I am taking a class called Business at the Base of the Pyramid, where we read cases about amazing companies that strive in countries and with populations that at first would appear to have limited attractiveness. When thinking about these people, mainly in developing economies, the thing that comes to mind is – what keeps them away from prosperity? Their prosperity would lead to more business to both new and existing companies, so that the whole cycle could be reverted into a virtuous and not a vicious one.

What happened to the promise that Internet would lead to the leapfrogging of these countries in terms of technology? And the promise that Internet would make them less poor (because information and communication would now come in an easier and less expensive way than cables, etc.)? How can these countries face decreased barriers to entry and try to develop businesses in the online space so that they too can reach all the population in a more efficient way?

According to some studies the world seems to be moving on the opposite direction: “Contrary to more optimistic utopian conceptions, the “digital divide” tends to be widening”. [1]

However, there might still be hope. Can the Internet be cheaply and easily spread throughout these countries so that the “Online Economy” would actually be the next hope for them (as opposed to some brick and mortar businesses, that they could leapfrog)? Some of these countries have incredibly low Internet penetration rates as we can see in the chart below – is this an opportunity to be tackled? [2]

2010

Internet penetration (per 100 people)

Eastern and Southern Africa

8

Sub-Saharan Africa

10

Western and Central Africa

13

Most developed economies

80-90

Similarly, these are also the countries in the world that have some of the lowest adult literacy rates – can Internet bridge this gap? [3]

2010

Adult literacy rate (%)

Western and Central Africa

57

Sub-Saharan Africa

62

Eastern and Southern Africa

67

Most developed economies

99-100


As I learn the subjects of these two courses, I wonder if they can be brought together so that the Online Economy can benefit from these markets and these huge developing countries can become more prosper in the future with the utilization and access to the online world…

 

Sources:

[1] Banji Oyelaran-Oyeyinka , Kaushalesh Lal, Internet diffusion in sub-Saharan Africa: A cross-country analysis – Journal Telecommunications Policy, Volume 35, Issue 6, July 2011

[2] United Nations – United Data Website – Internet users by country http://data.un.org/Data.aspx?d=SOWC&f=inID:72

[3] United Nations – United Data Website – Adult Literacy Rate http://data.un.org/Data.aspx?d=SOWC&f=inID:74


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It is not news that the newspaper industry is being forced to migrate online as an increasing number of people consume content electronically – on computers, tablets or cellphones. The Wall Street Journal, the largest paid subscription news site onli

ne, is a case in point: it has 500,000 digital subscriptions as of March 2011, with 200,000 subscribers accessing content on mobile devices.[1] After email, reading news is the second-most popular activity on mobile devices.[2] While some (old-school) people still prefer a print newspaper, the ease of access of electronic content and the increasing penetration of smartphones and tablets makes it hard for news providers to ignore the online space.

In this shifting environment, there are many different online models that newspapers can choose to pursue. My post will describe the current landscape of the industry, and then discuss other approaches that they could take in order to continue mobilization and monetization.

Current landscape

A lot of news providers bundle their print and digital editions, but most stand-alone news websites fall into one of three categories:

1. Completely free content: These sites subsidize their costs with revenues from other sources, mostly through advertising. E.g. Huffington Post

2. Metered model: This is a hybrid approach between raising revenues from advertising and subscription fees. Some initial content is free (for instance, a certain number of articles), and the reader can then choose to subscribe to continue reading. E.g. New York Times

3. Pay wall model: A user cannot get any content online unless she pays for it. E.g. The Times (from the UK)

Most sites tend to be free, but some of the more popular ones are adopting the metered approach. With the free and metered models, the sites must attract traffic – this is usually done through search engines (visa Search Engine Optimization) and increasingly, through social media, especially Facebook and Twitter.

Where I think the industry will, or should, migrate to

1. Marquee writers as a way of attracting traffic: In some ways, news is becoming a commodity. A lot of completely free websites, such as Wikipedia, have (almost) real time updates of current events, so no user should be willing to pay for merely stating information. Readers do however, want to read engaging content and analysis, and the eventual winners in this industry will be the sites with marquee writers/columnists who people will pay to read. For instance, Thomas Friedman, or other political commentators, could pull in those readers who would otherwise get their news through completely free channels.

2. Moving to a freemium model i.e. monetize content: This would possibly replace the metered model, but instead of charging after an initial number of articles read, newspapers should charge for certain types of content. E.g. charge for a particular columnist’s columns, or detailed analyses of a presidential candidate’s debate performances.

3. Demonstrate advertising effectiveness i.e. improve the monetization of traffic: Within newspaper advertising expenditures, the online category is the only one to have a positive CAGR of 14% between 2003 and 2010; the other three categories (national, retail and classified) all showed a drop.[3] However, advertisers looking to advertise online have many other websites that they can use – newspaper websites need to either work directly with advertisers, or through ad networks to demonstrate their effectiveness at converting their traffic into paying users for the advertisers.

