CHAPTER 4

Brief Example: Digital Content Subscription Businesses

We will examine a variety of practical business examples of FairPay in a range of industries in Part II, but let’s take a quick look at a representative and important example. This is a subscription-oriented example. (FairPay also applies to item-oriented sales, when they are part of an ongoing relationship, as explained in Chapter 7.)

Digital content businesses of all kinds are increasingly shifting to ongoing subscription models for time-limited access to content. Subscription platform-vendor Zuora has nicely described this as “The Subscription Economy” and has described how this fundamentally changes business from sale of things, to ongoing access to services, with deep ramifications in customer relationships, finance, and core business infrastructure systems. Instead of buying content items and owning them in perpetuity, as distinct units, what is sold instead is a right to access a vast library of content, with run-of-the-house privileges (“all-you-can-eat”), but on a time-limited basis in which the right to access expires with termination of the subscription.

Examples of such subscriptions range across most of the big names in digital content, from aggregators such as Apple iTunes and Amazon Prime, to newspapers such as the New York Times, music services such as Spotify, and video/TV services such as Netflix, and HBO. Similar considerations also apply to non-content services such as Dropbox and LinkedIn. The aggregators are intermediary platforms for access to diverse content from many sources, while others are direct content or service provider businesses.

FairPay applies to both subscription businesses and more traditional item-oriented business that let customers download and own/use items in perpetuity (like iTunes and Amazon also do). Subscriptions most strongly depend on the continuing relationships that FairPay builds on and brings new dimension to. Such businesses already understand that customer lifetime value is critical to profitability, and focus intently on retaining and making the most of the customers they spend money to acquire.

• Subscriptions are a critical battleground for competing platforms and business models, one that could set the ground-rules for monetizing digital content and services at the broadest level.

• Subscriptions get at the heart of ongoing customer relationships, and provide an aggregation structure that works for a broad swath of content and services.

• Subscriptions relate closely to the major pricing alternatives of free and freemium.

In the context of a subscription, the FairPay process unfolds on a (more or less) month-to-month or week-to-week basis (as illustrated in Figure 1.1):

1. As an alternative to the set-price freemium paywall, a selected customer can be offered a trial month of unlimited use of a basic class of service, on the basis that at the end of the month they will set a price for what they used, on a Pay What You Think Fair basis. The buyer will be told up-front that renewals for additional months (or weeks) will depend on whether the price they set is deemed fair by the seller.

2. As the process continues after initial use, buyers will be asked to set their price, and are given usage reports to remind them of what they used, and how that compares in quantity and value to typical subscribers.

   • The seller frames the offers and the pricing requests with background on standard set prices, suggested prices, and typical FairPay prices actually set by other buyers, all with respect to the types and volumes of usage by the customer (such as basic and premium tiers).

   • During each pricing cycle there are specific reminders that those who pay well will be offered added rewards (premium tiers, other perks) for future cycles, and those who pay less might be offered less.

   • Buyers can be encouraged to give reasons why they chose to price as they did, including low or high usage, low or high quality, low or high value realized, economic circumstances (student, unemployed, retired, business use), and the like (primarily as multiple choice, for automated scoring).

3. As this continues, each buyer establishes a FairPay fairness reputation that characterizes how well and fairly they pay, and whether they do so consistently or erratically (with consideration of any relevant circumstances known or reported).

4. The offers to the customer after each pricing cycle are adjusted, based on their pricing fairness history.

   • As long as the buyer sets prices that seem reasonable considering all these factors, the seller offers FairPay renewals, and the buyer enjoys the freedom of FairPay.

   • The details of the offers and the process can be individually and dynamically tuned to encourage good payment levels.

   • For those that fail to pay acceptably, it is back to the set-price paywall—after some level of warning or probation (at least for a time, possibly to be given another chance in the future).

   • Thus the parties continually and jointly learn one other’s views on the value of the service, and the expectations for fair pricing.

5. As buyers establish good FairPay reputations, the seller can extend more FairPay “credit” to include longer periods between pricing—providing more value that can be enjoyed before it must be priced. Price setting might gradually be reduced to a quarterly or yearly cycle for established subscribers with good FairPay reputations, easing the burden of price setting, and extending more FairPay credit. (Payments might be monthly, even if price setting is yearly, for better cash flow and flexibility.)

In this way, FairPay takes conventional approaches to subscription pricing and stands them on their head.

1. The customer, not the seller, sets prices (for themself, as a market segment of one).

2. The seller selectively gates the offers to specific buyers, and thus manages the value at risk, at any given time, to each buyer.

This leads to more happy customers, plus more revenue to the provider to create quality services, based on the following:

1. Pay What You Think Fair and Price it Backward (after usage) largely eliminate risk of buyer remorse.

2. Customer price-setting accommodates a wide range of price sensitivities to ensure that anyone who gets reasonable value from a product/service can afford to buy it.

3. Sellers need not cut off potential buyers (who may not yet appreciate the potential value), only buyers who have proven (or are expected) to not value the service at an acceptable level.

4. The impossible task of setting a price that is “right” for all is replaced by the manageable task of understanding specific buyers and their sensitivities through a structured dialog. (Segmentation alone cannot be nearly as individualized, or as dynamic.)

5. FairPay provides a nuanced and individually set pricing “dial” that give readers real say in pricing, but leaves ultimate control of the relationship with the publisher.

Given its roots in the older pay what you want pricing method, it may take some thought to appreciate how FairPay is radically different, and can not only produce acceptable prices, but actual profit maximization—and do that with the necessary simplicity. We will address that in depth in the rest of the book, after the following simple example, and a review of some conceptual foundations.