Pricing structures are fundamental to providing an effective and useful service, writes Paul Hunt, managing director of Phoebus Software
This month, Slovakia became the first country in the world to put the majority of its online media behind a common paywall. Of one kind or another, media paywalls are almost certainly the future and they represent a solution to one of the biggest problems facing companies that produce intangible products and services – hot to avoid giving your services away for free.
But they also present a problem. The acrimony that greeted The Times’ decision to levy a subscription charge for its online content demonstrates the risk media outlets take when they try to monetise their products. The Times claims 79,000 online customers while the free sites of the Daily Mail and Telegraph claim 3.1 million and 1.85 million users respectively. This gives us some idea of the decrease in traffic The Times faces as a result of the paywall. Advertising revenues have dropped accordingly. Is the paywall worth the bother?
Paywall enthusiasts will argue that they are pioneers of a future all media outlets will inevitably face. Just as physical newspapers are generally unable to cover their costs through advertising alone, online content must be the same.
The debate about paywalls raises a wider question about how to monetise intangible products. Many online companies start with the objective of maximising user numbers before they even begin to think about how to monetise their products. This is the wrong way round. While it’s essential to ensure people are using the your product, actually getting money from them requires creative solutions which take almost as much work as creating the core product itself.
In the mortgage industry, software providers know pricing structures are fundamental to providing an effective and useful service. Phoebus pioneered the use of flexible payment models which mean our clients can take our software on a rental basis. Our clients pay as the price of their books grow and the traffic they send through our product increases. This means small lenders and servicers can avoid big overheads, which allows the little guys to provide use software of the same quality as their larger competitors. In our case, flexible pricing of software products allows companies greater price flexibility depending whether their books are growing or shrinking. Our consultants have huge experience of the mortgage market – they know the value of low upfront fees.
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Too many companies treat pricing intangible assets as an afterthought, when it should be fundamental to the structure of your business. Customers benefit from payment systems that allow them flexibility and convenience but don’t sacrifice the quality of the service. But getting it right also means maximising revenues.
For instance, LinkedIn’s 75 million active users were recently valued a by PwC at only £34 each. For Vodafone and Virgin Media the prices per customer are £323 and £858. Even allowing for the inherent differences between these businesses, it’s clear LinkedIn hasn’t optimised its income resulting from its extensive base of users. The same applies to media outlets. Just as The Times must have known when they set up the paywall they would lose huge numbers of users by setting up a direct payment system, LinkedIn knows free social networking sites could easily steal business if customers feel the service is not worth paying for, restarting the cycle of unprofitability.
Slovakia’s multiple-outlet paywall is an innovative idea which will allow companies to compete on content rather than force them to outlast each other surviving on advertising revenues. But the important point is that it actually looks after the consumer’s interests – and when thinking about how to monetise intangible products, this should always be the starting point.