4. Segment the market: There is scope to segment customers based on the medium through which they access the content. Some newspapers such as The Guardian have started doing this already – access to content is free online, but a user needs to pay a monthly subscription for The Guardian’s iPhone application. While this may seem unfair at first, the newspaper should simply price based on a consumer’s willingness to pay: the iPhone user will probably pay for content, while a casual surfer may not be as willing to.

 

[1] Standard & Poor’s Publishing & Advertising Industry Survey, April 2012

[2] Sonderman, Jeff. “Pew: After email, getting news is the most popular activity on smartphones, tablets.” Poynter. October 1, 2012. Accessed on November 15, 2012. <http://www.poynter.org/latest-news/media-lab/mobile-media/189899/pew-after-email-getting-news-is-the-second-most-popular-activity-on-smartphone-tablets/>

[3] Standard & Poor’s Publishing & Advertising Industry Survey, April 2012


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I like getting stuff for free. I think most people also like free stuff. To paraphrase Professor Edelman, if you want people to use your product, make it look free. The internet has made it even easier to get stuff for free, as consumers. Some companies make money by giving away free products and services to customers and then charging some customers for add-on features, advanced functionality, virtual goods and/or premium services. This business model has been dubbed “freemium” – a term combining “free” and “premium” – by Fred Wilson, a notable venture capitalist and blogger in 2006. Many of us now associate this business model with companies like LinkedIn, which charges customers for premium accounts or additional features such as messaging un-connected contacts. Another notable example is dropbox, which gives users a limited amount of free storage and then charges for additional storage. While this business model has become very popular in the most recent generation of internet companies, it has been in use in the software industry since the 80’s, when “lite” software (limited feature) was given away on floppy disk (or preinstalled on computers) for free to promote advanced paid versions. This is not to be confused with free-to-try business model where full versions are given away for a limited period of time and then require payment to continue to use.

Freemium has been a successful business model for software for a number of key reasons. First, the marginal cost of serving an additional customer is equal to or near zero. Because infrastructure costs (storage, computing, bandwidth, etc.) have decreased significantly, once a product has been developed or new features released, there is very little marginal cost. Secondly, customers are fundamentally attracted to the idea of free and will try nearly anything because they have “nothing to lose”, which does not account for the value of time. Assuming the product is actually useful and creates value for the customer, adopting a freemium model can greatly accelerate user growth. Specifically in software applications, integrating data and being compatible / integrated with other applications increases switching costs for the customer, making the app even more sticky. For these reasons, many companies have successfully adopted the freemium model as a strategy for quick growth and user adoption. Dropbox grew from 0 to 50 million users in less than 3 years.

To the extent that the economics work out profitably varies dramatically across companies, products and customers. One thing is certain, to be sustainable, the free to paid conversion rate and lifetime value of the customer must be greater than the cost to serve all customers. On its surface, the relatively straightforward economic formula should be very clear for any entrepreneur, executive or investor to understand the sustainability of a freemium business. How one thinks about a few key questions will define whether freemium really works:

  1. Who is the buyer? It’s not uncommon for the person making the decision to pay or not to be a different person than the end user. For example, enterprise software where the buyers are IT professionals, but the users are other workers in the company.  Understanding both the user and the buyer is critical.
  2. What is features will be free and what will be paid for? Seems simple, but there’s a delicate balance between creating value for the user, the costs associated with developing and delivering each product / feature and providing significant value for the buyer.
  3. How much do you charge? Not to be confused with how much you can charge. Maximizing the value you create and capture depends greatly on how much value customers derive from the product and how sensitive they are to paying for it.

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Charging for access to a news website may be counterproductive for someone trying to muster a large online audience. Readers asked to punch in credit card numbers to see a news story, even for a relatively small price, are just as likely to surf elsewhere.

But so-called paywalls are a fad among newspaper sites, and not just for publishers trying to recover shrinking advertising revenue. Media companies are balancing the need to mobilize web audience, and the online advertising they bring, with the preservation of print readership.

Consider the curious, more-for-less deals offered by the New York Times and Boston Globe to lure web readers to their print editions.

Last spring the New York Times started charging for access to its website, www.nytimes.com. The Times asked readers to pay $3.75 to $8.75 per week for digital subscriptions, depending on level of access. (The most expensive, “All Digital Access” choice included use of the website as well as access to a smartphone application and the tablet app.)

Anyone who takes the Times in print – including Sunday-only subscribers who pay $3.75 per week – also get full-boat digital access. That means the Times creates an incentive – savings of at least $5 per week – to subscribe to the Sunday paper.

The strategy seems to work, at least from a print perspective.

The Times reported 771,000 print subscribers on the average weekday from May to September of this year, according to Audit Bureau of Circulations data reported by a Nov. 1 Associated Press story. Including online subscriptions, the Times’ counted 1.2 million weekday subscribers. (The ABC, which verifies the circulation numbers newspapers give to advertisers, doesn’t count readers of a free website as subscribers.)

The ABC report showed the Times’ overall circulation growing 25 percent from the previous six months, the AP reported. Unsurprisingly, the newspaper reported slight growth in Sunday sales, according to AP, as “many people bought or kept a print subscription because it comes with free digital access.”

