Webinar  |  April 19, 2013

Digital disruption is flipping industries like publishing, media, software, telecommunications and entertainment on their heads and making way for new and exciting ways to monetize content.

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Video Transcript

Matt: Hello, my name is Matt Dion and I'm the VP of marketing here at Elastic Path. Today we have a very exciting webinar called monetizing content in a world of digital disruption. We all know that the world of content is undergoing massive change; everything is rapidly moving from physical to digital, the pieces of glass are the variety of experiences that are available to customers is also exporting. For content producers, companies who are in software gaming, media publishing, tele-communication providers and others, this changes everything.

This changes everything and it is all changing everything very quickly. The key to all of these is rapid innovation, experimentation with different business models. Today we have Linda Bustos who is the director of Ecommerce research here at Elastic Path and the author of Get Elastic which is our blog, the number one Ecommerce blog in the world. She is one of the world's top ecommerce experts and she has been following this disruptive trance in the digital world very closely.Today she is going to share her perspectives and give an overview of some of the best practices that she has observed in the industry and give us some examples of companies that have figured out new ways to get paid for their content.

Just before I turn it over to Linda, I want to talk very quickly about Elastic Path. Elastic Path helps the world's biggest brand sell digital goods and contents. Some of the world's largest media and publishing software gaming and Telco companies have chosen Elastic Path. Companies like TimeInc, Google, Rovi, Virgin Media; they have chosen Elastic Path for our technology platform as well as the expertise that we have a digital format strategy and implementation, we regularly share this strategies and best practices on the blog but also our research papers case studies and webinars which you can find on our website. Now with that I'm very happy to turn it over to Linda.

Linda: Thanks Matt and thank you for joining us today for Monetizing Content in a World of Digital Disruption and really what this webinar is about, it is an overview of the entire digital content spectrum across the industries and across various different business models which we will discuss today. I really want to show you some of my favorite innovations and rather just being a tutorial and prescriptive, like here is how you could kind of monetize digital content, what I want you to think about is three to five death years down the road, how is your business going to change and how are your current business models going to evolve and how many years ecommerce systems change to accommodate the new raise that consumers identify content and how they are interacting with the vice of the businesses in the near future.

So here is a quick snapshot of only some of the internet enabled devices in the market today.We are also looking forward to some of the wearable tests like Google glasses and more things that are going to be hands-free and interface free just around the corner. It is really these devices that are creating the demand for digital goods and the ability to consume digital products on all formats.

I have been covering Ecommerce for a long time and for the last few years we have really seen online retail flatten out about two to three percent growth per year. The real bright spot is paid content, digital content; as you can see across the different formats and across the different verticals you see growth everywhere and it is showing no sign of slowing down. How to monetize these contents all comes down to the different models so we are going to go over some of the basics and some of the creative twists that have emerged in the last year.

Micro transactions is a basic one, everyone is really familiar with this even before the internet; so ITunes is a classic piece- meal buyer, TV show buyer, movie buyer, music and you can stream it or own it. Before this, I mean we had paper views through the TV and if you even go further behind that, the arcade games right; you put in your quarter and you get access for limited time to play a digital format of the game.

In any type of online business of course there is the free model and the ad supported model or a combination of the two; a lot of businesses and content software just starts off as free for everyone as a strategy in order to get a critical massive users or to get enough for the mouth to actually justify starting to take down the road. Free is a legitimate business model, it might not be the permanent business model but it is a legitimate one and free with ad supported is very common and it is a way to monetize but it is not always necessarily the best way to monetize.

We see newspapers and magazines really struggling with subscriptions and a combination of subscriptions and advertising and of course with online advertising and the whole idea of the fold and bended blindness and all these types of things that are played within the advertising world; really the advertising revenues are not necessarily what is going to be able to sustain these companies. The challenge right now is looking for new and creative ways to keep subscribers against subscribers and satisfy them across different channels.

What we are seeing, they are kind of disrupting this free and ad supporting kind thing are really new innovations that people do engage with and engage with pretty actively. The second screen apps like get glue and then examples from vehicle kind of take a combination of like Foursquare meet, Shazam meet, online trivia and quizzes and that kind of thing, meets and loyalty programs.

