adaptive, and individualized. FairPay highlights how pricing and packaging that reflects the value of each customer's experience is best done after the experience, when real value is best known. This relates to pricing risk -- does the customer risk not getting their money's worth? The value is also best assessed with user participation, to ensure alignment with diverse customer perceptions. Again, this can be done at varying levels, which shift from the pre-set nature of conventional mass-marketing practices in some or all of the following aspects:

• Pre-set packaging -- are packages (bundles) locked-in in ahead of time, or as items are desired? Does the customer need to know in advance what content they will want, or how much of it?
• Pre-set usage levels -- does pricing ignore usage, or relate to pre-set usage tiers, or does it depend on other aspects of value and outcomes? What of customers with widely varying usage levels? Does all-you-can-eat pricing make any sense for the majority of users who are not "average?" If pricing is usage-based, are there reasonable discounts for volume (and perhaps price caps or rollovers to minimize customer risk)?
• Pre-set price schedules -- does the business have unilateral control of price schedules, or does the customer participate in determining price based on their perceptions of the value experience? How is ability to pay factored in, if at all?

Advanced forms of FairPay address all three of these aspects. Think of this as finding prices and packages that map to value with customized fidelity, considering timing and risk. 

(Even without giving customers any direct power over price schedules, sellers can reduce customer pricing risk, while adding little risk to themselves, especially for digital services. Some simple strategies for that relate to delayed pricing of bundles and usage plans that give customers more "optionality" by not forcing them to commit to specific bundles or usage levels in advance. As noted above, Tien argues for "smarter usage-based billing" for cable TV -- I have proposed just such a smarter, more adaptive, value-based model, which I call "post-bundling."
[Update 3/31/18:] A fuller and more broadly applicable discussion of this important -- and only mildly unconventional -- "post-bundling" / "post-pricing" strategy is now in "Risk-Free" Subscriptions to The Celestial Jukebox?) 

A value loop that is cooperative, adaptive, and self-sustaining

FairPay is driven by the cyclic process of recurring business relationships -- it fits with subscription cycles, and customer journey loyalty loops of any kind. The most advanced form of FairPay applies a balanced level of both business and customer control of pricing across multiple customer journey cycles (as depicted here). This applies a "new" balancing method:  the customer is granted full pricing power during each cycle, and the business continues to offer to grant that power going forward if it judges the customer to be reasonably fair about that. This shapes the relationship into a repeated game that motivates fairness on both sides.  (I say "new," because we tend to forget that this is not so unlike the kind of intuitive balance we have applied for millennia in traditional person-to-person commercial relationships.)

The breadth of this architecture is in how control is applied by the business. With the most strict control, we have the conventional, take-it-or-leave-it model of seller-set pricing. With the most loose control, we have voluntary patronship models (like those offered by Patreon, Indiegogo, and Kickstarter), voluntary membership models (like The Guardian), and pay what you want (perhaps most successfully applied by Humble Bundle), where customers have full control of pricing. 

But however strict or loose the control, the focus is on the cyclic nature of the relationship. Too tight, and too many customers are unhappy and leave the relationship. Too loose, and free-riders may make the business unsustainable (ending the cycles). The right balance depends on the nature of the business, the customers, and the service and how its value is perceived. This membrane of value is what brings these factors together, and empowerment, dialog, and reputation are the tools a business can manage to find the right balance -- as that balance changes from customer to customer, and from cycle to cycle. Throughout the customer journey, effective dialogs about value are essential to keeping this pro-actively on track, building cooperation and trust, for a wide range of customers, over time-varying contexts.

From this perspective we also see that Customer Lifetime Value (CLV) is just one of two critical success metrics -- it reflects one side of the total picture. Businesses fail to recognize the equal importance of the complementary metric, Vendor Lifetime Value (VLV) -- the value the business provides to the customer over the lifetime of the relationship. Recurring businesses flourish when the customer looks to the business not for the best bargain right now, but as a reliable and trustworthy source of continuing VLV, The way to sustainable profit is to change the conversation from price to value, and from short-term to long-term.

A next level in customer-experience-centricity

Tien makes a big point of how customer-centricity and customer experience become critical in subscription businesses. FairPay takes this to a new level.