The Boston Globe, owned by New York Times Co., makes a similar pitch to its readers.

The Globe owns Boston.com, the granddaddy of news websites in New England with 3.5 million monthly unique visitors. But Boston.com is no longer the online home of the Boston Globe. As of September, that distinction belongs to BostonGlobe.com.

Boston.com continues to deliver news, sports, entertainment and opinion for free. The new BostonGlobe.com offers news, sports, entertainment and opinion – from the pages of the printed Globe – for a price.

That price now is $3.99 per week (not counting promotions.) But access to BostonGlobe.com also comes with a subscription to the Sunday newspaper. That costs $3.50 per week.

So, even as the Boston Globe mobilizes an audience for its paid site, and maintains an audience for its free site, it really wants people to read Sunday’s edition the old-fashioned way, with sections of newspaper spread over the kitchen table.

Jon Chesto, business editor of The Patriot Ledger in Quincy, Mass., credits this pricing scheme as the reason the Globe’s Sunday circulation inched up during the past six months. The Globe sold more than 360,000 copies of its Sunday paper on average from April through September of this year, according to the Audit Bureau of Circulations.

Chesto writes: “With the heavy preponderance of ads in the Sunday edition … the Globe’s management has every reason to shore up Sunday sales. It looks like they finally found a way.”

Sunday’s edition is important not just because of the large number of ads in newsprint. The fat stack of coupons, specials and circulars inserted into the paper each Sunday is a major source of revenue.

Subscriber numbers are also important. Those dictate how much a newspaper can charge advertisers – for ink-on-paper ads or the inserted variety.

Whether this tactic succeeds – for the Globe or Times – will be in the eye of the beholder. Will success be measured by web audience? Or is it stable Sunday print circulation with digital subscribers paying for access to news?

Complicating matters for the Globe is the challenge of running two news websites – one free, the other paid – side by side.

Globe Editor Martin Baron said dual sites makes perfect sense because they give readers choice. And he doesn’t apologize for asking readers to pay.

“We have a paywall around our journalism already. It’s called what people pay for the newspaper,” Baron said during a panel discussion sponsored by the Nieman Journalism Lab at Harvard in September.

For the Globe, anyway, success will not be either a large online audience or stable circulation. It will be both.


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Subscription music services have been dominating the news recently with the U.S. launch of Spotify and the new IHeartRadio, plus free offerings from MOG and RDIO, and the recent purchase of Napster by Rhapsody. There is a sea change occurring in all content industries moving towards streaming and subscription rather than ownership and amongst them- Spotify has been both the most visible and the most vilified of the new companies.

While some believe that Spotify has a diruptive business model and will kill i-tune. (http://blogs.hbr.org/cs/2011/07/why_spotify_will_kill_itunes.html).  Other’s are sighting it’s great mobilization success – signing up more than a million subscribers within couple of weeks as the service coized up to facebook; a great reason for celebration. Perhaps not! Specially in light of the fact that not only has the service never been profitable, but it’s loss is increasing. In 2009, spotify has lost $26 million and losses ballooned to $41 million in 2010.

Though many say – so what? A digital company posting big losses in its initial years is nothing new and spotify launched in Oct 2008, after all. And even though these numbers don’t paint the best picture, they show revenues climbing almost twice as fast as expenses. I believe making Spotify profitable sooner than later would & should be company’s greatest priority. History has shown time & gain that start-ups that succeed to generate growth faster despite losses face significant struggle to make it’s business model work later. Opportunity to tweek your profit model when you are small is crucial to make a venture true success. More users listening to more songs means more expense to spotify which will make this experimentation difficult.

So, the question is how can Spotify quickly grow it’s two main revenue streams: paid subscriptions and advertising. Verdict on paid subscription will be out in 6 months. Currently, new users are offered unlimited listening for six months. Post that, free usage would allow only 10 hours of free listening. Hence though 2011 won’t see any change in subscription revenue, some predict that once the six-month period comes to an end, a chuch of ‘power listener’ US user may sign up. Converting users from free service to $10/month for a service which is often available for free appears to me a daunting task and spotify cannot rely only on subscriptions for revenue.

The more importance (and even more problematic) factor is advertising. Spotify is stymied once again here since the biggest opportunity for it to reach more people is through mobile devices. However, problem is that advertising on mobile is practically nonexistent. Pandora despite being the most-downloadable app in the Apple & Andriod market is not able to make profits! Spotify isn’t Pandora. Pandora is 24th most popular app on App store and Spotify is 106th. Even if they can become more popular with the recent trends, they will have to crack the code on mobile ads without listeners tuning out.

No matter how great a platform & serivce spotify provides, making it profitable looks like a really challening task to me. Today’s crouded internet music space requires not only ‘somthing little different’ but a change in business model to alter the game. Rdio’s recent move probably will change the game. (http://www.pcmag.com/article2/0,2817,2394292,00.asp#fbid=EhB8ZcgPfVQ)

So, do you think Spotify is rising to rise further? I doubt!

 


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