Vehicle here, if you are using this app and you check into your favorite show you get points for checking into the show but how does the app know that you are actually watching the show? While using Shazam type technology of audio recognition, you can tag the show and it can verify that you are sitting there watching there and then give you those points. But why should you care about the points while you can redeem them for great stuff just like the loyalty programs.

Here is another app put up by vehicle as well and it is a fantasy sports app where while you are watching the game and again you have to check in and verify that you are watching the game, you can actually take your star player and when he or she does well you start getting points and if you start faltering you can swap your player out for someone else. It is very interactive, it is very entertaining, it's getting people excited about using app for watching TV as we know the second screen behavior is very, very mainstream and people want to socialize and talk with other people about the shows too and through these kinds of apps the engagement can be facilitated. Also there is kind of this gamification at play as well and what that does is it makes an app resilient from becoming one of those needle in a haystack ad that somebody adds once and doesn’t keeps coming back to.

Here again you know through this points and you can redeem them for real world merchandize and just think about the advertising revenue from this big brands, just wanting to be a part of this app. What is really cool about this, if you strip out the context and intuitive and the actual products themselves you might not be in the television game; but the point here is that there are so many different technologies that can make an app that takes digital content and enhances it through gaming and through loyalty points and engaging outside of the product itself.

Now we are going to switch gears and go back to the whole idea of business model so that was the free with ad supported or just free to use apps. Premium of course is very, very popular and for many companies a successful way to monetize, we do have that free product where it just works and you get it out there so you do get the PR, you do get people playing around with your software or with your utility to really entrench themselves in the value. When their needs grow such as expanding to a small business account or to a TV account or to enhance features or whatever your premium mix is that's where the revenue can come in. The challenge with this of course is that with premium you have to have an AP version and a free version and sometimes it takes a little bit of the experimentation price points with your conversion funnel and with your value propositions or the different tiers, just how to convert free people into paying customers can remain a challenge.

You don’t have to marry yourself to one business model forever so what Shazam did initially was, they did have that 2-tier fremium, where they had, if you want free access great, you'll get five tags a month and if you pay $4.99 hey we'll give you unlimited tags. The problem with that is that it really broke down the revenue into just one big chunk for people who paid and it limited their incremental and aggregate revenue by limiting the number of tags that large free user base can do.

Down the road Shazam decided to open up and say hey everybody gets free for all access and this encourages more tagging and more interest in actually downloading music directly to the device. Though this it created a billion relationships with iTunes, Shazam can make far much money by offering their products for free and making money off the billion relationships. The business model and you may find down the road that switching to something that is all free can end up being more profitable in the long-run.

Virtual goods are a huge money maker and actually 78% of revenue from the iTunes store comes from in game micro-transactions, this is a really big business; and obviously it works for the gaming and it can also work for software products or for tele-communication, where you pre-pay and then you are able to redeem it for intangible business services which may tangible inside the game or inside your product, but really our virtually deliver product that is consumed over the life of the ownership of the product or the subscription to your product. There are two types of virtual goods; there are evergreen goods and consumable goods so obviously the ones that you can turn over and turn into the reoccurring revenue is really the better way to go in terms of driving the highest profitability. Of course Zynga is one success story and not every digital product is going to be able to get real world in-store, gift cards and point cards and stuff like that. This is just an example to show that virtual products are leading into the physical world as well through game parts and through merchandise and even through stuff like that. American Express has teamed up with Zynga in what is really interesting about this relationship is that not only can you earn points when you shop through American Express, you earn points and stuff like that but it gets you rewards in the game; but the American Express relationship can actually serve up offers within the game. With most loyalty credit cards and that sort of thing you have to go and look through a catalogue and that kind of thing but this can be injected right into the game play and vice versa. Game play can translate into real world rewards. Zynga has also worked deals with consumer packaged goods like Free Delay so collecting these badges within the bags can unlock secret levels in the game and then purchasing physical goods can enhance play in the digital world.

Really what makes this different is in the past there were lots and lots of licensing deals but they never actually had to tie back to the digital products such as the movie or the TV show that actually drove interest in the goods. Another business model in general is not limited to games and kid stuff but it’s offering digital content for free in order to drive sales in a different channel. Sometimes that is merchandise, but it can also be you are in an enterprise business and giving away a free application or free software is actually going to create demands for your other business streams or your services and that kind of thing.

