Customer-Hostile Value Propositions
The inherent inefficiency and unfairness of conventional pricing methods and the business relationships built around them have been noted throughout this book. Mostly, this unfairness is unintentional, a matter of inattention, and the inherent unfairness of set-price methods (whether all you can eat or usage-based). In this chapter, we highlight a few common business practices where that neglect verges on downright customer-hostility.
The point here is not simply that FairPay offers a better strategy, but the larger idea that much of current business thinking is simply blind to the importance of seeking win–win value propositions, even when that would be easy. Consumers have an intuitive sense of value, and a revulsion for pricing policies that appear to go against the grain of value. Businesses would do well to be more attuned to the customer perspective on value, especially to avoid cases of flagrant disregard. (More at FPZLink.)
Artificial Scarcity, Copyright, and the Death of Piracy
Perhaps most fundamentally counterproductive and customer-hostile is the idea of artificial scarcity. As many content producers view it, the inherent wonder of digital, its lack of scarcity, is a not a benefit, but a curse. Never mind that there is much value to be shared very widely with effective pricing. The old logic is that scarcity drives high prices, and so publishers should use every trick in the book to create a degree of artificial scarcity—hard paywalls and price fencing, protected by strict and expansive copyright enforcement—even to the point of suing individual consumers for piracy (which even the music industry reluctantly came to recognize as counterproductive)!
Perhaps the biggest blow up in recent years was in 2012, when publishers succeeded in lobbying the U.S. Congress to vote on two bills that would dramatically extend the power of copyright owners while putting draconian restrictions on consumers. At the 11th hour, the tech lobby rallied massive consumer protests to cause the resounding defeat of these bills, called the Protect IP Act (PIPA) and the Stop Online Piracy Act (SOPA). FairPay puts this issue into interesting perspective. It suggests that the way to end piracy is not to reduce the supply, but to reduce the demand for piracy.
What is the real objective here? Copyright and ownership of intellectual property are not ends in themselves, but means to a larger end. This larger end, is clear in the Constitution: “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”
Thus copyright is clearly only a means “to promote the Progress of Science and useful Arts.”
It would be foolish to apply measures to protect copyright that impede “the Progress of Science and useful Arts” more than they promote it.
The problem with PIPA and SOPA is that they seem to overstep the objective, and to enhance a means at potentially high cost to the desired end. There are two real issues:
The Internet has facilitated piracy to the point that it threatens the ability of creators of writings and other arts to earn reasonable compensation for their work, and thus threatens the progress we seek for society. If creators lack fair compensation, fewer will create, and society will lose.
We (society) support IP ownership to the extent that it is good for society, not for its own sake.
The challenge is to find better ways to ensure the fair compensation of creators for the good of society. The Internet is a tidal change—we must learn to channel the tide, and harness it, not try to stop it.
Fairness and Piracy
Robert Levine’s book, “Free Ride,” (Levine 2011) provides a nice summary of many of the issues of piracy, and makes it clear that some level of piracy is inevitable, with a level that depends on a number of factors, including:
The ease and effectiveness of piracy relative to any issues of quality and risk.
The ease and effectiveness of legitimate sources.
The cost of legitimate access (relative to piracy).
Social and ethical factors relating to the legitimacy of the IP owner, and the fairness of stealing from them (stealing service, not bits).
It is well known that the Internet has shifted at least #1 and #4 toward piracy.
The real solution is not laws and other efforts to shift #1 (although some modest improvement may be gained), but to shift #2 to 4, and especially #4. The value of shifting #2 and #3 are well known, and summarized by Levine. What is less recognized is how important #4, fairness, is.
FairPay can help kill piracy by letting buyers pay what they think fair, within limits.
When buyers can buy legitimately for a price they accept as fair, the cost becomes a non-issue. Those who have limited means or get little value can still buy for a price that considers those factors fairly.
When buyers can buy legitimately for a price they accept as fair, the fairness of piracy becomes clearly insupportable for all but the sociopathic. It is hard to argue that “information wants to be free” (as in free beer), when it is free enough.
Piracy is a tax imposed by the people on the sellers of IP—a Robin Hood tax. When the price of content seems onerous, people feel that they should not have to pay for it, and piracy appears justified. It is seen as noble for the poor to steal from the oppressive rich.
Killing the Demand for Piracy, Not the Supply
As with any illegitimate product, it is generally easier and more effective to reduce demand, not to choke off supply. That is best done not by legislation, but by making the legitimate alternative more attractive. (How iTunes killed Napster is a well-known case in point.)
There are a number of interrelated levers to move in that direction:
FairPay pricing is a significant step in the right direction. It makes prices more suited to individual buyer’s needs, values, and ability to pay. Copyright owners retain the right to extract their “monopoly rents,” but must balance that with the quid pro quo of society’s desire to benefit from their creations.
Making sellers more legitimate in the eyes of customers is also a major factor. To the extent the IP owners are seen as evil, faceless corporations that exploit their customers (and their creators), it is easy to justify stealing from them. Showing that they listen to customers and can be flexible in pricing will greatly increase their perceived legitimacy and deservedness.
Getting sellers to be more clearly respectful of creators can also have a big effect. Many music labels are perceived as sharing little of their profit with their artists. While they do have real costs of nurturing, marketing, and managing, clearly the Internet is shifting that toward “skinnier” models. Middlemen must either get skinny, or demonstrate why they deserve the share they get, and be transparent about how much they share with the creators.
