Friday, April 23, 2010

Show Me the Money

Recently I read this great post on Knowledge@Wharton. They ran an interview of Jagmohan Raju and John Zhang, the authors of 'Smart Pricing'. As the book suggests, pricing when done right can contribute to the success of a product like nothing can! Competition-based Pricing and Cost-Plus Pricing are the popular concepts used by FMCGs but there are many more strategies in the marketplace, both online and offline. This led me to think about content-pricing on the web. What is the best way?

Since most web-content is free, websites have to develop new and innovative ways to make money., the second most viewed video site (Youtube being no.1) is struggling to make money. Few months back, Adage claimed "Hulu is a towering success, just not financially". Its network backers are not happy with all the free episodes being streamed. Although Hulu does have an innovative ad concept where they interact with the viewer. Right at the beginning of the program, viewers are given the option of choosing the ad they would like to see. Good tactics but still not good enough to make profit.

Google doesn't charge the user, it charges the advertiser. Same with webmails, twitter and social networking tools. Twitter figured out its revenue model just a week back.

The New York Times is free online. Why would you "buy" it from a news stand? The Times is not charging us for reading its online content. Instead, its charging the advertisers. You know, the annoying rollovers that pop up just when you are about to read something.

This is another challenge for free web-content providers. How to make money without spoiling the user-experience? The ads got to be unobtrusive but at the same time you want the target audience to see and click on the ad-link. Only then can the website make money. More clicks = more money. That's how most affiliate programs work on the net.

Some of the very premium or very niche news websites tease the reader. The Wall Street Journal for example. You go to their home page, you see some previews, you click on an article you want to read and then they hit you with the following - "To continue reading, subscribe now". You have to subscribe for full-site access.

It's easy for location-based social networks like foursquare and gowalla. They can easily latch on to the local businesses and keep their service free for users. Geo-targeting is an effective marketing tool when it comes to services like hotels, restaurants, concerts, games etc.

Content and concepts may differ but the goal remains unchanged. Making money. Twitter did it best. They played it slow. Only after they had established a dedicated user-base (close to a billion!), they began revamping their revenue model.

Slow and steady - that's the way to go!

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