Tien points out how "...IoT [the Internet of Things] allows you to rediscover your customers. It lets you learn what they really want. In fact, I would argue that the only true competitive advantage is your relationship with and knowledge of your customers." I have written about how IoT provides a new kind of data about value (an IoT Cloud of Value), and how FairPay's dialogs on value complement that with direct input from customers (and how that IoT data can help validate what customers say about value).

Much as I have done, Tien alludes to traditional modes of commerce: "Once upon a time, we used to know the people we bought from...we used to know the people we sold to, the neighbors in our village. All that knowledge got lost a long time ago...But it's coming back in a big way."

Price is the visible metric of net value, and competitive success is really a matter of value propositions and how a business orchestrates them. Tien speaks of a new "golden age of marketing" and how "the marketing department becomes a giant test laboratory." He speaks of how "subscription businesses need to constantly be optimizing revenue through pricing," and how "price triggers match customer requirements and demonstrate value." FairPay shows how to take that from an occasional thing and operationalize it throughout each cycle of the customer journey.

Part of that can be seen in this more detailed view of the multi-layer, cyclic, repeated game structure of FairPay. It shows how the game serves as an adaptive value-discovery engine, providing an architecture for adaptively structuring products/services into tiers, and segmenting customers based on what they value, their willingness to pay, and their fairness.

By embedding these dialogs about value deeply into the customer journey, businesses can turn their everyday operations at each touchpoint into ongoing and continuous business experiments. This centers on price and value propositions, providing a base on which to become adaptively experimental about not only pricing and packaging, but also about product/service design. With detailed, realtime data about what customers do and do not value (potentially for each unit of product/service), the business becomes an adaptive engine for co-creating value with your customers in ways that can maximize Customer Lifetime Value (and Vendor Lifetime Value) across the fullest accessible market -- and as that market changes.

It is all about maintaining a shared understanding about valuing customer experiences in diverse and dynamic contexts. Doing better at that will bring more success for both business and consumers in this digital age of mass-customization. Our Relationship Economy will increasingly shift from the impersonal invisible hand that rations scarce products, to a more human and personal invisible handshake in which both partners in the relationship cooperate on sustainably creating 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.)

Forrester's Next Wave? -- Adaptive Subscription Billing with FairPay (+ Zuora, Vindicia, Recurly, Digital River...)

The recent inaugural Forrester Wave Report on Subscription Billing Platforms, shows that the trend toward subscription models -- as an aspect of relationship marketing -- has become very important in many industries.

Key drivers behind the experimentation and subsequent adoption of transformative business model relationships include a desire for stickier customer relationships, a thirst for customer insights, an eagerness to capitalize on the cloud, and an inclination to experiment with connected products.

The next-generation FairPay strategy (as described on the Harvard Business Review Blog) has not yet surfaced through Forrester's radar, but it is on the radar of some of the companies Forrester reviewed, including Zuora, and Vindicia.

FairPay further transforms subscriptions and similar recurring relationships, to re-center the customer journey on value -- adaptively seeking win-win value propositions. This can change the fundamental nature of the customer relationship and how we think about pricing and selling services. It is especially relevant to B2C businesses (and SMB-oriented B2B).

Companies in the subscription/recurring revenue space should be thinking about FairPay and how to do controlled trials to see how it can transform their business. More about that below, but first some general insights from Forrester. (A free copy of this $2,495 Forrester report is available from Zuora.)

"Innovation Is Enabling An Era Of Continuous Customer Relationships"

Firms are shifting from one-time perpetual sales or fixed monthly subscriptions to consumption models that blend one-time, subscription, and usage-based billing... CEOs recognize this shift toward business models that reflect the value of the relationship with the customer:

“There’s a secular movement that’s happening . . . more to an annuity relationship as well as a subscription relationship. These are the long-term relationships we want to have with all customers.” Satya Nadella, CEO Microsoft (May 2015)

“If you went to bed last night as an industrial company, you’re going to wake up today as a software and analytics company.” Jeff Immelt, CEO GE (October 2014)

“We’ve gone from selling boxes, cloud, mobility, or any other solution, to partner with customers on their outcomes.” John Chambers, CEO Cisco (May 2015) 

The report outlines "four key drivers behind the experimentation and subsequent adoption of transformative business model relationships that firms have with their customers" -- two of these are significantly enhanced by FairPay:

• A desire for stickier customer relationships. ... an additional emphasis on loyalty...
• A thirst for customer insights. ...to build long-term relationships, monitor engagement, and perform sentiment analysis. 

