There is a lot of hoopla going on these days about newspapers going out of business. Craigslist has decimated classified revenue. Eyeballs have shifted online, killing print ad revenue, and so on.
A big ongoing question is whether it will be possible for newspapers to stay afloat by charging for its content. I happen to think it is possible, especially for those few papers with original, high quality, highly differentiated content.
But my point in this article is not to argue that it would work, but instead to stick my neck out and take a stab at the question of, if requiring payment were attempted, how such a system should be crafted. My fear, and expectation, is that when paid online newspapers are introduced again, it will once again be done clumsily and greedily, and will foster user rebellion and further decline of journalism.
So here is a blueprint for another way.
Precedents
The system I propose rests upon elements of several precedents which provide proofs of concept:
- SMS messages - Each message is too cheap for the customer to think about (although in the aggregate, the price is enormous). There is no purchase confirmation; it just happens. Consumption is separated from payment, which happens at the end of the month. (Someone tell me again that micropayments won’t work?)
- Ringtones – even at $1 or $2 it was cheap enough to be a no-brainer for status-conscious kids. The purchase was also separated from billing.
- Electronic toll collection systems such as FasTrak or EZ-Pass. I had read that bridge tolls increase far faster than otherwise when electronic payment is implemented (I can’t find the reference. Anyone?). It’s is a lot easier to cross the bridge without having to feel the pain of handing over a fiver each time.
- Apple’s iTunes Music Store - Anyone can download any song online for free from file sharing networks. Yet lots of people pay to get it from iTunes Music Store. Why? It always boils down to their needs. The iTunes store addresses the need for convenience (speed and streamlined purchase workflow), the need for audio quality (random downloads vary in quality), and the need for a clear conscious. There is a market for legal.
- Apple’s iPhone app store - iPhone apps are so cheap that it’s almost a no-brainer to just buy them. And you can buy them right from the phone, greatly reducing the purchase friction. Estimated sales? $2.5 billion per year.
- Skype - You only have to pitch in $10 occasionally. The amount trickles down slowly as you call your distant relatives. (Tell me again how micropayments don’t work?)
- Wall Street Journal online – offers a proof of concept that differentiated content can attract paying customers.
- Nintendo Wii game store, iStockPhoto and others deal with credits rather than dollar value. Not necessarily the customer-friendliest trick, but it allows prices to be increased while obfuscating the normal pricing calculus.
- Credit cards – You only pay at the end of the month. Credit cards divorce the desire to acquire from the pain of paying, and that makes people much more willing to spend.
- Amazon 1-click – Radically reduces the purchase friction. You click that button and your mind switches modes from, “Should I buy it? Let me think about it.” to “I bought it, now let me think about how to justify my actions.”
Elements of all these systems can be incorporated into our architecture for moving people to a paid model for newspaper articles.
Incidentally, I think it’s silly for people to make blanket statements that micropayments can never work or that people will never pay for online content. Micropayments are nothing more than small payments. Anyone buying a gumball out of a machine is making a micropayment. That said, to make it work the content has to be valuable enough to be worth buying, differentiated enough to prevent migration to lower-cost competitors, cheap enough to not think about, and the payment mechanisms has to be streamlined enough that it does not impose its own burden of inconvenience.
Overall strategy
The solution requires some systems thinking to account for the psychology of visitors. There is some social engineering going on here but I hope you don’t construe it as evil. Society needs strong journalism and we’ve had a free ride for many years. Those doing a good job of journalism deserve to be compensated well and we have to find a way to get from here (unsustainably free) to there (sustainably profitable).
The strategy involves these elements, which have been notably absent in prior attempts:
- Position ourselves to be on the consumer’s side.
- Overcome the barrier of having the customer pull out that credit card for the first time
- Boil the frog. (Yes I know frogs don’t really allow themselves to be boiled slowly.) Start the user off with plenty more free content, then make it so cheap they don’t care. Give time for people to get used to the idea that there is no more free lunch, but make lunch extremely cheap. Then ratchet up the price gradually profitability slowly as
- Make the transfer of money and credits as frictionless as possible.
- Separate the act of consuming from the act of exchanging money. Avoid having people make purchase decisions.
- Plan to lose money for a while, as you transition the audience to a paid basis. Getting greedy and trying to make a huge profit immediately will just leave you wondering why the frogs just keep jumping out of the water.
The system would work something like this:
1. Preparation
- Make it clear to visitors in advance that access to certain content will soon require credits. Not because you’re greedy or mean, because you can no longer survive without it, which is true. The point is to combat the first instinct of critics that anyone who tries to charge for something is evil.
- Start as soon as possible, to space out the future price increases as far as possible.
2. Pricing and sign up
- Use credits as currency for accessing content, not cash.
