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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
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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 $5,500
0
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1000
1500
2000
2500
3000
3500
0 20 40 60 80 100 120
Price of publication ($)
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!
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