The eight vendors Forrester reviewed all serve both B2C and B2B businesses, "Zuora, Vindicia, Digital River, and Recurly had unique strengths in supporting consumer or hybrid B2C or B2C-focused subscription scenarios." ("Apttus, Aria Systems, goTransverse and SAP hybris were especially well suited to supporting complex B2B billing scenarios.")

Forrester also noted that some of these vendors have strong relationships with Big Five consulting firms, as well as many ERP and CRM platform providers.

I have had discussions with some of these companies (notably Zuora), and have had expressions of interest by them in adding FairPay support to their offerings if a customer has interest. Should your firm want to consider testing FairPay, please contact me to assist in assembling the appropriate resources (including such platform vendor services, as well as academic researchers willing to help design and evaluate trials). I have been working on FairPay as a pro-bono project, and am happy to explain the concepts, and help companies develop applications of it, at no charge.

How FairPay strengthens customer relationships to change the subscription game

Why you should want to try FairPay? The short answer is better and more profitable relationships with more customers who value your services. It is especially attractive in markets like digital content and services that offer experience goods that are cheap to replicate but costly to create, and for which managing and quantifying the customer's perception of value is a challenge not well met by one-size-fits-all pricing methods. FairPay adaptively seeks personalized price discrimination in a way that customers accept as fair.

This blog includes an Overview of FairPay and a 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). Some of the posts most relevant to subscription billing platforms are:

• Paywall 2.0 ...and Paywall 3.0 -- Focus on the Customer!
• Beyond Freemium -- Free? Paid? Freemium?... Finding Whatever Works
• Beyond the Deadweight Loss of "All You Can Eat" Subscriptions
• Win-Win Customer Journeys -- With Dialogs on Value
• Patron-izing Journalism -- Beyond Paywalls, Meters, and Membership
• FairPay for The Subscription Economy -- My Dinner with Zuora and Friends 

A significant and growing portion of our economy is conducted in ongoing customer relationships -- FairPay is the way to adaptively seek win-win in those relationships, to make them stronger and more profitable over time. Let's work together to see how to make that happen for your business.

Speaking on FairPay at Zuora's Accelerate East Conference on The Subscription Economy

I was pleased to present at two sessions in Zuora's Accelerate East conference in NYC on October 16. As noted elsewhere on this blog, Zuora is a company that is driving what they have termed "The Subscription Economy," and provide an important role as thought leader in this rapidly growing space. The event was very stimulating and well attended. Here are the two sessions I spoke at.


Marketing Panel: 
Innovative Pricing and Packaging Strategies
Wednesday, October 16 – 3:45 to 4:45

Moderator: Brian Bell, CMO, Zuora
Panelists:
Matt Shanahan, SVP, Strategy, Scout Analytics 
Steve Woda, CEO, uKnow.com
Richard Reisman, Online Media Consultant/ President, Teleshuttle Corp
Kelly Berry, Marketing, Sailthru
Dave Govan, Shutterstock

Topics/Abstract:   Learn strategies for accelerating your marketing levers to drive business growth and hear best practices first-hand from businesses that have done it. Learn how to use pricing and packaging as a tool to increase customer acquisition, value per customer and reduce churn.

The Future of Media Panel
Wednesday, October 16 – 5:00 to 5:45

Moderator: Brian Bell, CMO, Zuora
Panelists:
Peter Kriesky, Founder, Kriesky Media 
Gregg Hano, CEO, Mag+
Richard Reisman, President, Teleshuttle Corp & Online Media Consultant


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[This post was added on 3/31/17 to fill in a gap in coverage, but dated as of the day of the conference.]

Finding Value in The Subscription Economy

At the heart of the Subscription Economy is the idea that customers are happier subscribing to the outcomes they want, when they want them, rather than purchasing a product with the burden of ownership.

