While I encourage you to check out the replay for all the juicy details, this post recaps the various business models represented by the examples.
"Just free" is a legitimate business model, though not a sustainable one (unless you're lucky enough to get bought out by a big fish). Many startups charge nothing in order to get a critical mass of users and word of mouth before figuring out how to profit (think Twitter in its early years). While it's not a viable long-term strategy, it can make sense in the short-term. (Remember, no business is married to just one business model over the life of a product or service.)
Simply free may also be a way to drive sales in another channel. For example, the software is free, but the company makes money on services and/or sister products.
The subscription model is common for all types of digital content - software, gaming, newspaper, magazine, telco services and streaming content (Netflix, Hulu, Spotify). Many of these types of content use paywalls.
Paywalls may be presented immediately, after a free trial, or be "metered," appearing after a certain number of page views or content views/listens. 78% of newspapers use a metered paywall, which allows them to generate more ad revenue than shutting visitors out.
Publishers can experiment with "soft paywall" alternatives like Google Consumer Surveys and Double Recall - interactive surveys and ad-units that provide inexpensive market research for brands and greater recall than banner ads.
Selling content by subscription is getting harder for newspapers, and publishers must figure out how to mitigate disruption from news aggregator apps like Pulse, Zite and Flipboard. Curated news is gaining popularity, but it threatens the appeal of subscribing to individual publications while at the same time potentially drawing in new customers. For example, the New York Times allows its subscribers full access to stories through Flipboard, while non-subscribers see only the top 10 stories in full text. Non-subscribers are given the opportunity to subscribe, and teasers within Flipboard may create that desire to unlock full access. However, revenue driven through Flipboard must be shared with Flipboard.
We may see habits shift to a Twitter-like summary of the news, rather than full articles. A 17 year-old recently raised millions in capital for his app that shrinks daily news down to 3 or 4 paragraphs. Says the teen founder “I designed Summly because I felt that my generation wasn’t consuming news in the traditional way any more."
However, other subscription verticals like gaming, software and media are thriving, themselves disrupting the old model of ownership of physical products.
Microtransactions are what they sound, piece-meal access to digital content and applications, being either pay-to-play (streaming content, time-limited access to content or applications) or pay-to-own (download a track, movie, article, image, etc.) This model pre-dates the common use of the Internet - think pay-per-view movies and sports and arcade games.
iTunes is a prime example of a microtransaction model, and O'Reilly publishing has been offering books by the chapter for years. Newer examples include Google's freshly launched micropayments option for Wallet users (a paywall alternative for publishers).
The question remains whether this model will work for news and magazine articles, which are typically one-time reads, where music and video track downloads are more sticky.
The hallmark of freemium is offering a free and paid (premium) version. There are a few variations of this model:
- Free and paid version (e.g. lite use and power use, personal vs. business use, ad-supported vs. ad-free, basic vs. enhanced features, etc.)
- Free with in-product transations (e.g. virtual goods and currency in-game, which accounts for 72% of Apple App Store revenue)
- Free and premium with microtransactions (buy ad-free Angry Birds, buy levels and goods within the game)
Ad-supported free products are common across digital verticals, from newspapers and magazines to games and software, on-demand video, music services and social networks. But it goes beyond banner ads. Viggle is an example of innovative ad opportunities.
Its second-screen app (companion to television) is not only free for users, but rewards users for engagement with TV shows and ads through its own loyalty program. Points accrued from check-ins to favorite TV shows, ad viewing, trivia and other actions are redeemable for real gift cards like Starbucks, Amazon, Groupon, Fandango and Facebook. This differentiates it from other second-screen apps like GetGlue.
Another differentiator is its own proprietary audio recognition technology (similar to Shazam) that verifies a user is watching a program.
The company's also created new ways to watch TV, like MyGuy, a fantasy sports app that allows you to pick your star player for a game, and win extra points when your player is doing well.
Ad revenue comes from TV networks looking to promote their shows and brands that advertise within the app. A TV show pays for point value, which increases the attractiveness of checking into the show. They may also pay for placements in other contests and promotions.
The long-term goal for Viggle is to become an AdWords-like platform where network shows use real-time bidding to drive tune-ins and engagement for their shows. The viability of this depends on Viggle's ability to make its app the new way people watch TV.
Viggle's business model has a downside. It doesn't have a deal with the reward card vendors, it buys the rewards itself. Down the road, Viggle may be able to negotiate discounts on the rewards in exchange for the brand exposure they get in its points catalog, but for now it remains the more engagement and point-churn Viggle gets, the more money it has to bleed.
Kindles that include ads and sponsored screensavers are available at a discount price. This may catch on with other device manufacturers.
Shazam is an audio recognition app that helps you discover or remember who sings that song you're hearing right now. "Tagging" a song searches its database and presents the answer along with affiliate links to download tracks or buy tickets to local gigs.
Shazam began as all-free, and moved to a freemium model. Its free version was limited to 5 song tags per month, and unlimited access for a one-time payment of $4.99.
Down the road, Shazam dumped its freemium scheme for free-for-all access, a move that can potentially increase it's revenue greatly. Providing everyone unlimited tagging widens its opportunity for affiliate revenue. More tags = wider funnel.
Services like Spotify license content from record labels and independent artists, Hulu and Netflix from Hollywood. Software products white-label. Publishers syndicate content. There are many examples of licensing digital goods.
Beyond content, innovators can license their proprietary technology to others. Shazam could license audio recognition technology to other companies (like Viggle) to add an additional revenue stream.
Many content producers are sitting on piles of existing and legacy content that can be remixed into new experiences and licensed to third parties. I covered Pearson's API on Get Elastic, along with 7 other wicked applications of commerce APIs.
The Last.fm music service sits on a mound of listener data, and can offer advertisers highly targeted campaign opportunities. An example is for Puma's Deadmau5 running shoe. The brand was able to target the band's fans within a social network using Last.fm's technology features.
Selling data is an opportunity for additional revenue for digital products and services that collect it.
Similarly, pieces of content can be remixed into new products, or derivative products, used internally or licensed to developers. Two examples mentioned in the webinar are Hark and Eyewitness.
Hark is a YouTube for audio clips from popular movies, TV shows and even political quotes (how timely). It streams sound files and enables social sharing and embedding, with links to rent or buy full content from Amazon.
Guardian's Eyewitness mobile app features its famous photographs, repurposed for iPad. The app is freemium, sponsored by Canon (a fitting partnership). Free users get a daily photo, paid users get an extra 3 photos per day and sports photos for £1.49 per month.
More examples can be found in our webinar, available on demand: Monetizing Content in a World of Digital Disruption.