Using micropayments to monetize content is a hot topic. Micropayments require consumers pay just a few cents to access each piece of content. Blendle, a “Spotify, a Netflix, an iTunes for journalism” has gotten a lot of press as a leader in micropayments. Subscribers pay between 9 and 49 cents for each article they read on Blendle. The company started in the Netherlands in 2013 and already has 650,000 users in Europe. They launched a beta product in the U.S. in March 2016 and signed up big-name pilot publishers such as The New York Times and The Wall Street Journal.
I am an advocate direct content monetization, that is, collecting revenue from the reader/viewer (as opposed to solely from the advertiser). Therefore, I sincerely applaud the media industry for experimenting with this new model. However, I see a few challenges with it. Mainly, micropayments forego much of what makes subscription models attractive. I propose a different approach that captures the benefits of micropayments while not sacrificing so much of the upside from subscriptions.
Micropayments Sacrifice the Opt Out Benefit of a Subscription Monetization Model
The “pay per drink” business model does not take advantage of the inertia of a subscription model. Why are only 4.25% of Danes organ donors while neighboring and culturally-similar Swedes donate at a rate of 85.9%? Eric Johnson and Daniel Goldstein realized this had to do with the “opt-in vs. opt-out” phenomenon. In countries (like Denmark) where you have to opt-in by checking a box to participate, the organ donation participation rate is significantly lower than in countries (like Sweden) where you are automatically enrolled (and have to check a box to opt-out). Humans are more likely to choose the default option rather than make a pro-active choice. In a subscription model, the default is the consumer will continue as a customer each time the term renews. This is what makes subscription models so economically attractive.
Micropayments Require More Thinking to Monetize
Consumers do not like to make multiple purchase decisions. Every time you ask someone for money, you are asking them to make another choice. In The Paradox of Choice, Barry Swartz talks about the emotional toll of being overwhelmed with too much choice. He warns to “beware of excessive choice: choice overload can make you question the decisions you make before you even make them.” Swartz says choice sets us up for unrealistically high expectations. He even cites evidence of choice causing anxiety and, over the long-run, leading to clinical depression!
I’m not saying micropayments will cause clinical depression, but the number of choices involved may be overwhelming for the consumer. Would-be readers might think twice about pressing the “buy” button: “Maybe I can get this article for free?” “Do I have time to read and absorb the whole article?” “Is this the best option out there?” “Am I going to regret this purchase?”
Think about the car sharing model. In most cases, it is cheaper for a city-dweller to sell his or her car and use ZipCar or a similar service. A report by Frost and Sullivan showed that vehicle miles traveled per driver decline by nearly 40% when car owners switch to car sharing. A big reason for this is when consumers have to think about every purchase decision, the are likely to consume less. Micropayments may cause content brands to experience a similar phenomenon.
One-off Monetization Makes Growth Harder
It is much tougher to show year-over-year growth in one-off product sales than in subscription sales. One media company I worked with sold both hardware (one-time sale) and software (subscription basis). It was a great feeling every January when we could collect a large chunk of cash from all the subscription renewals. Meanwhile, the hardware sales team had to work hard to show growth – even if they made the same number of sales as the prior year, they would show no growth! Meanwhile, with an 80% renewal rate, the software team only needed to make 20% of the prior year sales to become even with last year.
Subscription Monetization Gives More Insight into Customer Lifetime Value
Marketers have an accurate feel for the lifetime value of a subscription customer. Therefore, subscription revenue forecasts are relatively predictable. One benefit of good revenue forecasts is decision makers can have confidence in the right amount of marketing to invest per acquisition. It gets trickier to forecast revenues for one-off sales. Will there be a blockbuster? A flop? An external event or trend that affects your product? Will customers remain loyal or move to a competitor? There are more uncertainties without a subscription model.
All this being said, there are many benefits from the micropayments model. The micropayments model lowers the hurdle for a first purchase. It therefore “trains” the reader to pay for content. I wonder how much of Spotify’s subscription model success is because iTunes trained the world to pay for digital music (99 cents at a time). Could Blendle be blazing the trail for news content?
Another benefit of micropayments is there is no cap on what a customer can spend – while on the other hand, a subscription has a fixed ceiling. There is probably a subset of enthusiastic readers that would pay more in total on a per transaction basis.
Another pro of the micropayments model is consumers may get a taste for brands they would never have been tried otherwise. This allows brands to expand the number of paying customers in their ecosystem.
How about this as a possible solution: a micropayments subscription. Instead of charging $0.50 per article, why not move to a points system? Every article costs a certain number of points to read. Readers can subscribe to packages (e.g., 10 points per month). Subscribers can always “go over” and use more points for a fee — just like a cell phone customer can go over his or her monthly allotment of minutes. Media brands can offer tiered pricing: the more points a consumer subscribes to, the lower the average price per point.
Adobe Stock utilizes this model well—for $30 per month you get ten credits for photos. Unused credits roll over month to month as long as you keep your account current. Another example is Audible. Depending on your membership level, subscriptions come with one or two books per month and a discount on subsequent purchases.
So in the end, micropayments are an exciting new idea for content publishers, but my main concern is they forego the many benefits of subscriptions. I hope I’m wrong and the micropayments model works out, or else publishers consider this alternative hybrid micropayments-subscription model. It would be an outstanding way for content creators to monetize their work.