ADVERTISEMENT

You Get What You Pay For

September 2016 Corporate, Product

Ads are a fundamental aspect of modern life. It would be hard to go a day without being subjected to multiple audio and visual advertisements. This is especially true online, where ad revenue has been the primary method of payment for all manner of consumer-facing companies since its inception.

 Aside from Super Bowl season, very few people look forward to experiencing an ad. When they aren’t well targeted, ads are obnoxious for being uninteresting and irrelevant. But when ads do a good job at delivering products or services you may want, they raise concerns about privacy and price discrimination. It’s hard to make a good ad exposure experience.

 This is especially evident given the increased usage of ad blockers. Nearly a quarter of US Internet users will use some kind of program to block online ads in 2016, a substantial increase from previous years. While the majority of these will be on desktops, technology is catching up to enable users to block ads on mobile devices too. And you can hardly blame users: ads are not only often more obtrusive on mobile devices, but additionally they can eat up to 80% of your mobile data.

 The best way to attract users has been to offer something for free and either burn through funding until you reach a certain critical mass of users to begin advertising, or just have ads from the beginning but free comes with its own issues.

 Music services such as Spotify use freemium models, which include free ad-supported and premium ad-free levels. While their number of premium subscribers is only a fraction of active users, the numbers are growing in pace:

kyle_fig1

This has been a boon to the music industry. According to the 2016 IFPI Global Music Report:

“Streaming remains the industry’s fastest-growing revenue source. Revenues increased 45.2 per cent to US$ 2.9 billion and, over the five year period up to 2015, have grown more than four-fold.

“Helped by the spread of smartphones, increased availability of high-quality subscription services and connected fans migrating onto licensed music services, streaming has grown to represent 19 per cent of global industry revenues, up from 14 per cent in 2014. Streaming now accounts for 43 per cent of digital revenues and is close to overtaking downloads (45 per cent) to become the industry’s primary digital revenue stream.”

 

Increasingly, people are willing to pay for an ad-free experience, at least in music…but what about paying for ad-free news?

The New York Times, after some fits and starts, has had moderate success with its paywall, which reserves article access to paying customers after a certain number of free articles a month. But they have one of the oldest, strongest brands in journalism on their side. Others’ attempts at paywalls have seen fewer benefits.

Is it really the price, however, that makes paywalls less successful than they could be?

“Examine this truism — that you would never pay a nickel for a New York Times article that you enjoyed. What? Ten minutes of your time isn’t worth five cents? What aggravates users about current pay-for-use methods is not cost, but hassle of transaction. Going through rituals to become a paywall subscriber, then having to sign in each time you return? That’s the deal-breaker.

“This isn’t about customer cheapskate-stinginess — it is businesses failing to provide shopping convenience for low-cost transactions.”

One of the strongest arguments against advertising as the primary method of monetization is that you pay with your time and attention, which is a resource both finite and irreplaceable. Services like Spotify aggregate hundreds of labels on one easily accessible interface and payment system.

If we think of music labels as analogous to news outlets, where is the publishing equivalent of Spotify?

Imagine that, for $20 a month, you could get ad-free access to a network of quality journalism. Some people may be diehard fans of one newspaper and only wish to access their content, but my guess is that there is a sizeable market of people who 1) would would pay for quality and 2) want access to a dozen or so news sources.

What service can call quits to the advertising arms race and provide a platform for, essentially, micro-payments between readers and publishers? I’m sure there’s one out there, but not that’s crossed my radar yet.

One of the big systemic advantages of free access is shareability. When every site is behind a paywall, even a $0.05 one, the nature of sharing articles and information online becomes harder. If I read something interesting, I want to be able to send it to friends or post it to Facebook for people to view.

Is it the $0.05 here that is the hang-up? I suppose not; it’s the hassle. But hassle is a cost, both mentally and in terms of transaction cost. If a micro-payment gets you out of (literally) paying attention, but instead you pay with hassle, the problem hasn’t been solved.

There seems to be a real opportunity for organizations to address this hassle issue as part of their overall payment scheme. People will absolutely pay for quality and convenience, if they are given a way to do so.



About the author

Kyle Thompson-Westra is a Consultant at Wiglaf Pricing. His background includes digital strategy, marketing analytics, and international relations. He holds a BA from Tufts University and an MBA from DePaul University.

Kyle Thompson-Westra
More by Kyle Thompson-Westra
» April 2017

Complacency and Panic

» March 2017

Pricing in the Life Sciences

» February 2017

Price Isn’t Cost