...Nicely put by Zuora, the SaaS platform company that drives many of the largest subscription services. They have popularized the term "subscription economy," and recently created a Subscription Economy Stock Index that highlights the striking growth of such businesses. This is not just a Zuora thing -- as the Oracle infographic to the right indicates.

This fundamental shift toward subscriptions is driven by the nature of our digital environment, and the power of Big Data and the Internet of Things. It is becoming easy to manage ongoing subscription relationships and service delivery -- and to get increasingly rich understandings of actual value received. We are only beginning to recognize how deeply this will transform how we exchange value in commercial relationships.

This post explores the key concepts of value as they apply to subscription relationships -- and as they are are embodied in the pricing of subscriptions. This draws on "value-based pricing" strategies that shift from simple (but less optimal) cost-based or competition-based models. (These are increasingly transforming B2B markets, but have so far seemed less readily applied to B2C markets. FairPay, a new approach to value-based consumer relationships, promises to change that game.) This post shows why shifting toward value-based pricing -- even if only in small, incremental steps -- is vitally important to maximizing the value of subscription relationships -- Customer Lifetime Value (CLV).

[UPDATE 4/20/17:] Think of this is "value discrimination." Marketers and economists think about "price discrimination" as the way to be efficient about getting the most revenue from each customer. But in recurring relationships, what we really want is value discrimination -- finding the optimal value proposition for each customer. Value discrimination involves optimizing not only the price, but the value of the product/service package that is provided for that price.

Value is complex, multidimensional, and highly individualized 

Our digital age has not only driven "relationship marketing" to become deeper and more powerful, but has changed the economic realities of value -- shifting focus from "value in exchange" to "value in use." That is what the opening quote from Zuora referred to, "the idea that customers are happier subscribing to the outcomes they want, when they want them..." We generally do not really want products for their own sake, but as services that produce outcomes. Subscriptions are not a product with a set value in exchange, but a structure for a service relationship that produces a dynamically varying value in use.

Current subscription models drive toward this idea of value-in-use, but do not yet fully embrace it. Our concepts of value and value-in-exchange are still rooted in the old logic of products ("goods"). Value-in-use can not be known until after use. Not only does value vary from subscriber to subscriber and from period to period, but there are many factors involved in estimating value.

• Is the value tied to the period of access and/or the amount of access (permitted or used)? 
• Is it per unit of product/service? 
• Is it how well the service met quality or service-level standards (performance)? 
• Is it what the experience achieved, what benefits it led to, or how well liked it was (outcomes, whether objectively measured or in customer perception)? 
• Is it a matter of broader values, like cultural merit or support for social/civic/environmental values (including economic "externalities")? 
• Is it affordable to me (willingness/ability to pay), and does what I pay sustain creation of more content or services that I desire?

An ideal market system would factor all of these aspects of value into pricing. For example, the value of a content service is not just how many songs or videos or stories I have access to, nor how many I do access, nor whether they arrive without halts or delays, nor whether I play all of an item or hate it and stop, nor whether the service pays its creators and employees, and avoids pollution, nor whether it is priced within my means. Ideally it is a reasonable combination of all of these.

The question is: how well can we do at approaching that, in a way that still creates a good customer experience without undue complexity? In this digital era, we are gaining a wide range of Big Data that bear on understanding value -- data that directly or indirectly provide new insight into:

• the usage of products and services with detail on what we use, when, and how completely or intensely
• the performance of what we use and the quality of the experience
• the objective and subjective results of the experience.

Marketers are already using newly available data to target their offers, and to factor better predictions of value into their pricing. But subscription pricing strategies are just beginning to address the gap between average predictions of value and the widely varying actual experiences of individual consumers. 

Climbing the ladder of value -- profiting from more win-win relationships

Consider the range of approaches to price that we commonly see in practice and how they track to value. Keep in mind the fact that value in use, the outcome of a service, is difficult to predict in advance, and varies from customer to customer and time to time -- and so is best assessed after use, when the outcomes are known. There is also the problem that important subjective value perception data arises from within the head of the consumer -- that aspect of value can be hard for the business to know, even after the fact.

Uncertainty in quantifying value realization forces us to address the related question of who takes on pricing risk? This has important implications. How much use will I get from my subscription? Must I lock in a package rate to get a volume discount, and then have to wonder if I will use enough of the package to get the value expected? What if I use it, but am disappointed?

