Economics of content marketplaces
Written by Prash Naidu
Online publishers can be thought of as operators of content marketplaces where a variety of content is “sold” to consumers. We will now investigate what impact this has on the ability of publishers to monetise their content.
It is important to realise that not all content is equal. A range of factors such as the uniqueness, freshness, importance, etc. coupled together with the consumer’s own interests determines how valuable the content is to the consumer. This ultimately determines the “price” that the consumer is willing to pay for the content.
Economics teaches us that supply and demand curves together with price elasticity helps determine what quantity of a certain commodity is sold at a particular price point. Different goods have different curves and therefore will be sold in different quantities depending on their prices; with lower prices generally resulting in a larger quantity of the commodity being sold but for a reduced profit.
For example, if one were operating a shop selling a variety of coffee beans, the optimal strategy would be to set a different price for each variety. The price would be based on the quality and desirability of each variety coupled with the desire or need to generate a profit.
What you do not do is set a single price for every variety. We intuitively know that this is the wrong approach but let’s investigate why in a more rigorous manner. Each variety has its own curve and therefore if the price is too high for that variety, only a small quantity will be sold, too low and a lot will be sold but potentially at a loss for the seller. A single price might therefore be correct for one variety but it will be wrong or inefficient for the others.
Herein lies the problem when it comes to monetising content for publishers. The two main strategies are to either go with free access and monetise through advertising or put up a paywall. Both strategies are flawed because both put the same “price” on all the content produced by the publisher. Free access puts the price too low and paywalls raise it too far.
Even those few publishers who have experimented with hybrid models such as the leaky paywall still fall foul of improper pricing. This is because these systems typically operate on blind counts, e.g. the first 10 articles a month are free to access with no consideration given to the quality or value of an article.
The solution to effectively monetising content is therefore to have a strategy that is able to vary the price depending on how valuable it is deemed to be. It’s not about choosing between free access or putting up a paywall, it’s about having both side by side and potentially other monetisation strategies such as FreeWall® all working together to build a “price curve”. This gives publishers the ability to price content intelligently and therefore operate an efficient marketplace; the key to higher revenues and long term profitability.
[As of publishing, this article is also on the PPA’s “Featured Content” section in their Knowledge Bank.]