Pricing models: Adding and extracting value online February 11 th 2004 Mary Waltham Princeton, USA .

Pricing models: Adding and extracting value online

February 11th 2004Mary WalthamPrinceton, USA

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Are publishers losing sight of emerging markets?

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Business models

Who is your customer?

What does your customer value?

How do you make money?

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Strategy

How will you beat your competitors?

How do you differentiate what you do?

Publishing permits some sloppiness here because each publication is ‘different’

Strategic Planning Process is required

user needs   

planning competition     

trends

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Creating value- typical publishing value chain

Gathering Selecting and organizing Synthesizing Distributing

Key drivers ~ quality, speed and cost

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Creating value - where will you add it?

Gathering

Selecting and organizing

Synthesizing

Distributing

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Extracting value – which customer segments will you serve and how?

Institutional Corporate Academic Government

Individual Society and association Members Non-members

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Extracting value – which markets will you serve and how?

Domestic/national Non-domestic What % of your revenue comes from

each? Is that changing online? Are you making the most of the

‘reach’ of online?

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Extracting value – which products and services to offer online?

Unit of online content – what is it? What do you offer customers? Do all customers want the same

products and services? Do you build to order or prepackage? Can you sell more content by

enabling more granular choices – at the article/chapter vs the whole publication level?

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In order to make a change from “prepackaged” content

Effective and reliable distribution

Understanding of what customers want

Ability to create new products and services

In theory every customer can buy something different online

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What has changed online? Digital assets – not used up by consumption Economies of scale – communicate with

authors, readers and customers faster and cheaper

Economies of scope – extract value across many different and disparate markets

Customer records – cost of keeping them and using them low Publishers have the opportunity to sense and

respond to demands rather than simply making and selling products

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Online pricing models

Institutional/organizational site license sold to libraries/corporations

Individual/members subscriptions Pay-per-view article sales

Price of each has an impact on the others

0

200

400

600

800

1000

1200

0 20 40 60 80 100 120

Price of publication ($)

Nu

mb

er

of

peo

ple

wil

lin

g t

o b

uy

Impact of price on number of customers

Why online site licenses extract more value and are a win-win

Number of customers

..willing to pay Possible revenueEach customer group

900 $0 $0

10 $10 $100

10 $20 $200

10 $30 $300

10 $40 $400

10 $50 $500

10 $60 $600

10 $70 $700

10 $80 $800

10 $90 $900

10 $100 $1,000

TOTAL $5,500

0

500

1000

1500

2000

2500

3000

3500

0 20 40 60 80 100 120

Price of publication ($)

To

tal r

ev

en

ue

($

)

Impact of price on revenue: Revenue = price x no. of users

Note the maximum total revenue

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Lessons from the PEAK project340,000 users at 10 campuses and 2 commercial companies; 1200 journals with a total of 849,371 articles

Traditional subscriptions – unlimited access to any journal – $4/article

Generalized subscriptions – pre-paid bundles of 120 articles @ $548/bundle - $4.50/article

Per article purchase - $7.00

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What is the cost of access?

Pecuniary cost – even small per article fees suppressed usage

Non-pecuniary cost – time and inconvenience to obtain access Number of screens to navigate Amount of external information to recall Action required to have costs subsidized

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What worked well? Generalized subscription purchasing – was

a success

It had the following features:- Opened up access to all content by all users User defined the subscription It was pre-paid

User cost of access – money and effort – effects the number of articles readers access

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Product Cost ($) Number of articles

Cost/article

Inter-library loan (ILL) 30 1 30

Document Delivery 25 1 25

Pay-per-article- PEAK 7 1 7

Institutional subscription ~ one online journal

431 143 3

Journal bundle price ~ large society publisher

24,995 44,500 0.56

Journals and proceedings ~ large society publisher

48,588 699,289 0.07

Examples of article pricing

Examples of article pricing

1 10 100 1000 10,000 100,000 1,000,000

100100

10

1

0.1

0.01

Using examples of article pricing

1 10 100 1000 10,000 100,000 1,000,000

100100

10

1

0.1

0.01

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Using examples of article pricingNumber of articles Price ($) per article Fee

15 $5.00 $75

150 $3.50 $525

1000 $1.80 $1,800

10,000 60 cents $6,000

100,000 11 cents $11,000

1,000,000 6 cents $60,000

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Some examples- online choice

AIP 12 articles from 9 journals @ $96 or $8 per article

AIP 25 articles from 9 journals @ $150 or $6 per article

AIP Members receive a 50% discount

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Some examples- online collections American Geophysical Union (AGU) – “Editors’ choice”

for Members only – bundles of selected articles online only from across all AGU journals – 4 themes so far. Price range $45 - $65

AGU – “Multi- choice” of article packs for Members 10 articles @ $20 20 articles @ $30 40 articles @ $50

• AGU – “Personal choice” for Members 27 collections – by theme. Priced according to the amount of content range is $43 to $175

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Some examples Consumerreports.org Annual online subscription $24 Print subscribers – special discount -

$19 Monthly subscription $4.95

Note consumerreports.org online subscriptions all bill directly to a credit card

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Revenue model – Grateful Dead

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Thank you!