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Vin Crosbie Vin Crosbie
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Dorian Benkoil Dorian Benkoil
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Bob Cauthorn Bob Cauthorn
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Ben Compaine Ben Compaine
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Dorian Benkoil senior consultant at Teeming Media. An award-winning journalist and editor, he was a foreign correspondent for AP and Newsweek, and international and managing editor for ABCNews.com. At ABC News he moved to the business side, handling sales integration and business development, before joining Fairchild Publications as General Manager for their Internet division, becoming editorial director for mediabistro.com, then a consultant for Teeming Media in New York. He graduates this year with an MBA from Baruch's Zicklin school of business. Learn more about him at Benkoil.com or his blog - MediaFlect.com.

Robert Cauthorn is a journalist, former vice president of digital media at the San Francisco Chronicle, and was the third recipient of the Newspaper Association of America's prestigious Digital Pioneer Award. He launched one of the first five newspapers web sites in the world and is generally considered to have delivered the first profitable newspaper web site in 1995. Cauthorn has been in the middle of the transition from old media to new and is recognized as frank-talking critic when he believes newspapers stray for their mission. In mid-2004 he became the president of CityTools, LLC a new media startup based in San Francisco.

Ben Compaine has divided his career between the academic world and private business. He was a journalist when manual typewriters were considered state of the art, but also led the conversion of his college newspaper to cold type. He has started and managed weekly newspapers. His dissertation at Temple University in 1977 was about the changing technologies that were going to unsettle the landscape of the staid and low profit newspaper industry. Since then he has focused his research and consulting on examining the forces and trends at work in the information industries. Among his most well-known works (and the name of his blog) is "Who Owns the Media?".

Vin Crosbie has been called "the Practical Futurist" by Folio, the trade journal of the American magazine industry. Editor & Publisher magazine, the trade journal of the American newspaper industry, devoted the Overview chapter of executive research report Digital Delivery of News: A How-to Guide for Publishers to his work. His speech to the National Association of Broadcasters annual conference was one of 24 orations selected by a team of speech professors for publication in the reference book Representative American Speeches 2004-2005. He has keynoted the Seybold Publishing Strategies conference in 2000; co-chaired and co-moderated last year's annual Beyond the Printed Word the digital publishing conference in Vienna; and regularly speaks at most major online news media conferences. He is currently in residence as adjunct professor of visual and interactive communications and senior consultant on executive education in new media at Syracuse University's S.I. Newhouse School of Public Communications, and meanwhile is managing partner of the media consulting firm of Digital Deliverance LLC in Greenwich, Connecticut.
About this blog
Two forces have shattered the news media. Technology is the first. Although media technology is undergoing its greatest change since the day in 1440 when Johannes Gutenberg first inked type, for more than ten years now the news industry has mistaken new technologies merely as electronic ways to distribute otherwise printed or analog products. Estrangement is the second. The news media has lost touch with people's needs and interests during the past 30 years, as demonstrated by rapidly declining readerships of newspapers and audiences of broadcast news. How we rebuild news media appropriate to the 21st Century from the growing rubble of this industry is the subject of this group weblog.

Rebuilding Media

Monthly Archives

March 20, 2008

The Freemium Business Model: Anything There for the Media?

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Posted by Ben Compaine

Have you heard about the “Freemium” business model? It’s a label offered by James Governor Jared Lukin in a “name-that-model” contest proposed almost exactly two years ago in a post at A VC by Fred Wilson, a partner in a New York venture capital firm.

Wilson looked at many of the more successful Web ventures and observed that what they had in common was a basic service that they offered for free and a step-up premium service that they charged for.

The basic voice over IP service Skype, for example, lets users call anyone anywhere for no cost, so long as both the caller and callee are at broadband-connected computers. However, if you really want to be able to call anyone anywhere—that is, to a land line or cell phone -- there are per minute charges. Want voice mail? Upgrade to Skype Pro.

A wonderful service I use called LogMeIn employs a similar approach. It gives me access to my desktop computer from any other computer, anywhere. A free version lets me see all my directories and files and transfer them to my remote laptop. The upgraded version actually displays the screen of my desktop, with access to any program or file, as though it was on my remote computer.

There are many other examples.

But for the Freemium model to work, Wilson observed there are other characteristics that demarcated the more successful implementations and the others:

• Ideally, they don’t require any downloads or plug ins to start. Lots of exceptions here, but it is a helpful goal.
• Support every browser with any material market share. There is no excuse these days to be FireFox or Safari challenged
• Make sure the service works on various flavors of Windows, OSX, and Linux.

In short, he says, eliminate all barriers to the initial customer acquisition.

But unlike 30 day free trials before having to pay, a true Freemium experience ensures that whatever the customer gets day one for free they are always going to get for free. Nothing is more irritating to a potential customer than a “bait and switch.”

If Freemium is such a great approach, why wasn’t The New York Times’ foray into this model more successful? It gave away a basic service and, with Times Select, offered a premium upgrade.

