It is not what you can give away, it is what you can charge for

In one of my previous posts I talked about why free is not a viable business model.  With every Web2.0 business based on free model, can anyone hope to charge for services? The answer comes from an essay by Gordon Crovitz, on online news media pricing:

For years, publishers and editors have asked the wrong question: Will people pay to access my newspaper content on the Web? The right question is: What kind of journalism can my staff produce that is different and valuable enough that people will pay for it online?

Applying this to Web based businesses, which for some reason are looking at their marginal cost of production ($0.00) to price their offering,  “It is not what it costs a marketer to produce or whether people will pay for your service but does their service add unique value that is not available for a lower price anywhere else?”

Of course this depends on whether people who recognize the value are still willing to pay for it even though no such service is available elsewhere. That depends on whether or not the marketer gave it away for free in the beginning and is now trying to move from a free to fee model. If you had trained your customer by giving them your service for free it is not going to be easy to switch them to a fee model.

So why not charge them from the beginning? Why worry about freemium/ freeconomics and building users base? Why invent complicated schemes based on growing mind share?

Crovitz says,

The truth is simpler: People are happy to pay for news and information however it’s delivered, but only if it has real, differentiated value.

True for any online service.

For related discussion on this see a post by Peg Corwin in her Score Chicago blog. She discusses Chris Anderson’s model  and the proposal by Walter Isaacson on newpaper.

See also a case for Unbundled Wall Street Journal in my Unbundling blog.

9 thoughts on “It is not what you can give away, it is what you can charge for

  1. >> >The truth is simpler: People are happy to pay for news and information however it’s delivered, but only if it has real, differentiated value.

    True for any online service

    I personally would not pay for that. I expect them to publish for free on the WWW, and they can display ads if they want to. But I am just not willing to pay for the access. So now what do you do with me? 😉


  2. Peg
    Micropayments are inevitable. There are of course high transaction costs, but there are ways around it, e.g., prepaid cards. I have been studying Unbundling a service/product both offline and online. A Korean online gaming company Nexon makes it free to play but charges for game items like weapons, shields etc. They sell prepaid gift cards in Target. Similarly IMVU sells gift cards in Target.

    You are absolutely correct, why should we pay for content that we are not interested in and/or available for free elsewhere? An unbundled newspaper makes perfect sense.

    To your question whether subscription or unit pricing, the short answer is we cannot and should not pick one over the other. As the customer segmentation mantra goes, if one price is good, two prices are better. We cannot unbundle every service and charge per use as we could be destroying value.

    The subject of Subscription vs. Usage based pricing has been studied by UC Berkeley economist Hal Varian (now Chief Economist at Google) in depth. I only have the PDF version of Varian’s memo on this exact topic but I think it should be available from his web site as well.


  3. (Disclaimer: I have no affiliation with this company other than knowing the owner)

    Y’all should check out Kachingle. It’s designed to address exactly the issues you raise. It’s micropayments, but based on the value the reader places on the content, not the value the publisher does. I think it’s pretty cool — very much in line with the modern web ethos.

    Now to see if they can get some major publishers on board…


  4. May I assume, Rags, that you envision micropayments for journalism and web-based services? Particularly with journalism, I may value copy only on certain topics. I personally don’t want to pay for a sports page.

    Extending that to online businesses, does that mean a move to user fees, like paying for the conversion of one document to PDF? We’ve got to make that one-click easy across the net.

    While of course we will see both models, maybe I’m really asking whether subscriptions or unit pricing will reign? The online subscription model has been such struggle up to this point.


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