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When People Pay What They Think Content Is Worth

  |  February 11, 2004   |  Comments

Online donations. Believe it or not, a viable alternative for small publishers.

Who really decides what content is worth? If you're a publisher, you might think you do. After all, you set the price for your content.

However, as a previous column outlined, consumers probably are willing to pay for content, just not the prices most publishers now want to charge.

Economics of supply and demand, not publishers alone, set the value. That calculus is rapidly changing. When consumers gained Internet access, they gained access to so great a supply of content, the resulting value of most published content radically changed. Unfortunately, most publishers still don't acknowledge that change.

I know a publisher whose free-access Web site attracted 2.5 million unique users per month. Nearly two years ago, she converted it into a paid-access site that charges €14 ($17.78) per month. She's gotten only 10,000 of those users to pay that price. She'll tell you those 10,000 paying users are proof her content is worth €14 per month. The reality is €14 is simply the price she demanded. The 2,490,000 users who refused to pay that are clear proof her content is worth far less, and she's charging too much.

Any content has almost as many values as potential users. Among the 2,490,000 who refuse to pay for that site, there may be 750,000 user who would have been willing to pay €5 per month, and perhaps another 750,000 willing to pay €1 per month. Even among the 10,000 users who do pay €14 per month to subscribe to the site, there might be 1,000 who would have been willing to pay up to €20 per month.

So, how do you set a single fixed price for your content? That's always been a problem. Traditional publishers might solve it by hiring MBAs who'd perform consumer surveys about pricing, generate detailed breakeven calculations, and recommend a single fixed price that might yield the highest possible revenues.

That was fine during an earlier era when the only choice was to set one fixed price for all your users. But we now live in an era when you can actually ask each user to pay whatever price the content is worth to him. It's the online donation business model.

The concept flabbergasts, even scares, many traditional publishers. They should examine the results some savvy self-publishers have had with this new method of charging for content. It's not something I'd recommend for all publishers. But in many cases, it often can generate a higher average sale price than can charging a single fixed price.

Take Brian Livingston's experience. The author of 10 computer books and former contributing editor and columnist for InfoWorld Magazine, Livingston launched a bimonthly e-newsletter, Brian's Buzz, a year ago. It contains Microsoft Windows tips and tricks. Revenue streams comprise banner ads, paid subscriptions, and commissions on sales of reviewed (good or bad) products.

As charging a subscription fee may lower the number of subscribers who attract advertisers, Livingston decided to launch two versions of the newsletters: free and paid. The free version contains tips and tricks; the paid version adds alerts, updates, downloadable reports, and archives, plus any freeware Livingston recommends.

Livingston initially planned to charge a $9.95 annual subscription price for the paid version, which he thought a reasonable price. Instead, he decided to ask his subscribers to "contribute what you normally would for any other worthwhile service you subscribe to. The more you contribute, the better I can make your newsletter." Livingston thought this might create a better relationship with his readers.

It did create a better relationship... and a better average subscription price.

During the past year, 5 percent of the free-version subscribers upgraded. The average subscription donation is $15.42.

"I find that a large number of people won't low-ball their contribution," Livingston said. "They actually are willing to make a reasonable contribution."

When the total free and paid subscribers was climbing above 37,000 a few months ago, Livingston sent me these Brian's Buzz circulation figures:

  • Free and paid contributors: 36,983

  • Paid contributors: 2,003 (5.42%)

  • Average contribution: $15.42

Contribution Contributors Percent
Contributors
$11-100 908 47.66
$10 851 44.67
$5-9 114 5.98
$1-4 32 1.68
Total ($30,886) 2,003
Note: Among the 2,003 contributions, 45 were in Canadian dollars, euros, or British pounds. These aren't included in the contribution levels figures but are included in the total.

Most online publishers might have been afraid to ask for contributions rather than a fixed subscription price. But 92 percent of the paid subscribers to Brian's Buzz voluntarily gave more than the $9.95 price than Livingston initially planned to set.

Moreover, Livingston notes if he had charged a $9.95 fixed annual subscription, he would have generated 43 percent less revenue. Subscribers who in fact contribute more than $9.95 would have paid only that price. The subscribers who contribute less than $9.95 probably wouldn't have subscribed at all. Rather than 2,003 people paying a total of $30,886, he would have had 1,759 people paying $9.95 each, a total of only $17,502.

Some other online self-publishers (such as AndrewSullivan.com) who use a donation business model request minimum donation amounts, such as $10 or $20. Livingston believes his figures show this to be unwise.

"Requesting a minimum donation is a mistake," he said. "I think that whenever you ask for any fixed price for a donation, you lose about one-third of your potential donors."

Why does he accept donations of less than $9.95?

"Well, it's true that the cost of processing credit card transactions can eat up a lot of a donation of less than $3," Livingston said. "But some folks might be contributing that low an amount only because they are currently unemployed or in financial distress, and they might be willing to donate more once they get back on their feet. I don't want to lose those people.

"This model works for me because people know that I'm publishing on my own. If people think that a publisher has large sources of revenues elsewhere, the donation model isn't going to work for that publisher. I don't think that the IRS would be successful using it. Nor would Microsoft."

But for many smaller, newer, or less-established publishers, it works very well indeed.

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ABOUT THE AUTHOR

Vin Crosbie

As managing partner of Digital Deliverance LLC and publisher of the "Digital Deliverance" newsletter, Vin Crosbie advises news media worldwide about new media strategies and tactics. As adjunct professor of visual and interactive communications and senior consultant for executive education in new media at Syracuse University's S.I. Newhouse School of Public Communications, he teaches that wisdom to graduate students and media company executives. "Folio" magazine called him "the Practical Futurist." "Editor & Publisher" magazine devoted the overview chapter of its executive research report "Digital Delivery of News: A How-to Guide for Publishers" to his work. And his speech about new media to the National Association of Broadcasters annual conference was one of 24 orations (including some by President George W. Bush, Condoleezza Rice, Hilary Clinton, and Barack Obama) selected by a team of speech professors for publication in the reference book, ">Representative American Speeches 2004-2005."

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