Now we are also seeing hardware is becoming premium; so Amazon for example is offering ad supported and sponsored screen savers and offering that as a discount price. You can see that, the ads get imbedded within there and they are competing right up against the whole price models and doing quite well. We could see that translating into a supported icon or a supported smart television and that kind of thing. It will be interesting to see where that moves.

All right, let's talk about subscription as a business model now; here is a familiar site with the content paywall and if you want to keep reading this then without your credit card. We know that 98% of readers will abandon just by hitting this paywall so 78% of these papers and magazines to use is what we call a metered paywall. It allows for a certain number of page used for IP address are run before hitting up with the actual paywall. What this enables the publisher to do is to get some page views and be able to make some advertising revenue for a portion of that or 8% that will never subscribe no matter what. Some people don't justifying paying for subscriptions anymore because there is so much content out there for free. We also see this kind of content for the metered paywall in service apps and things like streaming music and that kind of thing.

Last.FM for example tells you how many of your free trial tracks are last so you can actually watch it count down. That is a really good strategy to be able to give people something for free in a free trial but it could be very clear that soon enough you're going to be presented with the premium request.

Of course there is always a hunt for paywall alternative because paywalls are a form of friction and such a form of fundament and other ways to monetizing them, just throwing up ads on the site or asking for a subscription. There are, Google recently came out with something called Google Consumer Survey; it is a relatively new consumer advertising product and it is fairly cheap as well. for an advertiser paying ten cents for response he can get market research data on which logo do you prefer, which package do you like better, which popcorn snack sounds more gourmet. Presenting these short little surveys that somebody has to interact with before they can move on makes a little more revenue for the publishers, it gives them good value to the advertiser a lot more than just throwing up the banner for a lot more than 10 cents and then maybe not having it be viewed. This shows a lot of promise but there are some drawbacks to that too, you can get a little bit of more branding exposure even if somebody doesn't actually read what you're saying and just clicks on something which eventually people will do, if not right off the bat. They are not actually reading the question, not actually cross scented and just click through because “darn it I want to see my piece content”, right. Using some logos and that kind of thing at least can work on a little bit of that conscious level.

Another company called Double Recall actually forces that comprehension because a person has to type in new highlighted words and they find that they recall for these typed of ads 20 times higher than any other type of advertising forms. It is a good value proposition to publisher than advertisers.

However there are some drawbacks to soft paywall. Number 1, if you are the publisher, you're devaluing your content to just an opinion from a reader; in the long run that might not be what you wanted to do to your brand or how you want a enjoin customers. Although the quality responses from the advertiser's point of view can be low if the courage is not to complete the survey out of the goodness of your heart but to reach and involvement of seeing people content. How much thought are people really putting in into the quality of the responses; so if anything it serves as a substitute for pre-rolling and transitional advertising verses replacing the paywall and replacing the subscription.

I think while these formats are experimental and kind of neat to see some innovations in the area of paywalls and creating soft paywall, they really haven't come up with something that I think will be a long term solution that really monetizes without having some fall out on the other side. Very recently launched, Within the last week, Google is taking that mighty approach transaction format and applying it to content. If you have your Google wallet you would be able to pay for little bits of news and this has kind of been escalated for a long time. Maybe you can tweak news, sell news and articles and content like that; the problem with that is that if you compare this to iTunes tracks, you can maybe pay a dollar for an iTunes track but you own that you are more likely to actually be using that long term. You are owning a piece of music that you can play over and over and over, you're not necessarily going to read a single article, especially a news article, over and over and over a lifetime of ownerships. And then also the instate refund thing is a little bit concerning because that can be, someone can say that article wasn't good so give me my money back. There are challenges around this too which the industry is working through but these are the ideas that people are putting out on the table and playing around with currently.

There are also a lot of opportunities to invent new business models, new models of consumption and in this case of Amazon it is actually going back to a very old publishing business model, serial fiction. Back when Leo Tolstoy and Charles Dickens was writing and publishing it was very very rare and actually unheard of for somebody to publish an entire book in one go. What they actually did was drip out pieces of content to see if the market liked it and so basically this is what Amazon is experimenting against, it is signed up with some publishers to create serial fiction and drip it out, you buy a subscription and you are able to get these installments as they come out, unlike watching a TV series. That is something that Amazon is experimenting on, of course it is an experiment and we want to see if it sticks and if it branches out into other formats and other genres beyond fiction.

