Wednesday, September 01, 2004

Online Content Business Models

SubscriptionPal Summary

Online content has value, and consumers are willing to pay for it, as evidenced by a wide variety of businesses successes such as the WSJ online, AOL in its early days, iTunes, and the adult verification services. But as content delivery mechanisms transform from print, CD, and DVD to be fully electronic delivered via the internet, and as consumers’ path to content centers around search engines, a new opportunity exists to provide consumers with access to all of the content they want, using search engines to find it. Of course, along with value, much online content also has significant cost to create. An internet exchange (SubscriptionPal) that essentially distributes a flat rate subscription fee proportionately across content providers, based on their actual use by each consumer, combines consumer willingness to pay flat subscription fees and the business requirement of content providers for revenue.


A number of technological and sociological trends are causing convergence of the way people access and use information of all types, from that generated by various content industries to that created by individuals – newspapers, magazines, journals, books, databases, blogs, websites, music, video, software, electronic games, etc. All content producers, other than those who do it as a hobby or a marketing tool, face a critical issue – creation of a viable business model in the new information environment where four enormous changes have occurred:

  • The medium is now completely electronic and copying is essentially cost free,
  • Bundling (e.g. articles in a magazine, songs on a CD) has been primarily a mechanism of reducing costs (of production) and raising prices (by offering more) by the content producers – but bundling for these reasons no longer makes sense,
  • Consumers primarily find content via search engines using keywords and word-of-mouth (or email or blog),
  • Consumers can easily find each other.

The history of human information exchange has proven that content producers are willing to produce content if there is a viable revenue stream, and content consumers are willing to pay for content that is of value to them.

A truly innovative and viable solution for one industry is likely to be a solution that can stretch across all content producing industries.

Content Producers

Quality content has a creation cost. Even though the distribution may be essentially free, without a robust business model to return value to the content producer, quality content will disappear. While there is ample press coverage of the wrestling with this issue in the music business, it affects all of the content industries.

For example, newspapers and magazines are struggling with multiple business models to try to provide teasers (limited free content) and then sell-up to premium services, archives, or personalization tools, or at least make the user register (in the hope of being able to garner higher advertising rates). The attempts to do this have produced some strange behaviors where newspapers give away the content of value (recent news) and charge for the fishwrap (archived news). Magazines, which have only old news anyway and whose articles have a much longer shelf life, generally do the opposite; they charge for the new issue and give away access to the archives!

The elephant-in-the-room that has not been addressed by content providers is the relentless adoption of search engines as the primary mechanism for finding content. So, in order for content to be found, it must be visible on search engines. And in order for content to be visible it must:

  • Have a high reputation, primarily obtained by inward links,
  • Be available to search engine crawlers.

The Catch-22 for content producers is their current business models restrict access so that they get few inward bound links (because others hesitate to link to content which is behind any kind of firewall or registration system), and they prevent crawling by the search engines. So, it seems that in order to have the high reputation that is required, the content must be free.

Since completely free content, and relying on advertising alone, is not a viable business model for most content providers, they have attempted numerous basically unsuccessful ploys such as premium content, registration systems, closed subscription systems, raising the institutional rates, etc. While a few of these appear to be successful, e.g. the WSJ subscription model* upon closer inspection they still point toward failure because their content is not developing a reputation (since people generally don’t link to it and it cannot be found by search engines). [*Note that the WSJ is experimenting with allowing two articles a day to be available to search engines.] See the article “Searching for the NYTimes” in Wired Magazine for a good description of the problem.

The various content industries are very well aware of the impending doom of their current non-internet based systems (e.g. print, CDs), and the lack of a viable internet-based business model (see Industry Articles at the end of this document). They are spending millions of dollars trying to find a solution, but invariably they start from the content producers’ point of view rather than the content consumers’ point of view, and thus propose sure-to-fail non-solutions such as the news database that the Associated Press recently announced they would be creating.

Content Consumers

Keyword Searches are Paramount.

Content consumers primarily find content through search engines, and this trend is likely to accelerate. Going through portals, whether they be newspapers, magazine, databases, etc. will not disappear completely but the searching of content within portals will only be done as the second level of searching, once the consumer is 1) aware of the portal’s content, 2) convinced that the portal has a collection of relevant content.

Consumers want high value content.

As a simple example, a Google search for “Ceanothus”, a.k.a. the “California lilac”, one of the most popular species of California native plants with many subspecies, does not bring up a single entry from the CalFlora database.