Part of the answer (there is sometimes but not usually a silver bullet) may be that the model is most likely to succeed when the customer implicitly understands why the paid service has to cost money. Free e-mail accounts that offer greater storage for a fee. Termination cost on other carriers networks in the Skype model is explicit justification. In the case of TimesSelect, it would be obvious to most readers that arbitrary withholding of access to some portions of content was not related to significant costs. It may have made some sense as a “value” play, yet it clearly did not work. “But if your free service is loved and you do a good job articulating the value that comes with the paid service, you can convert to paying users with good results,” concludes Wilson.

penny_gap.JPG
The Freemium model was augmented one year later by another venture capitalist, Josh Kopelman. He has labeled his observation “The Penny Gap.” I recall meeting Kopelman when I was teaching at Temple University in Philadelphia. He had started Infonautics Corporation, the predecessor of today's High Beam Research, in the early Internet days. I assume from that he learned some lessons about offering a subscription service that gave users access to a wide range of magazines, journals, reference and newspaper material. (And that he was more successful with a subsequent venture, Half.com, acquired by eBay).

The Penny Gap says in essence that getting a user to go from free to any sort of payment, even a penny, is harder that getting a paying subscriber to pay more. Going from free to $1.00 is a much higher hurdle than from $1 to $2, even though the difference is the same. The Penny Gap is a disconnect with classical economic theory, which would hold that demand increases as the price decreases. As Kopelman illustrated in the accompany figure, getting users to make any financial commitment is the greater hurdle than the amount itself.

What does this say about the content-heavy online ventures of the legacy media business? In large measure it helps explain why they settled for the most part (well, except for The Wall Street Journal) on an advertiser supported Web model. From USA Today to Slate to The New York Times media sites have tried and failed to make a user pay model stick, despite offering some high grade content.

But by dissecting the successful non-media sites that have achieved a substantial user-pay component, could media firms find areas where they can truly find value added to justify a premium? I’m not optimistic. Two years ago I might have offered that a comprehensive ad-free video service could be sold at a premium. Recall CNN tried that with its Pipeline service, providing real time video streams and an archive of telecasts. It met many Freemium characteristics, including a presumption of additional cost for all the storage and bandwidth. Apparently Time Warner determined that more advertising revenue outweighed the subscription dollars. Hulu, the new NBC Universal-News Corporation joint venture, is all free, all the time. It has not made noises about offering paid-for premium content.

The bottom line is that as a generalization the media business may not get over the Penny Gap chasm. For those firms that have been on the electronic side, where advertiser supported has long been the total revenue stream, maintaining that model may be easiest to accept. For that segment of the print media that has been used to drawing at least some of its revenue from consumers, resigning itself to only advertising may be tougher. And perhaps a bit of a blow to its self-esteem.

Comments (8) + TrackBacks (0) | Category: Internet | Online | Revenue models | media industry

March 11, 2008

Why MagHound is Brilliant -- And Why It Won’t Work

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Posted by Dorian Benkoil

Time Inc’s attempt to launch MagHound, a “Netflix of magazines,” in September is a great idea, and on the face of it something that should succeed. What’s better than getting to choose the magazines you want every month, rather than being stuck with multiple subscriptions to mags that will sometimes be dogs, and sometimes have a story or two you’re really interested in? (I know I’m not the only one who’s subscribed to a magazine after figuring that it’s cheaper than buying three copies at the newsstand. I know I’m also not the only one who’ll forego subscriptions to avoid not having the 8 or 10 “dog” issues of a monthly pile up.) I have in the past tried to get friends to participate in a "magazine trading" circle, where we all subscribe to 1 or 2 mags, then swap and share, but it never worked.

So, on the surface, it seems a great idea to charge $4.95 for three on up to $9.95 for seven magazines per month. But there are a few of reasons MagHound won’t work upon launch -- and they have largely to do with how this isn’t like Netflix:

* MagHound won’t have all the most desirable magazines. At least one major publishing house hasn’t signed up, nor have a few of the lesser that nevertheless have desirable titles.
* Unlike Netflix, fulfillment won’t be in 1 or 2 days. It’s more likely weeks. And even longer when fulfillment is from a house other than Time. One reason to subscribe to something like this is because, say, you hear about a hot story in Vanity Fair or Foreign Policy, and you want to get the mag shipped to you pronto to read it. But those magazines may not be available, and the won’t get there while you still remember why you wanted them.
* For Time, it’s not as winning a model as for Netflix, because it doesn’t buy the magazine once and then get to use it time and again for the price of two stamps, plus logistics and handling. Plus, postage for a magazine is horribly expensive compared to the sublimely engineered DVD packages Netflix devised.

If people wanted digital editions or a Web site, mobile edition, whatever-- which Time might consider offering at a discount, or they would offer some other digital access -- for an all-you-can-eat price, it might make more sense. (Oh, wait, that was called AOL.) Or if print-on-demand could be handled on a mass-customization level, where magazines were printed and bound quickly (and I mean like TODAY) as they’re ordered... but helas.

In theory, I love the concept. Get any magazine I want, for one subscription price. I’d of course prefer even more to get whatever I want at the Chris Anderson price of “$0”. Or at least the immediate gratification of click and BLAM, it’s here. (Even Amazon doesn’t take a week.) I hope MagHound refines its model before September and gets closer to what people really want in 2008.

Comments (2) + TrackBacks (0) | Category: Magazines