Another twist on the kind of business model is taking a blend of book club with subscription, loyalty program and the hot concept of late which has been inside a flash deal kind of concept. This is discovering new love and if you sign up for this it is $6.99 for four months and every month you get to choose…sorry, it is $9.99 for six months and you get to choose one out of four selections for your member price. Then if you want to buy incremental books on top of that each month and you get a discounted price. It has that kind of, you only get 14 days to but this and then it's gone; we are really seeing blended, different, ecommerce concept sort of coming together in this new experimental model.

Let's switch gears to apps because I think a lot of businesses have said especially in the publishing industry where apps are going to be new channels where we are going to be able to get double subscriptions because everybody is going to want to read it on a tablet and the desktop and subscribe blue prints and that is not just the way that is has turned out. There is such a demand for the same content everywhere and if you think about a newspaper subscription historically, you order the newspaper and share it around your entire family; you might even give it to your neighbor after you are done with it. Really driving in and an electronic edition not only creates a lot of overheads for IT to be able to deliver all these different formats, it's not what the customer wants. However, if you do want to ply within this wall gardens like the next door or the kindle door, that app store, you really have to use their developing kits and ply within their roles and give them their 30% or whatever cut they are going to take. The move really is towards using HTML 5 and using responsive design and any type of existing formats or something that gets released this year and next year, iPhone 5, specs are difference and aspects ratios are different, that kind of thing. Using HTML 5 is a really nimble way and cost needing way, you can get this subscription or the price for yourself and not to have to share with the wall gardens. We are really seeing a lot of publishers that are branching out into that.

Within the publishing industry we are getting a lot of disruptions too by the apps that are being developed by third parties. Instead of subscribing to every single taught newspaper this type of app just kind of filters an aggregate and brings the news to you, personalized based on what you have read for, based on what people like you are reading and from not just newspapers but also great blogs and that kind of thing. This is presenting a challenge to publishers who have to decide whether they want to go on board and make their content available to these types of sites. The business model working with these apps like Zite, FlipBoard and Pulse, are not only just working relations with them but the cannibalization that comes with that and the revenue share that might not be all that attractive; so Wired magazine and the New Yorker for example recently pulled out a Flipboard and that might be a signal to all those speculations. It might be a signal, though this is speculation, it might be a signal but the advertising revenue share will determine where someone is not attracted after they have tired them for a while. It will be interesting to see if consumers get with this type of aggregator apps or whether they are more likely to subscribe to newspapers and magazines. It really is something that publishers need to pay attention to and it is a disruptor within the industry.

The New York Times has decided to play nice with Flipboard and play nice with their subscribers too so if you subscribe to the magazines through or to the newspapers through their own subscription format you will be able to access through Flipboard. If you are not a subscriber you will be able to see the top 10 stories of the day and you will be presented with the call to action to actually subscribe. In that case for the publisher these apps and collaborating with these apps could be a way to get new subscribers through, they keep seeing this great content all the time and keep hitting that frustration and not being able to read more. That might be that push over the cliff to go sign up.

Pulse is an aggregator which actually does a revenue share split equally three ways, so the 30% has to go to the Apple or to the Android storm and 40% they keep or 35% and 35% goes to the publisher.

This is Readability and it is also a bit of an interesting concept; this is a free app and what it does is it strips out advertising from publishers content which is very attractive to readers and users of course. But it is kind of giving the short end of the stick to publishers and the twist on this is what Readability does, is it does collect revenue from people in kind of donation basis and holds it on behalf of the publisher and as a publisher you can get some revenue out of that; but you have to sign up for the program. This has been related to, this has been kind of compared with extortion a little bit, how legal it is to collect money on somebody you talk to and have them play by your terms and to take a cut of it before you release that fund. It will be interesting to see from a legal stand point what some of these is very extra creative, this model is created by third party what happens to them. Nevertheless they are out there and they are disrupting things.

