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Summary:

While everyone is trying to figure out a way to monetize online content via paywalls, John Battelle of Federated Media wonders whether a “group buying” approach would work better by giving readers an incentive to sign up.

Follow the leader / crowdfunding
photo: Shutterstock / Digital Genetics

There are plenty of experiments going on that are aimed at monetizing content in different ways — standard paywalls are an obvious example, along with “metered access” and other models, as well as crowdfunding campaigns that are designed to help fund specific pieces of long-form reporting. But one that hasn’t gotten much traction so far is the “group buying” model: in other words, a per-article paywall that gets cheaper as more people sign up and say they want to read it. Could that help publishers find new audiences and revenue?

John Battelle, a veteran online publisher and founder of Federated Media, wrote in a recent blog post that this idea occurred to him when he heard about an experiment that Esquire magazine launched earlier this month, in which the magazine charged non-subscribers a $1.99 fee to read one of its long-form pieces. What if, Battelle wondered, Esquire instead started with that price but lowered it a little every time someone agreed to buy the story, up to some pre-determined floor price?

Group buying and online content

This is similar to the way that many group-buying services work. In most cases, they have deals with manufacturers or distributors of various products who agree to give members of the group discounts based on the number of people who purchase something. Services like Groupon, meanwhile, don’t lower the price but instead set a specific discount price that is only triggered if enough people sign up for it. Battelle describes his idea in more detail in his post:

“A model could work like this: The piece costs $1.99 for the first 5,000 articles sold, garnering $10,000 in revenue [and] once that threshold hits, the price adjusts dynamically to maintain at least $10,000 in overall revenue, but adjusting downward against the paying population as more and more readers commit (which also earns Esquire additional advertising revenue). A ‘clearing price’ is set, perhaps at 50 cents, after which all profits go to Esquire.”

In a sense, this model also shares something with the kind of crowdfunded approach that finances a specific project via a platform like Kickstarter or Indiegogo: in cases like the National Public Radio T-shirt project, for example, the non-profit broadcaster set up the campaign and then provided its supporters with rewards such as shirts and tote bags based on their level of commitment. Battelle’s model would provide supporters with another incentive — namely, the potential of paying a lower price.

But would publishers bite?

As the Federated Media founder notes, pricing a story in this way would also encourage social sharing, since those who signed up to pay the highest price would have an incentive to share a summary of the piece with friends, hoping to convince some of them to sign up and reduce the overall cost.

It’s pretty obvious what the benefit of this kind of model would be for readers, but would publishers want to embrace it? They might get more social engagement because of the incentive to share — and they might be able to convince advertisers that a more engaged and paying audience is more desirable, and therefore should cost more. But I think the biggest problem with the group-buying idea is that it goes against the traditional economic principle that when there is more demand for something, the price rises.

While Battelle’s model would bring in a certain predictable amount of revenue for Esquire by setting a floor price, it’s not hard to imagine some financial executive moaning about how much more money they could have made if they had charged everyone $1.99 instead of whatever the floor price worked out to. That said, however, it would be interesting to see someone experiment with such an approach, if only to see what would happen.

Post and thumbnail images courtesy of Shutterstock / Digital Genetics

  1. Are people really this altruistic to pay the full price so other people will pay less? I know a lot of people that would wait until someone else pays full price to get the discount. It would also be very difficult to establish this idea at a local newspaper with a small amount of readers. These local articles are only ‘nice to have’ and unfortunatly not too many people really need them.

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  2. A local bar in my town takes the opposite approach: The price of a beer starts low and goes up as more people buy it. This seems to be working well for them.

    I agree with Henrik — starting high and going low will encourage people to wait to buy, hoping for a lower price. This is what magazine publishers have trained people to do for many years. Starting low will give people an incentive to get in at the bottom and hopefully cause a rush at the beginning. This would definitely be an interesting test.

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  3. Or, we could do some research to develop a realistic pricing model, then invest the resources required to produce content for which people would consistently agree to pay. Seems a lot simpler than goofy payment gimmicks which don’t address the central issue confounding most paywall models: undifferentiated content unworthy of the prices being asked.

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  4. This is a genius idea for certain publications, definitely worth trying.

    Supply and demand principles don’t really apply, because once something is created on the Web, the supply is infinite. That’s the difference between this and, say, Kickstarter projects. You aren’t raising money in advance to do something. You’ve created something and want to use elastic pricing to motivate dissemination and cover costs.

    Of course, you could put expiration dates on stories. That would make them more akin to airline seats. When will the price be lowest?

    But I think when you’re talking about price points in the $0.25 to $2 range, people aren’t likely to spend too much time deciding whether they can save a dollar by waiting. They’re either interested in a story or they aren’t. An eventually lower price becomes more like a pleasing bonus.

    Perhaps this would do the trick: “We promise the price won’t rise. And you might wind up paying much less than $1.99.”

    Henrik is correct, though, about small publications.

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  5. “You’ve created something and want to use elastic pricing to motivate dissemination and cover costs.” Exactly.

    Look rather to the HumbleBundle model. “Here is a bunch of software/books. Pay what you want. If you pay more than average, you get these N additional items as well.”. Its simple, encourages fast adoption and it works. And good content *does* sell.

    I think trying to prices individual articles is going to be problematic. Do what magazines have always done and “bundle” a whole bunch.

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  6. Philip Branton Monday, July 15, 2013

    Dear Students in journalism 201 at the University of South Carolina,

    Students, as you sit here in class today and read this article, what are your thoughts? If you sat and thought about this article for any amount of time, would you be motivated to comment..? Mathew Ingram makes solid points; but what does he fail to recognize.

    Class, as you recall, our tour and questioning time at the local radio station revealed what about informational flow? Do you remember..? Think about the question concerning “pay for play” and the responses that were given from the station manager in comparison to the different DJ’s..!? Students, you recall our time we spent in reviewing just how much information average students consume on any given day right..? Think how you snicker when I make jokes about the texts you send in my class or how some of you know more about what I am talking about than I have actually “lessoned planned” for. Nadeem really tries to make me look foolish by bragging that he can get information faster than I can give it. Doesn’t he…? ( Nadeem, I see you..)

    So, students as you think about this article and the impacts that benefit your pensions in the field that you are trying to get a degree in, how differently are you going to think about garnering interested readers..? If you were a music promoter in today’s music landscape, would you still pay a station manager or DJ to play the next big music sound….or would you offer the listeners something “more” instead..? Heck, the McDonald’s “Happy Meal” with a toy inside took their cue from Cracker Jacks. So, how would you package all articles in any format to match the “Happy Meal” returns..? Also, think about why no Editor or Informational stakeholder would admit to such terms..?

    Be ready for a great class today…….

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  7. Why not establish a revenue goal for each story, and also have a baseline price? For instance, the revenue goal is $2,000, but the highest price is $1. Then, if through crowdsourcing, you hit 2,000 reads, take a percentage and give it back to readers as a credit for next time, and take the rest as additional revenue.

    This is a great idea and I would love to see a site actually try it.

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  8. Interesting thoughts but I’d consider reversing the model, making it cheap for first-readers and then, the more popular a piece appears to be, the more readers will have to pay for it.

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  9. I agree with Ole. Give away the first copies — if it’s good quality and gets good reviews, amp up the price a bit. If the trend continues, and it becomes “must-read” content, people will be willing to pay. I think this works both for micro-payments (news articles) and ebooks. Note that my good friend Gordon Mattey proposed this idea first on his blog a few years ago. The problem: how do you get people to try out unproven content. Free is about as frictionless as you can get!

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