Monetizing Digital Offerings in Networked Markets …A Radical Re-framing

FairPayRichard Reisman, Teleshuttle Corporation

fairpay [at] teleshuttle [dot] com

Copyright 2015, Teleshuttle Corp. patent pending, all rights reserved

December 1, 2011 (Updated 7/16/15)

Based on presentation at

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Teleshuttle is working on a pro-bono basis

with business and academic partners on

research, trials, and applications of FairPay

…and offers free consultation.

(More information at FairPayZone.com)

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Monetizing Digital Offerings in Networked Markets…A Radical Re-framing

• Dilemma: Pricing for information – “Information wants to be free” - infinite replication– “Information also wants to be expensive” – creation

• Answer: Re-think our value exchange process– Not allocating scarce resources (no invisible hand)– Still need to sustain producersBalance value, ability to pay, cost, profit …How?...

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Monetizing Digital Offerings in Networked Markets…A Radical Re-framing of Value Propositions

• How?: Build value exchange relationships– Exploit new power of computer-mediated relationships– Co-operatively build relationships on perceived value– Learn the right price for each customer …each time Emergent approximation of economically ideal pricing Share more value, with more customers - sustainably Better business – profit, market reach, lifetime valueMore value for society– An invisible handshake …with each consumer

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The Pillars of FairPay

Re-frame: From Transactional to Relational…Transactions as steps in building an ongoing relationship,

personalized to each consumer

• Empowerment• Dialog• Experience / Reputation

“Patrons”/“Membership” = Privilege (Fully Adaptive)

(See HBR Blog post, 11/18/13)

} = Cooperation(“Co-creation of value”)

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Set Prices Are So Last Century!

• Historically: Prices personalized– Personal negotiation – human buyer and seller– Personal contexts, needs, bargaining powers, relationships– Communal norms (caring, fairness, …even generosity)

• Mid-1800s: Price tags / institutions– Institutional sellers to mass market consumers– Scalable: simple, operationally efficient– Buyer take it or leave it exchange norms, bargain hunting

• E-commerce: Mass-personalization? 1:1?– Why not price?– End race to the bottom – personalize a fair price for value– How to do it effectively, efficiently???

(See set-price blog post)

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Digital Problem=Opportunity #1The Long Tail of Price Sensitivity

Customers are not the same!Customer experience is not the same!

(increasing price sensitivity)

• Green revenue: capped at set price• Red head: lost surplus• Amber tail: lost sales

…Dynamic and context-dependent(see Long Tail blog post) 9

Post-PaySeparate the Sale from the Price!

Why not price the experience after it is known?*• Unlike typical up-front offers (Pay What You Want, etc.)• Remove the consumer’s risk discount• Signal supplier’s value and trust_________*= post-pay = ex-post pricing = pay in arrears = pay as you exit = price it backwards

–Thanks to John Blossom, Shore Communications (ContentBlogger)“Pay as You Exit: FairPay Explores New Content Pricing Discovery Regimes”

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Digital Problem=Opportunity #2A digital “product”?

• Near-zero replication cost (”Free”)• Not a discrete, scarce “product” • Access, entitlements, usage

– Valued as an “experience good,” a service– Personalized variations (items, time, intensity, volume, …) – …all measurable – rich instrumentation in use

New data on value to each consumer (see data blog post)

• “Free” as a selling tool(trials, freemium, pay what you want, …)

Better: Embrace dynamic variability, control risk

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Accept/buy/use(before pricing)

(Buyer)

Set “fair” price(after buy and use)

(Buyer)

Track price

(Seller)

Fair to seller???

(Seller)

Gated FP Offer

(Seller )

FairPay Dialog CycleOngoing, continue indefinitely

Price it BackwardExtend it Forward(after trial)(limit FairPay credit)

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FairPay Value Discovery EngineFrame/nudge and track – continuing adaptation

Seller-gated

PremiumFairPay Offer

Seller-gated Basic

FairPay Offer

BuyerAccepts FairPay Offer

?

BuyerTries

Product /Service

BuyerSets

FairPay Price

SellerTracks

Fairness of Price

High-Fair

Low-Fair

Un-Fair

Buyer

Seller Sets Price (take or leave it)

Buyer Accepts Set-Price Offer ?