The search brings up 36,800 entries, yet any native plant horticulturist or enthusiast will attest that CalFlora, run by the University of California at Berkeley, is the definitive native plant database. Instead, the search brings up more dubious sources of information, for example take a look at link number 3 (out of 36,800!), which is my list of native plants in my home garden ( CalFlora has 78 entries, one for each sub-species of Ceanothus and contains a description, habitat, common names, links to other information, and numerous photos.

Consumers, who are looking for the best content, using solely search engines, are not finding it.

And content providers, such as CalFlora, who are looking for consumers, are losing them by placing their content behind subscription services. Ironically, the current “solution” to being found is for content providers to buy keyword ads with the search engines! Not only are content providers making the search engines successful by providing the content for them to search, but they are making them wildly successful by then paying the search engines to highlight their content! In a sense the search engines are parasites on the content providers right now, and what is needed is more of a symbiotic relationship.

Consumers’ content requirements vary over time.

While there are certain stalwart “must read” content providers for each consumer (e.g. The NYTimes, Fox News) consumers “flit” from topic to topic as their interests wax and wane.

Pay-per-view and micropayments are the last century’s solution.

Consumers do not want to be nickeled-and-dimed as they search, find, and access content. The stampede to flat rate subscription pricing on telephone services and movie rentals (e.g. NetFlix) are just a couple examples. Additionally, some pundits believe that pay-per-view generates “mental transaction costs, the energy required to decide whether something is worth buying or not, regardless of price.” A day full of a hundreds of mental transaction cost calculations on whether to buy or not buy a tiny piece of information would lead consumers to one big splitting headache…and an antipathy to this business model.

Business Model

Any solution must have a business model that returns a reasonable investment to the content producers and is priced “fairly” for the content consumers. Content producers and content consumers have successfully interfaced with subscription services of many different types so that is a good place to start. The problem at hand is to define a service that takes into account the new all-electronic media, and the new consumer behavior. I have developed a business model prototype for SubscriptionPal that makes the following assumptions:

Content Consumers

  • Consumers will pay approx $10-$30 for an information service if they believe it is comprehensive (that is, the content is complete and includes high-value resources). As a comparison, NetFlix charges $22/month for unlimited access to movies (although no more than 3 can be out at a time).
  • Consumers are willing to pay additional subscription fees for deep content, but they are not willing to sign-up for “long-term” contracts. Monthly contracts are preferable to yearly contracts.
  • Consumers don’t want a system where they have to do any mental calculations. They want flat-rate pricing.
  • Consumers like “bundling” but only when it adds value (e.g. Science Magazine determines what articles are worth publishing).

Content Producers

  • Producers are willing to give away some free content to entice users to try the product. The problem now is they often indiscriminately give away content that people want, while asking them to pay for stuff they don’t want, additionally the content is not personalized. One reader’s fishwrap is another reader’s valued article.
  • Producers cannot live on miniscule content payments. At some point, for the serious consumer of their content, a reasonable subscription fee must be charged (say in the range of 25 cents to $5 per month). [Example: The Encyclopædia Britannica charges $9.95/month.]

SubscriptionPal Service Description

What new type service can solve the problems outlined above and meet the needs of both content producers and content consumers? SubscriptionPal to the rescue!

SubscriptionPal starts with the content consumer, which is probably unlike any other
business model that has been developed for the industry. Everything else appears to start with the revenue generation needs of the content producer and goes downhill from there. If a viable service can be created for the content consumer, then the next task is to figure out whether that business model is also viable for the content producer.

Content Consumer Requirements

  • Flat rate
  • Automatically adjusts to consumer’s information consumption habits and changes
  • Fair to both the consumer and the content producer; the consumer only pays for valued content and the producers who supply the content are proportionately compensated
  • Assumes that the consumer finds content thru search engines
  • All valued content available

SubscriptionPal Consumer Service

Four tiers of service all flat rate

Tier 1:

  • Price: FREE, but requires registration including credit card information (or PayPal). This is essentially a universal registration subscription service; the credit card requirement insures that the registration is not passed around indiscriminately and that it is easy to upgrade to the next Tier.
  • Value: Essentially unlimited search to find the best sources of information. Access to ALL content sources but only X(n) items per (n) content bundle (content bundle is the equivalent of a newspaper or magazine). Additionally since anyone can sign up for Tier 1 for no fee, the hesitation to link to content should disappear.
  • Example: Tier 1 customer can read a certain number of articles from the NYTimes, from Science Magazine, W from the WSJ, A from the Encyclopædia Britannica, and every other participating content provider without paying any fee.
  • Upgrade: However, to access content at page views beyond Tier 1, the subscriber must move to Tier 2.