FairPay is not essential to all these levers, but it can contribute significantly to all of them.
When buyers set prices, no man will be a pirate. That may not be true in every case, but in enough.
Ad-Blocking—Kicking and Screaming to Win–Win Value Propositions
Ad-blocking is a newer cause-celeb—to publishers, ad-blocking looms much like piracy, as an existential threat (especially since Apple enabled it for mobile). But this may just force the end of an era of customer abuse deservedly left behind.
Things are so bad that the industry recognizes it must change. As described in the PageFair and Adobe 2015 Ad Blocking Report (PageFair 2015), which estimates that loss of global revenue due to blocked advertising during that year was $21.8B:
... ad blocking is endemic only because online advertising has become so invasive that hundreds of millions of people are willing to take matters into their own hands. To sustainably solve ad blocking, we must treat these users with respect, not force feed them the popovers, interstitials and video ads that they are trying to get rid of.
Publishers have relied on ads to pay the freight, so customers could buy their content at low rates. Some sites even have terms of service that make the contract explicit—you agree to view our ads in exchange for access to our content. As with piracy, legal attacks on ad-blocking are being considered by some.
But there is growing recognition that the real problem is that the advertising value proposition has become a bad one. Publishers have chosen to give customers no choice, but now the ad-blockers have taken the decision out of their hands. Steps toward changing this are emerging—the PageFair/Adobe report goes on to say:
Sites which sign up for PageFair are given an analytics system precisely aimed at determining how many visitors are blocking ads, as well as a supplemental advertising system that displays adverts to adblockers only. The idea is that Web sites use those supplemental ads to ask visitors to turn off ad blocking software, appealing to their better nature and laying out the economic difficulty with operating in an environment where ad blocking is commonplace.
Any move in that direction will bring publishers closer to still more cooperative models such as FairPay. FairPay prices can be based on a new kind of value metering that acts as a flexible guide, not an oppressive sledgehammer. And it can be a value meter that runs in both directions—charges for value received, and credits for value given (such as in the form of ad-viewing, personal data that can be sold, viral promotion, user-generated content, etc.). All this is based on a win–win balance of powers. The Internet has leveled the playing field, and the sooner suppliers recognize that, the better for all of us.
Post-Bundling—Packaging Better Value Propositions with 20–20 Hindsight
The TV/video industry has been sheltered from the tides of digital a bit longer than music and journalism, but they are under increasing pressure, and their increasingly challenged practice of bundling channels into subscriptions suggests broader lessons. The shift from bundles of cable TV channels to Internet-based “Over the Top” (OTT) and “a la carte”—or at least “skinny bundles” or reconfigurable bundles—has raised cheers and fears—and an industry stock market decline (Hufford 2015). But we should be thinking about a more win–win kind of “post-bundling” future.
Once again, we take pre-set cable TV bundles for granted, as the way things are, but think about it. What sense does it make for me to choose ahead of time what channels I want to be able to watch in a given month (from a menu with only a limited choice of bundles)? Does Spotify ask me to choose what record labels I will want to listen to? How would I know?
There is a very simple way to do much better (even without FairPay tracking and feedback processes). Let viewers pay for what they use, and do it in a sensible way that corresponds to that. Current bundles (regular or skinny) do not do that, a la carte does not do that (not without discounts), and flat-rate video on demand does not do that. Viewing is irregular and unpredictable—the only way to determine its value is after it is logged.
Instead of selecting a bundle from a menu beforehand, we should be able to consume dim sum-style, track what we used, and then have the seller price that under an appropriate discount schedule (unlike simple dim sum). A simplistic undiscounted dim sum at a la carte prices would be overpriced, and customers will fear running up high charges. Conventional video on demand (when available) is based on undiscounted pay-per-view pricing—but doing more than occasional viewing this way gets very expensive fast. It is easy to do better, with discount tiers for various levels of viewing, and for various mixes of premium content.
Pricing should factor in not only which channels were viewed, but how many shows (and maybe even which ones).
Tiered plans could give average per-program prices similar to current bundles, but with the flexibility to dynamically alter the composition of the bundle.
Usage factors could reasonably be set, so a bundle of many lightly viewed channels might cost no more than a bundle of a few heavily viewed channels (a consistent cost per program).
A degree of usage-related pricing (with discounts) would better track to value. That could limit the cord-cutting of light viewers, and obtain fair increases in revenue from heavy viewers (with price caps to ensure affordability).
Customers could be alerted when they approach various budget thresholds, so they need not fear nasty surprises.
Again this can be done simply, without the advanced tracking and feedback processes of FairPay. Of course even greater tracking to value can be obtained with full use of the FairPay feedback process.
A similar use of post-bundling—with FairPay—was described in Chapter 10 for travel guides. That example also highlights the benefits of cross-supplier access (the Celestial Jukebox again)—with reasonable charging across suppliers managed through an aggregator. The old cable TV bundles at least gave us a single aggregated source for all our TV. Now that that is breaking down and moving toward a la carte, one can only hope that the TV industry will recognize the lose–lose inefficiency of separately priced walled gardens, and will find a better way to support aggregated access at reasonable prices (whether with FairPay or not).