Buyer Uses Product /Service

FairPay Zone (revocable privilege)

Conventional Set-Price Zone

Value/FairnessOffers

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Seller Control and Predictability?Frame/nudge and track

• Managed dialog – “choice architecture” – fully personalized– Seller

• reports usage• provides a suggested price• frames the pricing rationale, and nudges with incentives (+, -)

– Buyer• sets FairPay prices (as a differential from suggested price)• states reasons for their differential (multiple choice)

– Seller• evaluates fairness of reasons – reciprocal value proposition• frames new offers – manages FairPay credit and incentives

• Nudge buyers toward suggested prices – as fair exchange• Test/review value propositions, offers, framing, incentives

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A new twist of the Invisible Hand…Creating Shared Value over relationship

(see IH blog post, and newer IH post) 15

Key Enablers• Behavioral Economics

– People are not heartless profit maximizers (eg: PWYW generosity)– Traits: Fairness, reciprocity, altruism, self-image, acceptance, …– Situations: Social/communal norms vs. economic/exchange norms– Treat me as a patron, make me want to be a patron

• Computer-mediated dialog– Facilitate automated dialog about what I value, on what basis …and act on it– Engage me as a patron, show you hear/understand me

• Big Data + Predictive analytics– Validate customer dialogs, incentivize honesty– Customize offerings and how they are framed– Show that you recognize and respect my desires as a patron

Adaptive, cooperative relationships1. Foster social/communal norms2. Segment based on social values3. Nudge buyers toward fairness, perception of value, sharing value surplus

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Phasing in… • Can limit to a contained niche offering • Can build and apply in incremental stages

1. Free survey mode (free, for value feedback only – no fairness gating process)

2. Simple Pay What You Want (pricing unrestricted by fairness – no fairness gating process)

3. Full FairPay (“gated” by fairness, by seller – most of the cost, complexity)

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FairPay can be tested, phased in“Toe-in-the-water” examples for News Subscriptions

Acquisition =“Fuzzy Freemium”Paywall balkers? – special limited usage “trial”

versions, tie-ins, gamification, membership ”club”

Retention (Saves) low usage, low price

Premium “club”/“patron” segments curated, early access/new releases, quality, downloads/offline use, added features

Usage /style segmentsLimited usage?

low/high usage, low/high cost,song frequency, …

Content segments: Long-tail / genre indies, back-list, genres

Device segments phones, embedded systems

Family Plans “seats,” concurrent use

“Deserving” sellers compensation to artist/creator

Trials, sampling, coupons, specials limited offers

Special branding distinct from conventional

Acquisition =“Fuzzy Freemium”(Revenue from day one)

versions, tie-ins, gamification, membership ”club”

Retention (Saves)(Revenue recapture)

low usage, low price

Premium “club”/“patron” segments(Eg: NY “Times Premier”)

curation, early access, journalist access, archives, downloads/offline, extra features

Usage /style segments low/high usage, low/high cost, alerts acted on…

Content segments: Long-tail / genre investigative journalism, analysis, financial insight, sports insight, crosswords

Device segments phones, embedded systems

Family Plans “seats,” concurrent use

“Deserving” sellers compensation to journalists, field reporting

Trials, sampling, coupons, specials limited offers

Distinct branding separate from conventional offering 18

FairPay can be tested, phased in“Toe-in-the-water” examples for Music Subscriptions

Acquisition =“Fuzzy Freemium”Paywall balkers? -- special limited usage “trial”

versions, tie-ins, gamification, membership ”club”

Retention (Saves) low usage, low price

Premium “club”/“patron” segments curated, early access/new releases, quality, downloads/offline use, added features

Usage /style segmentsLimited usage?

low/high usage, low/high cost,song frequency, …

Content segments: Long-tail / genre indies, back-list, genres

Device segments phones, embedded systems

Family Plans “seats,” concurrent use

“Deserving” sellers compensation to artist/creator

Trials, sampling, coupons, specials limited offers

Special branding distinct from conventional

Acquisition =“Fuzzy Freemium”(Revenue from day one)

versions, tie-ins, gamification, membership ”club”