• Pre-setting prices puts the pricing risk on the consumer (causing many to refuse to take the risk at all, resulting in lost revenue), and often leads to disappointed customers (which hurts customer retention, thus reducing future revenue).
• As practitioners of value-based pricing recognize, offloading pricing risk from the customer is a service, and one that can increase sales and loyalty. Think of it as pricing-risk-management as a service.
• For digital services (which typically have near-zero marginal cost for unlimited replications), businesses have little to lose by taking on pricing risk (as long as they manage that risk effectively).

Both parties suffer when services are priced in a way that a) poorly correlates to the value the customer receives, and b) forces consumers to take on unwanted pricing risk. Specific strategies can be understood in terms of how they combine three aspects of pre- (versus post-) pricing risk:

1. Pre-set packaging of an assortment or bundle of items or services in a subscription. Do you have run-of-the-house access to a full range of items or services to choose from, as you decide you want them, or must you choose a specific assortment or bundle in advance? This comes up when you subscribe to TV channels in bundles, or to NY Times news plus crosswords, or support a museum or a musician on Patreon, and choose from multiple packages with different perks at different prices. Do you know in advance what combination you will want and how you will value it?
2. Pre-set usage levels. If you subscribe to a service, does the price depend on how much you use it, building in volume discounts? Other things being equal, a customer who uses many articles, songs, programs, or whatever, per period will presumably get more value than one who uses only a few. Does the price reflect that? Unlimited usage plans do not -- so heavy users get a bargain, and light users subsidize them (and may not find it worthwhile to subscribe at all). Beyond that, usage-related pricing generally tracks better to value when it applies volume discounts, as with mobile data plans, and TV channel bundles. (Such prices can vary a unit at a time, or be fixed within set usage bands.) Volume discounts can factor in both diminishing returns to the customer and economies of scale to the supplier. 
3. Pre-set price schedules. Even when pricing depends on usage, and offers volume discounts, that usage is most commonly priced using a pre-determined price schedule, which presumes some average quality of outcomes. More advanced value-based pricing approaches can allow the price schedule, itself, to depend on actual outcomes. For example, the price of an article or song or video may depend on the value I actually get (/perceive) from it. One simple example is when a sales commission depends on the price obtained for the sale. Outcomes pricing is generally not done in current consumer subscription plans (but is a feature of the new FairPay strategy).

Whatever the particular form of pre-pricing, the business must try to predict pricing levels (/tiers/packages) that work on average, but will inevitably work poorly for the many consumers who diverge from the average in one way or another. To the extent that such pricing decisions can be deferred, greater price discrimination can be achieved in a fair and transparent way. That leads to better economic efficiency, higher profit, and happier customers.

More detail on "Understanding the rungs on the ladder of value" is provided in the sidebar below, but to cut to the chase...

Maximizing CLV and Value Experience

The established wisdom of subscription economy businesses is that it all about Customer Lifetime Value (CLV). The problem is that this is generally viewed from a one-sided perspective -- value to the vendor. But value to the vendor is maximized when the relationship is win-win. It is a matter of fair balance -- maximizing CLV requires equal attention to how the customer values the relationship: Vendor Lifetime Value (VLV).

• It is costly to acquire customers, and therefore it costly to lose them and have to replace them -- recurring revenue models work best when the revenue recurs. 
• Customers are retained when they feel they are getting good value for their money -- for what they really want. That is especially likely when they feel the business is listening to them, understanding what they value, and seeking to deliver that at a fair price. 
• To the extent that we can migrate toward pricing methods that offer better mappings to value-in-use, customers will be happier and more loyal, and move toward maximum CLV (and VLV).

It is easy to get lost in the mechanics of pricing and subscription models (which are complicated and full of compromise) and lose sight of the underlying goal -- to find a right price, for each customer -- a price that each customer will view as fair compensation for the value they seek. We are so used to the compromises and nasty zero-sum games that are the dark side of the past century of mass marketing, that we often descend into a cycle of exploitation on both sides. Businesses treat the consumer's perception of the total value proposition as something to manipulate and exploit, and, as a result, consumers distrust businesses and try to "hack" them. But as businesses become "customer-first" and oriented to "customer experience" (CX), we see that what really matters is cooperating in a joint, effort to co-create value, to maximize "value experience" (VX).