Tier 2:

  • Price: $10-20/month. Increased access to all content bundles, probably at a 5-10 times factor.
  • Value: Essentially unlimited search to find the best sources of information. If the need is relatively shallow – tens of articles from one source --- it can be met by this level of service. If the need is deep, this level of service allows discovery of the content source and exploration of it before making any serious monetary commitment.
  • Example: Tier 2 customer wants to read everything about topic ABC from a wide variety of sources. ABC is a popular topic (e.g. global warming) and information about it can be found in many places and new information is constantly being added.
  • Upgrade: However, there are certain content sources that the subscriber reads on a regular, even daily basis. These content sources are most likely respected compendiums of related information (e.g. NYTimes, Nature Magazine, HBR). Alternatively, the subscriber is doing an in-depth analysis on a topic and while the information need is intense at the moment, this will pass and a new topic will become of higher importance.

Tier 3:

  • Price: an additional $20-30/month.
  • Value: Unlimited access to a fixed number of content bundles where the components of the service can change on a monthly basis.
  • Example: Tier 3 Customers can sign up for Z unlimited access subscriptions and move in and out of these subscriptions each month if desired.
    § Month 1: NYTimes, WSJ, Science, CalFlora, Consumer Reports, etc.
    § Month 2: not planning any major purchases this month so Consumer Reports is phased out and Popular Mechanics is phased in.
  • Upgrade: unlimited access

Tier 4:

  • Price: an additional $TBD/month
  • Value: Unlimited searching and access to all content. The fee would be distributed proportionately to the content providers that are used by the subscriber.

Content Breadth

All Tiers have complete unlimited searching of content and access to a certain number of Items, based on consumer needs.

Content Depth

Some (Tier 1)
Limited (Tier 2)
Selected In-Depth (Tier 3)
Complete (Tier 4)

Tracking Service:

Consumers can track and chart their uses of content bundles. In the Tier 3 Service consumers would have a simple user interface to manage the in-and-out movement of monthly subscriptions.

User Interface:

The user interface to the system is very simple. Once a customer has signed up for the service all of the participating content providers recognize that customer. If the customer tries to pull the N+1 article from a content bundle that would require the next Tier of service, a simple mechanism steps the customer along to make that upgrade, or in the case of Tier 3, to swap out one content bundle for another (this content bundle swapping will also be done in an automatic way – all of the details are not described here). Subscribers can view their content consumption habits at any time (not only will this be interesting to the subscriber, but it also reduces the temptation to share the subscription).

SubscriptionPal Content Producer Service

SubscriptionPal provides three major services to content producers:

  • Visibility of their product in the search engines without “giving it away”
  • Better knowledge of their content consumers thus allowing more highly targeted advertising
  • Monthly subscription fees from Tier 3 and 4 customers (but not much from Tier 2 – this level of the business model does not return enough value to support the large content producers – it is a sales and marketing tool for them; however it may be important to smaller content providers).

SubscriptionPal (the company)

SubscriptionPal’s main source of revenue is the Tier 2 consumer subscriptions.

Search Engine Relationship

For this scheme to work a business and technical relationship needs to be developed with the search engine companies. This would be a delicate task, for right now they, Google in particular, are extremely powerful; however a consortium of highly valued content providers should have a lot of leverage and be able to play one search engine company off the others (Google, Microsoft, Yahoo). Keep in mind that search engines are nothing without content and if the content is elsewhere search engines will degenerate into tools for finding products and blogs.

Account Sharing & Multiple Accounts

Because SubscriptionPal keeps a credit card (or PayPal number) on file for each account and records all content accesses (to the participating content providers), subscribers will only share their account with those they are willing to have access to this information. An additional feature of allowing an account to make public comments on participating sites using the cardholder’s name can also discourage inappropriate sharing. It is expected that account sharing within a family will occur and that would be encouraged. Multiple accounts is a more difficult problem that needs to be addressed.