Finally we are going to talk about APIs and if you follow to Elastic Path for any length of time you know how exciting we are about APIs and that comes with good reason. APIs is what is really driving the innovation in Ecommerce; it is really maxed out what we can do with ecommerce site in terms of features and what the card can do and how if functions. It really hasn't, there haven't been any ground breaking innovations within a retail store front but true APIs there has been not just in an ecommerce sense but entire industries and business build on APIs. API is really a product in themselves and shopping APIs and Ecommerce APIs can be monetized just like traditional API, like Facebook or the Twitter or Google. Here we have seen example, Hootsuite, a business that is built in entirely on other people's APIs and if you can see they monetize in a freemium way as well, and they are doing quite well. Here is another way that a company can do API, Salesforce just like Facebook, when they opened up their essay platform right, we can’t build all the great crazy things. There is too much backlog, we don't want to hire all of this sales person, all this kind of stuff; why not let the third party be able to build and it also in turn increases the attractiveness of the Salesforce itself. Because look at this great market place with pretty much any problem that you have, there's an app for that it seems and if you can see some of these are free and some of these are okay, so if salesforce can make money off if the third parties that make money from the apps, similar to what iTunes does.

Pearson Education, this is one of my favorite examples of a commerce API, a shopping API because Pearson is sitting on a real like mother load of content throughout the years especially in its education division. What it recently started doing is offering that to developers to play around with and they are charging for it. So depending on how many calls that you need per month and what type of content that you're using, there's different prices for that but here are some of my favorite examples.

This is using the kitchen manager and the kitchen manager draws from all the old recipes from the culinary school. if you want to cook something, if you want to sit there with a hand held app, with flour and egg all over your hands or do you want to set it up there and use speech to text technology to be able to speak your search, select the recipe that you want to have and have it read out to you in instruction and ingredients and what to do. So really it is like having a cooking instructor in your kitchen with you completely hands free. A really neat mashup that was produced out of their half day was combining the Netflix API with the Kitchen Manager recipe database. This is called Place for Your Movie and it is kind of fun because pick your movie and then pick a recipe that matches and goes along with this period and flavor of the movie.

Foodie.fm is another example of matching up Ecommerce APIs; so Tesco is making its vast variety of food and grocer items available to third parties affiliates and this is a mobile app where you can create your own recipe and also build your shopping list to be able to actually but these items through your mobile and be able to make these creative thing happen.

This is another affiliate type of relationship with Find the Best and it's actually kind of a twist on the shopping comparison, what is different about this one is that it's got a little bit of human touch involved in it too in the curation and in the recommendation algorithm. What it's doing is licensing this content to publishers like TechCrunch; so TechCrunch actually is provided with a micro site where they can just clog this SEO optimized to have shopping guide that you can see on the slide there is a gift guide 2011, you click on that.There is a great branding infinity between TechCrunch and gadgets in general so a lot of inherent trust there and absolutely for publishers to get incremental commerce revenue through leveraging their reputation and taking the visit to the traffic that they already have and supporting something like this.

Finally we will look at some derivative products processes and it is a really great way for causing creators to have a large backlog, maybe going back 20 or 30 years of content that can now be made available in different formats and different ways to make money of it. So this website called Hawk.com and what it does is it takes old movie segment and that kind of thing and you can license it out on a piece by piece basis.

You can go to YouTube and pull up some of these clips and that is kind of a hit and miss whether you'll find it but it is not really legal to license that content that has been uploaded into use and in your Power Point presentation or to use it in the commercial or to use it in whichever way you want to package this app. Hawk is a way for the big studios to go back and create brand new formats for assets that they already have.

The Guardian Eye witness app is another really interesting example of derivative products; so what it has is a vast collection of stellar photography. Making it through this app, this is a free app and if you want to go for the pro version, the free app gets one photo a day, this is the photo of the day app and then a pro version can search and get some of the other features. What is really interesting too is they are able to monetize this app as well with the killer sponsorship, with Canon. Canon is a synonymous great photography and to run that sponsorship is a win-win for the guardian and canon and this particular app has over a million in self. So it’s a great way to take content in a struggling industry like the publishing industry and create new and exciting things that people actually want to consume and interact with.

This example is also showing that data can also be a product itself so Last.FM has a lot of data on listening habits and you can really micro target a geo segment or a psychographic segment. For example Puma and this band that mouse, they teamed up and they actually branded a shield together. But they created the campaign through Last.fm where they could target listeners of this band or this genre; an experience within the music network. Being a content producer with a lot of data that you can sell to advertisers or branding is also another emerging opportunity with monetizing digital content.

Wrapping this up, the future of Digital Content Monetization is we definitely know there is a demand for everywhere access including wearable tech and what consumers really want is to be buy something you want and to be able to use it. Thank you again for joining us and if you have any questions please contact sales at elasticpath.com. We would love to hear from you.

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