A few decades is a long time in our personal lifetimes, and that makes it is easy to forget that we are still in the infancy of the digital era, with many deep changes yet to come. But we do see that a few decades into the digital era we are still in a time of continuing disruption and turbulence. As Peter Drucker said, "The greatest danger in times of turbulence is not the turbulence, it is to act with yesterday's logic." Moving toward value-based post-pricing will move us toward tomorrow's logic -- to reduce the cost and risk in how poorly prices track to value. It is that new logic that will fully realize the value in the subscription economy.


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Sidebar:  Understanding the rungs on the ladder of value

A more detailed view of how this plays out in subscription pricing plans is outlined in the following list (drawing on an earlier post, Beyond the Deadweight Loss of "All You Can Eat" Subscriptions). Looking at this progression, ordered roughly in accord with the degree of value-based post-pricing, it becomes apparent that we are only at "the beginning of the beginning" of our evolution toward a commerce for the digital era.

• Unit sales of items (pre-priced). This is the pre-subscription base case. Examples are song/album, video, e-book, and article ownership downloads (with or without cloud repositories). This is simple and easy, but tracks to value only on average -- and as predicted, not as realized. It is a bargain for heavy users of specific items, but costly or prohibitive (and a management problem) for light use of many items.
• All You Can Eat (AYCE), unlimited subscriptions (pre-priced). The common model of all the items you want, time-limited to periods of subscription. This too is simple and easy, but has similar kind of unfairness and inefficiency -- still tracking to value only on average (overpricing light users and underpricing heavy users), and considering value only as to the predicted average experience, not the value-as-realized. Many potential subscribers who are unsure of the value or how much they will use (or expect it will not be much) are disinclined to subscribe. Often referred to as paywalls (with all the exclusionary connotations of a "wall,") these also include tiered variants with levels of premium access, including freemium versions that begin with a free tier (but still place a paywall at some pre-set premium level). 
• Membership models (pre-priced). These are a form of subscription with a more cooperative, participative orientation, such as for publications, artists/creators, or museums -- sometimes using crowdfunding platforms like Patreon or Indiegogo. These may seem more voluntary than hard paywalls, and often include tiers or bundles that include different levels of perks, but still have pre-set prices for given levels of service (see pre-bundling, below, and note that these perks, such as T-shirts and tote-bags, are often gimmicks of questionable value).
• Partially usage-related subscriptions (pre-priced for the most part). These improve on unlimited models by adding usage-related tiers, such as for varying levels of mobile data service, how many TV channels are viewable in a bundle, or how many DVDs or e-books you can have out at one time. In most cases not only are the price schedules pre-set by the seller, but the customer must pre-select which specific tier or bundle they want. These can track better to value, in terms of usage, but only based on pre-defined units of usage -- without considering the experiential value of that usage.
• Fully usage-based subscriptions (pre-priced schedule applied to actual, metered usage). Currently, these are most widely accepted in B2B, such as jet engine "power-by-the-hour" and fleet "tires-by-the-mile." These have also been used for B2C, such as the old "per-minute" charges for mobile phone and dial-up Internet services. Consumers often dislike these plans because of the unpredictability of both usage and value, and the relentlessness of the "ticking meter." However, in some B2C uses the tracking of usage units to value can be quite satisfactory. Tire miles and engine hours are manageable and serve as a good estimator of the broader business outcomes.
• Pre-bundled subscriptions (pre-priced menu). These can be forms of any of the above in which the customer is given a set menu of options (pre-set, tiered packages) to select from at pre-specified prices. The use of tiers and packages with appropriate volume discounts leads to a better fit to value (for the tier or package), but in a very static way -- it forces the customer to select a tier or package before knowing if they really want it and will find value in it, and sets the value based on predicted averages, not actual value in use.
• Post-bundled subscriptions [new] (post-priced in part based on actual usage -- but still based on pre-set volume discount schedules). This is an enhancement of conventional subscriptions that I have proposed, such as for TV services, that offers discount prices at levels comparable to current TV bundles, but with the composition of the bundle set after the fact, so that customers can watch whatever channels they want, while still benefiting from a bundled-rate discount. This can track significantly better to value as it varies from customer to customer and month to month. It does not directly address outcomes (did you like that program?), but refund options can be provided (for each program view) to add a degree of outcomes tracking (duds are free).
• Performance/Outcomes-based pricing (post-priced based in part on actual usage, with a price schedule that is based on performance or outcomes). This goes beyond usage alone, to factor in the quality or result of that usage. Performance-based pricing is common in digital advertising (clicks, leads, transactions) and other B2B markets. Outcomes-based pricing takes that farther up the value ladder, and is increasingly applied in healthcare (where the price schedules are typically set in advance, based on prior results in test populations). Of course it would be more desirable to base the schedule (at least in part) on actual individual customer outcomes, where that is feasible (pay if cured). 
• Soft values as pricing factors (pre-priced or post-priced). This adds consideration of broader values in the overall experience, like cultural merit or support for social/civic/environmental values. Conventionally, this is rarely an explicit factor in pricing, but some aspects are increasingly implicit in prices, in the form of a tacit understanding that consumers are OK with paying a premium for goods and services that support broader human values and/or are produced and delivered in socially responsible ways.
• FairPay subscriptions (/memberships) (post-priced, with price schedules set after usage). This is the new value-based strategy that shifts to an adaptively cooperative process for "dialogs about value" that get finalized after usage to create the best practical approximation of price to value in use. (FairPay also applies elements of participatory pricing to optimally factor in the customer's perception of value-as-experienced.) FairPay is designed to co-exist, at whatever level desired, with the other methods above, and to be able to subsume them in a flexible architecture for collaborating on value and price (co-pricing). More about FairPay and how it can adaptively seek the best of all of these approaches is addressed elsewhere in this blog. It is not yet clear how widely applicable FairPay will be, but it points to many aspects of deeply value-based strategy that will almost certainly be important in one form or another.