Technology Issues

SubscriptionPal is innovative in combining existing business models, technologies, and user behaviors, rather than developing brand new ones. While this may seem like a negative, it is actually a positive as it reduces the barriers to success (see next section).

Registration systems, payment systems (credit card and PayPal), resource allocation systems, search engines, etc. already exist and are either services that SubscriptionPal will tap into or pieces of the technology that can easily be bought or built.

The technology issues that need to be addressed are:

  • Registration system – needs to work for a user across multiple devices. SubscriptionPal interface with existing registration systems or develop its own? If develop a new one (most likely) how does this affect the site’s current registration system if it has one? There are a number of commercial registration systems available and most likely some sites have home-grown systems.
  • Tracking of subscriber’s accesses. This may be done locally on the user’s machine but it needs to be synchronized on a central site so that the subscriber can use their account from anywhere. This may be done by inputs from the content providers’ registration systems instead.
  • Co-existence with existing business models (e.g. paid archives, premium content).
  • How does SubscriptionPal apply to each type of content? Books, magazines, newspapers are more obvious than music, video, audio, software, and online games.
  • How does RSS figure into this?
  • The service should factor into a member’s search that certain content producers are more highly valued than others. For example, when searching for “quantum mechanics” there should be a way to highlight links from content producers that are part of a member’s subscription service (Tier 3) and most highly accessed (all Tiers). Adding value to the searching process by using the subscriber’s known search preferences is an important part of making the service worth the subscription fee. (Sites such as greatly improve the shopping experience by highlighting related books or items tailored to a particular customer.)

Business Issues

A Business Model has been developed (using a spreadsheet) and is available for review. According to the model, SubscriptionPal has the potential of generating a large amount of revenue. For further information about the Business Model, please ask.

Adoption Issues

Ideally SubscriptionPal could operate in tandem with whatever services the content producer currently has (e.g. registration system, paid archives, premium content). That would lessen the barriers to adopting the system since it can be done gradually as SubscriptionPal proves itself and gathers users.

The business model needs to be fully developed to demonstrate the return expected for the content providers. Additionally, the business model should be enhanced to provide an additional return (perhaps equity-based) to content providers that is allocated proportionately to their use (value) by customers.

The application of SubscriptionPal to organizations and institutions needs to be examined. How will an institution parcel out SubscriptionPal accounts? Would there be a master account and then sub-accounts? Pricing with volume discounts would also be necessary.

Next Steps

Build the case:

  • Build a working prototype
  • Research the existing business models and partial solutions
  • Explore application in each of the online content industries (newspapers, magazines, movies, games, software, databases, books, etc. etc.)
  • Content Consumer research
  • Content Producer research (vet the concept with industry gurus, do not approach key partners yet)
  • Develop target list of key content providers using the following criteria:
    o Start with newspapers, magazines and books (gut feel, I need to have a rationale)
    o Highly sought-after content sources
    o Internet adoption leaders
    o Concerned about viability of existing business models
    o Mix of newspaper, magazine, and book companies of the same genre (e.g. business, consumer, etc.)
    o Ideally (
    ) is one of the early participating vendors in order to reach into their vast book database.
  • Resource Requirements: With a small team in place of 3-5 people (1 marketing, 1 biz dev, 3 developers) the above tasks should take no more than 3-4 months.

Sign up the Content Producers:

Once these tasks are complete approach the key content providers armed with consumer research, a viable business model (for them), an understanding of their issues, and a working and convincing prototype.


It’s hard to think of all of the futures without having developed a prototype, but there is obviously a lot of user data that is being gathered. This data could be of value to the user him/herself, or could be aggregated and sold (with the user’s permission).

There may be opportunities for bundling that could create a whole new set of businesses. E.g. someone could “bundle” everything about bumblebees – text, audio, movies, images, music, etc. -- facilitated by SubscriptionPal’s relationships with the various content providers. SubscriptionPal would be the facilitator of this new type of business – in a sense these bundlers are the ISVs of the content production world.


SubscriptionPal is a big play – a consumer service that allows access to all content, including that of the highest quality, is priced fairly based on use, and benefits the content producers, the content consumers, and the search engines. Given that the end result is mutually beneficial, it is more likely to succeed that business models which the consumers immediately try to circumvent (e.g. The company that succeeds in pulling this off will be at the core of content delivery, kind of an eBay for content, and perhaps a new star in the internet constellation along with eBay, Yahoo, Amazon, and Google.

Industry Articles


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