Continuing on the pricing for online news media, Alan Meckler of WedMediaBrands wrote a response to the WSJ article by Crovitz. You can find the letter in its entirety in Meckler’s blog. In that article Crovitz made a case for why it makes sense to charge for differentiated content. Market share or Profit? Meckler says,
A subscription model has probably cost WSJ.com hundreds of millions of page views per month and perhaps as many as 50 million additional unique visitors. A financial Web site of the magnitude that WSJ.com “could have been” would be worth much more today than the present level of success. A quasi-open and partial subscription model would be far more valuable for sure.
I believe Meckler is making this argument based on possible Ad revenue from the page views. A simplified profit model for online newspaper (marginal cost is zero ) is
Profit = Ad Profits + Subscription profits
= f( page views) + g ( number of subscribers)
It is easy to see that that function f(…) is a linear function and function g(…) is nothing but a constant multiplier. The number of page views is dependent on whether or not the website is free or not.
The goal is always profit maximization not page views maximization. It is easy to see that WSJ or for that matter any online newspaper should pick between free subscription vs paid subscription based on which maximizes their profits. Worrying about page views is putting horse before the cart. WSJ could have lost out on 100 million age views but if the Ad revenue from these are lower than the subscription revenue that is gained from the 2 million subscribers there is no reason to give it away for free.
Maximizing page views is same as worrying about market share at the expense of profit. Recently many of the leading CPG brands are increasing their profits by giving up market share. It is not different for Web based services. It is time to break out of Market Share Myopia (with a hat tip to Ted Levitt).