There’s an old Chinese proverb/curse: May you live in the most interesting of times. The rise of the Internet has made things almost too interesting for people in the media industries for 15 years now, and there’s no sign of a let up. Consider the latest salvos in mobile media. On Feb. 2, New Corp. launched The Daily, the first national daily news publication built from the ground up for Apple’s iPad. A day later, AT&T finally got competition on Apple’s iPhone platform when Verizon starting taking preorders for the Apple’s iPhone 4–only to halt 17 hours later. Sold out.
There’s one certainty in the realm of digital content: Apple has figured out a formula for success. Just about everything else is in doubt, including how B2C companies get paid for products, services, and media content. Saul Berman’s new book, Not for Free: Revenue Strategies for a New World, talks directly to the leaders of other industries that are in the mix. His message: Learn from the struggles of the media and entertainment companies and devise strategies for making money in new ways. “Look at what happened to media,” Berman says. “A lot of your businesses will be digital as well. It’s both an opportunity and a threat. To capitalize you have to understand what happened.”
Think of Berman as the anti-Chris Anderson. In a 2008 Wired magazine article and subsequent book, Free: The Future of a Radical Price, author Anderson declared that free is the future of business. He explored some of the ways that media companies could deal with the fact that consumers showed little appetite for paying for news and recorded music. Berman believes that consumers will be willing to open their wallets for many products and services that include digital content–as long as they’re given what they want the way they want it and they’re offered creative pricing and payment options.
To succeed in this new world order, Berman believes, companies have to think differently about how they segment their markets. The old method of separating out customers along gross demographic lines isn’t good enough anymore. Instead, companies have to segment more finely based on how individuals actually behave and how they use products and information. (This is something Best Buy has mastered) In fact, a single customer may fit in different segments depending on how they shop, purchase and use products and services. “It’s no longer a one-size-fits all world,” he says. “The market is more fragmented. You’ll have to be willing to cannibalize your business and offer different models to different customers in different modes.”
In his book, Berman offers up three areas for business model innovation. Underlying all of them is the recognition that they’re no single silver bullet when it comes to developing new revenue models. Companies have to learn to be flexible and develop a variety of approaches to getting paid.
1) Pricing innovation: Find new ways to charge for products and services–often an assortment of methods applied to a single product or service.
2) Payer innovation: Get other companies to subsidize the cost of providing goods and services on behalf of consumers. Advertising is just the start.
3) Package innovation: Create a compelling package of product, service, and support. In some cases take components of the services and sell them in new ways. Think ringtones.
Berman writes about the value of digital platforms, like those of Facebook and Goggle, which drive scale and enable payer innovation. He gives kudos to Netflix for its ability to nimbly shift from postal to a combination of postal and streaming distribution–with a good mix of pricing models. And he features Apple’s business model for mobile computing and media. It sells well-designed products at premium prices, reaps higher-than-usual margins on the products it retails for others, gets a cut of the telecom carriers’ subscriptions, etc., etc., etc. The beauty of Apple’s model (for Apple) is that by owning the user’s experience it shifts the value of the content companies’ products from them to itself.
Berman could have added another bullet point to his formula for success: piggy-back on Apple, like Verizon, AT&T and News Corp are doing. Will Rupert Murdoch’s iPad publication succeed where so many other digital media offerings have foundered? The price is right: 99 cents for a month’s subscription bought on iTunes. But, in spite of the fact that The Daily has low distribution costs, it will take a lot of talented journalists to produce 100 pages a day of compelling news and features. For the business to succeed, iPad market share (of people consuming media content) will have to be huge, and a very large proportion of iPad owners will have to subscribe to The Daily.
Berman’s take: “It’s a step in the right direction. Murdoch’s experimenting with different monetization schemes. But it remains to be seen if it will work.” One thing’s clear: the media business is going to be interesting–in every sense of the word– for many years to come.