[Update: related comments: The Relationship Economy -- It's All About Valuing Customer Experiences]

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(Other posts in this blog have explored many aspects of the subscription economy, and how FairPay offers a path to a next generation of more profitable subscription relationships. Recent posts explained how and why the FairPay strategy adapts the "value-based pricing" approach that is increasingly transforming B2B markets, but has so far seemed less readily applicable to B2C markets --and how FairPay's new approach to consumer relationships can change that game.)

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: "Better Strategies for Monetizing Digital Offerings" MIT Enterprise Forum 12/1/11

It was very gratifying to present FairPay to an audience of about 100 at last night's MIT Enterprise Forum of NYC panel session on "Better Strategies for Monetizing Digital Offerings: Thinking Out of the Box while Looking across Industry Silos."  (more commentary below...)

Video and slides of FairPay presentation:

 

(If any problem viewing the slides, click the "slideshare" button above)(Links to full session below)

After a nice overview by our moderator Dr. Howard Morgan (Co-Founder and Partner, First Round Capital) we got into the perspectives of a diverse array of panelists.  

• Paul Smurl (Vice President, NYTimes.com) shared insights into the closely watched Digital Subscription paywall strategy at the Times, which has gone even better than they expected to meet the challenge of generating reader revenue without loss of ad traffic--and given a boost to print as well.  
• Betsy Morgan (President, TheBlaze.com, formerly of HuffPost and CBS Digital) noted how they were  monetizing Glen Beck's TV offerings with direct OTT (Over The Top) subscription services, that are already generating $10 per month from 230,000 subscribers.  That may seem small compared to the Fox audience, but when you consider the share to Beck, that gets very interesting.
• Shawn Price (President, Zuora.com) provided insights on what Zuora calls "The Subscription Economy," based on work with over 500 companies.  He noted the power of a flexible platform like Zuora's to adapt in real time with some 100 different control parameters, and how it makes it manageable for content and service providers to apply very advanced and nimble e-commerce strategies.
• I provided a more radical perspective on how we might rethink the whole structure of how we monetize digital offerings, including basic issues of transaction and pricing architecture, to create a new kind of deep real-time dialog with customers about value.  Key themes were
  --the need to take a holistic view of relationships, not just transactions,
  --the power of a simple shift to "Pay as You Exit," an opportunity that has generally been ignored, and
  --the opportunity to apply a new level of detailed market research that is fully integrated with every transaction.