- Do not expire credits (like some services we know)
- Give unlimited access to nonprofits and educational institutions, for good will.
- Give away a large number of free credits to anyone who wishes to continue reading the site. Give enough free credits for 6 months of typical usage and convey clearly that this is the case. The point is to soften the discomfort at transitioning to metered access. Users may initially think, “This stinks! I don’t want to pay! But whatever, just give me the article I want to read; I can opt out later when my free credits expire.” But as they use the site over time they will incubate in the thought that the content is actually worth something and think, “Well it’s not that much and fair is fair.”
- When the user signs up, require a valid credit card, PayPal account or direct withdrawal. Don’t charge anything at this time; instead, deposit a few cents in the account. The point is to disconnect the act of giving the credit card information from any purchase decision. Getting over this hump is a major strategic turn.
- Give the user the choice of how much the auto-bill amount should be when the user runs out of credits. $5, $10 or $20. The point is to give the customer some level of control so they don’t feel like helpless victims.
- Make the initial price for reading an article so low, few will care: 2 credit per article, with one credit worth roughly one penny.
- Keep the price structure extraordinarily simple. Make all the content deduct a single credit. Don’t charge different amounts for different length articles or different “premium” articles. Don’t make some content free and some paid. Your goal is to avoid having people ever snap into purchase decision mode.
- Make the cost of credits an odd ratio, such as 1000 credits for $9.50. This will be increased over time.
- Continue to serve ads and, of course, collect revenue for them.
- Allow for an ad-free version of the experience, for, say, 3 credits per article, whatever recoups the lost revenue. Indicate in the box in the corner that this price level is activated.
- If you detect that ad blockers are being used, then, after a generous grace period, let the user know that they will be automatically switched to the ad-free experience in a few days. Give instructions on how to disable their ad blocker if they would prefer otherwise.
- Offer unmetered access to the site for $50 a year.
- Be fair, and when the user hits the annual subscription amount, automatically upgrade them to unmetered access and let them know. You could bilk them as, say, cellphone carriers and banks do, but remember, you want customers to see you as the good guys to lower their resistance to paying you.
3. Reading / purchasing experience
- Show the meter of credits remaining in a box at the top-right corner at all times.
- Indicate within that box the price of each article: 1 credit per article.
- When the user clicks a link for an article, just deduct the credit. Don’t request confirmation. Put a small note in the box in the corner saying that a credit was deducted for this article.
- The price is for unlimited use of that article. Don’t charge them multiple times for re-reading an article they already bought. Remember: you’re on their side.
- Let the user click an undo button if they didn’t want the content. Don’t haggle; give the customer ample benefit of the doubt. Maybe they clicked by accident, maybe they didn’t get what they expected, or maybe they don’t like the writing. Have a money back guarantee and just credit the content back. Say something only if you notice the right being abused.
- When the user has 25 credits left, put up a note saying that their account will be auto-billed for $5 or $10 or $20 worth of credits once their account falls to 10 credits.
4. Dealing with piracy
- Take a soft stance on the inevitable content piracy that will ensue. Focus on the mainstream users who are willing and able to pay and who don’t have the inclination to bother with the workarounds. The main site will always be faster, more cohesive and more convenient than the rip-off sites and thus differentiated.
- Be gentle with content pirates; they will all blog your cease-and-desist letters. Go after the worst offenders. Say, sorry, we wish we could give away the content for free. But we are forced to prosecute copyright violators otherwise we lose the copyrights.
- Over time gradually increase the exchange rate of credits per dollar and/or the number of credits to read an article. If you devalue existing credits (e.g. by doubling the cost of reading an article from 1 to 2 credits) then be fair and make existing credit balances whole (e.g. by doubling the number of old credits).
5. Bonus points
- The hard part: Establish a consortium of content providers. Newspaper creators, TV vendors, eBook vendors, bloggers, etc. that all will run on the same system and display the price in the same way. Signing up for any one service signs someone up for all of them. The point is to reduce the sign-up pain. The less the user has to whip out the credit card, the better. This may be the only chance that the smaller players have.
- Different types of content may cost a different number of credits. Use as a basis the amount of time the content keeps the user occupied. If an average article takes 5 minutes to read and costs 1 credit, make a 25 minute TV show 5 credits.
No matter what, the newspaper business will contract. There are just too many papers out there relying on syndicated (read: commodity) content, that have too little to offer. But for the top papers ready to try again to charge for content, they should follow an approach like this that accounts for buyer psychology.
Readers, what did I miss? Please pass this article on to people who might benefit from it.
—
Philip Haine is principal of Product Vision Associates, a product innovation consultancy that helps product leaders and their teams envision new, breakthrough products and reboot older ones. To follow him on Twitter click here.