Retention (Saves)(Revenue recapture)

low usage, low price

Premium “club”/“patron” segments(Add-on subscription features)

curation, early access/new releases, quality, downloads/offline use, added features

Usage /style segments low/high usage, low/high cost,song frequency, …

Content segments: Long-tail / genre indies, back-list, genres

Device segments phones, embedded systems

Family Plans “seats,” concurrent use

“Deserving” sellers compensation to artist/creator

Trials, sampling, coupons, specials limited offers

Distinct branding separate from conventional offering 19

Change the Game with FairPay!From invisible hand to invisible handshake

• From: set prices shop for lowest price commoditization

• To: FairPay participative value exchange shop for value, relationship engagement, loyalty

• Analogous to tipping – Easy, intuitive, with rich multi-dimensional nuance– Often happily pay more than you “need”– Free is an option, not a price

• Delight your customers, give them pricing freedom, gain their loyalty– Treat me as a patron; make me want to be a patron– Engage me as a patron; show that you understand what I care about

Emergent strategyPricing “legitimacy”Higher profits + deeper market penetration

(See IH post)

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ADDITIONAL COMMENTARY

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Platform and Database Opportunities

• Single vendor – internal process solutions• Cross-vendor – added leverage, information

– Shared infrastructure and processes = “Pricing as a Service” (PaaS)

– New: FairPay Fairness Reputation Database• Across vendors and contexts (fairness ratings + details)• Use like credit rating database (FairPay credit line)• Detailed value perception dataDatabase asset, first mover advantage

• Interest by potential platform vendors (Zuora)– Plug-ins / SaaS

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Business Contexts

• Ongoing relationships– Subscriptions / ongoing services– Aggregation (iTunes, Amazon, App stores, …)

• Experience goods • Low marginal cost, perishables, promotions• “Deserving” sellers/producers

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Product / Service Category Examples• Anything with low marginal cost

– Long-tail / low-demand products (expand market / gain revenue)– Short-head / high-demand products (expand market / gain revenue)

• Digital content / products /services (by item or by subscription)– News / information / magazines– Music– Video– Games– E-Books– Apps / Software– Other Digital Services

• Real products /services (especially experience goods)– Low marginal cost (primary product or extras/support)– Sampling / trials /coupons (eg: Groupon)– Perishable excess (eg: hotels, transport, performances)

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A Flexible, Extensible Architecture• Coexist with conventional pricing (segment by fairness)• Tunable parameters (choice architectures)

– Gating, nudging, warning, dispute-resolution– Up-selling, down-grading

• Analogs of conventional methods, plus new ones, in any combination – Freemium, Paywalls (metered/soft)– Tiers, segments, dynamic/usage pricing– Custom mix of customer revenue and advertising– Phasing: Survey mode, Simple Pay What You Want– …

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Engage Customers in Real DialogReal-time, Real-life “Market Research”

• Dynamic pricing and value discovery– Real willingness to pay– Specific to actual product/buyer/context/usage– New kinds of Big Data at a micro level

• Ongoing “trials” of mutual value discovery• Focused, flexible value propositions

– Match to customer perceptions, specific contexts, times– Sell value: a positive experience (not focus on price)– Build a relationship - get not just customers, but patrons

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Usage/Value Pricing - Buyer-friendly

• Deadweight loss of “all you can eat” unlimited subscriptions (See deadweight blog post)

• No ticking meter / No usage shock• Price considering usage, but…

– Buyer factors in:• Usage history• Volume discounts(…with seller guidance)

– Soften the extremes – averaging out

Price tracks to value (with affordability)Warm and fuzzy, good feelings

Advanced Economics:

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Value-Based Pricing for Consumer Markets!

• Prices based on actual performance• Used very effectively in some B2B markets

– Win-win: Buyer and seller agree to share in the actual product value surplus

– High economic efficiency– But: high pricing cost for custom analysis

• FairPay: a simplified, intuitive, highly-automated analog for mass consumer markets

Advanced Economics:

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Price Discrimination - Buyer-acceptedEconomic optimum: price tracks to value

• Buyer “self-discrimination” Legitimacy• Engages buyers – a rewarding process• Infinite segmentation, in all dimensions

– Context, ability-to-pay, usage, time, devices, users, …

…Price discrimination can be good!

Advanced Economics:

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