All of the speakers noted how important it was was know your customers and track them in real time, and how some aggregators/distributors (notably Apple) impede that critical task in a way that can ultimately be very limiting to sellers of digital offerings.

I was very pleased with the response to my presentation of FairPay, and to my latest attempts to make it easier to understand.  The challenge is that while FairPay is quite simple in its basic concept, it changes many of our core assumptions about doing business at many levels, and has very deep ramifications in ways that take some thought to fully understand and appreciate.  The discussions and questions on how and where FairPay works indicated that many people found food for thought.

The posted slides may show some of this, and I expect the video should be available soon (to be linked below).  I also plan to adapt this presentation to add better explanations to the Web site and this blog.

My thanks to the other speakers, and to the audience for a very stimulating session.

...And for anyone who wants a really detailed preview of what I suggest are groundbreaking ideas on where the future of digital media business will go (or just needs help getting to sleep), the USPTO published my FairPay patent application yesterday.

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Video (full event, by speaker)
MITEF-NYC event page, with video and slides
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FairPay Presentation

Oversubscribed? Peak Subscription? -- No, Peak Unlimited, Flat-Rate!

Amanda Mull wrote "This Is Peak Subscription: Forking over another $5 a month is getting pretty old" in The Atlantic (3/3/22), identifying the pricing problem: "trying to divine what constitutes an acceptable return on, say for or 10 bucks a month." Buying a new smart TV and loading all her streaming apps, she asked, 

Why am I paying for these things? How much of this stuff do I even enjoy? ...the kind of light-bulb moment that has stuck with me as I peruse my credit-card statements or shuffle through apps looking for something to watch on TV, trying to divine what constitutes an acceptable return on, say, five or 10 bucks a month. ...No one is sure how many subscriptions the average household will bear before it snaps and starts canceling things, but we might be about to find out. 

To which Tien Tzo (CEO of subscription management company Zuora) said: "Nonsense. Hogwash. Poppycock. Balderdash." in his well-reasoned rebuttal, "Is The World Oversubscribed?" (3/19/22).

As those familiar with FairPay strategies can see, both are right. This is peak unlimited, flat-rate subscription! That is because for most services the acceptable return actually realized will vary from month to month, depending on many variables not known until the month has ended. That means the acceptable price must vary with that month's need.

I expect a shakeout that will gradually kill many subscription businesses, but two kinds will thrive and grow.

1. The biggest players, with the richest value propositions have the market power to survive even their bad pricing models.
2. The others will find ways to make their pricing more flexible, able to track to varying levels of value, but still simple. (as Zuora's Subscribed Institute suggests).

Few yet understand how they can do that -- here is how...

My previous post, The Great (Streaming) War of Stupid Value Propositions -- Continued!, explains how more flexible strategies might operate as "risk free subscriptions" in which the consumer does not risk paying for a subscription they get little or no value from in a given month:

The essence of the risk-free subscription is to be flexible, in order to be value-based -- cheap or free at low or zero usage, and rising at a reasonable rate as usage and other aspects of value received increase in that month, up to a set monthly cap. Think of it as a pay-ramp instead of a pay-wall. This kind of flexibly affordable model that is based on the value that each individual viewer actually receives (and that ramps up less prohibitively than pay-per-view) will get more viewers to buy more subscriptions. That will generate more profit from more viewers for every provider who has content that viewers want.

Such a pricing model also offers sensible economics across a mix of providers and aggregators. Disney could leave most of its content on Netflix for those who are only occasional viewers, while attracting its more regular fans to direct relationships on Disney+ with added features (such as its newest and hottest shows, and extra perks).

Instead of the all-or-nothing battle for AYCE subscriptions, providers can build relationships with all or most of their potential viewers. Think of this as agile pricing for a good customer value experience (CVX) -- and for a fair revenue share to platforms, content providers, and creators.

More on this theme:

• "Risk-Free" Subscriptions to The Celestial Jukebox? (A Working Draft)
• Post-Bundling -- Packaging Better TV/Video Value Propositions with 20-20 Hindsight
• "The Case Against Micropayments" versus "Subscription Hell" -- Finding Flexibility

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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.)