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Free Vs. Paid Subscriptions; Apples and Oranges?
Posted by: | CommentsSomething has been bugging me since I posted “InTech’s Past, Present, and Future.” There were many thought provoking comments made on the post, and I was particularly intrigued with David Greenfield’s comments, in which he said (in part) “The fact that this online savvy audience is still highly interested in print underscores the comments made by others here that print is not dead.” The reason this was “bugging” me was that I too subscribe to lots of free publications that I never read. Does that sound irrational? You better believe it does!
Free Stuff Makes Us Crazy
“Zero is not just another price, it turns out. Zero is an emotional hot button – a source of irrational excitement.”
Dan Ariely is the James B. Duke Professor of Behavioral Economics at Duke University, founder of the Center for Advanced Hindsight at MIT’s Media Lab, and author of the book, “Predictably Irrational.” In his book, Ariely describes several experiments he and his team conducted to test why it is that free stuff makes us crazy.
In one experiment, they sold two different kinds of chocolates at a large pubic building; Lindt truffles and Hershey kisses. They priced the highly prized Lindt truffles at 15 cents (about half of the wholesale price) and the Hershey Kisses (considered perfectly delicious but a little lower quality) at one cent. As you may expect, the buyers flocked to the truffles by a ratio of 73 percent to 27 percent, since it represented such a tremendous bargain. Sounds perfectly rational.
Next, both prices were lowered by just one cent. The truffles were still priced fourteen cents higher than the Kisses and now were an even slightly better bargain over their normal price. However, suddenly the preference was almost completely reversed and the Kisses were chosen 69 percent of the time! This experiment was reproduced in several other contexts and is demonstrable in many commercial case studies. Ariely concludes, “When choosing between two products, then, we often overreact to the free one.”
Discontinuous Functions
There are other discussions in the book as well as Chris Anderson’s book, “Free,” that document the step function that occurs between zero and anything else. In mathematical terms, then, there are two domains; the paid and the free. The function that describes the paid is not the same as the function that describes the free. This has profound implications for paid content of any kind, especially the concept of micropayments.
So how does this apply to InTech? I return to David Greenfield’s observation that his “online savvy” audience is still interested in the print version, proving that print is not dead. Can we be sure that this is indeed evidence that readers find value in the print version? Or is it possible that it is simply another predictably irrational decision influenced by the fact that the subscription is free? Before tackling those questions, let’s consider one more example.
Would You Like Fries With That?
Let’s say you visit your favorite fast food restaurant and are considering meal options. One option is a serving of french fries for $0.50. The second option is a burger for $1.50. Finally, the third option is a burger and fries for $1.50. What would you choose? By the way that’s not a typo – the second and third options are the same price. My guess is that approximately 84% of you would choose number three.
The reason for my prediction is based on a clever, real world example of this pricing model that Ariely recounts. He was browsing the Internet and came across the following pricing options for a subscription to the Economist:
- Economist.com subscription: US $59.00
- Print subscription: US $125.00
- Print & web subscription: US $125.00
Being the scientist he is, Ariely was curious about this approach and decided to study how others would react. He posed this same advertisement to students at MIT’s Sloan School of Management and asked them which they would choose. 84% of them chose the third option. Next, Ariely offered the following to a second set of Sloan MBAs:
- Economist.com subscription: US $59.00
- Print & web subscription: US $125.00
Certainly by now, you’re suspicious and so you probably don’t expect a rational decision. Indeed, without the decoy of the print-only option a mere 32% (a drop of almost 63%) chose the print and web option. Once again, experiments confirm that this behavior is predictably irrational. A detailed discussion is beyond the scope of this post, so you’ll need to read the book for a full accounting. However, it is helpful in the context of this discussion, which is…
What Does This Mean to Free Publications?
The first conclusion I would draw is that one cannot draw conclusions from readers’ decisions to subscribe to something that is free. It’s a demonstrably irrational decision with no down side risk. The real proof would come if subscribers were asked to pay $1 per year and see if subscription rates changed (my expectation would be that they would drop by about two thirds).
Furthermore, it casts doubt on a frequently quoted result of ISA member surveys that indicated InTech as one of the most highly valued member benefits. We’ve seen that our perceptions of value are highly skewed by the context in which they are presented. I’m not saying the results of the survey are wrong, but rather that you cannot necessarily consider them to be rational answers.
Finally, I think the most important lesson is not to try to apply a paid paradigm to a free context. We cannot assume that the rules are the same for both. In one sense, I was guilty of doing so by asserting that declines in print subscriptions of newspapers and magazines directly relate to InTech subscriptions. While I still think that there are many common factors, we must be careful and remember that there is a discontinuity between the worlds of paid and free.
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InTech’s Past, Present, and Future
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I was recently asked for my thoughts regarding the reasons for InTech’s (advertising) struggles and how we might improve the advertising market share of the magazine.
I would say that what went wrong with InTech is Web 2.0. The Internet is revolutionizing the way information is delivered and how people organize themselves; the two core value propositions of ISA. Few to realize this, including organizations as large and successful as the Boston Globe and Conde Nast. Here are my thoughts on the past, which are not meant as criticism but analysis on how external trends are affecting InTech:
- The fundamental challenge for InTech is the plummeting value of information. The product quite simply isn’t worth what it used to be. Many people immediately think of Google, but there are actually a few reasons:
- Search engines (Google, Bing, etc.) are the obvious reason information is becoming devalued; it is much, much easier to find.
- Vendors are providing more and more value-added information to their customers. They are realizing the benefits of giving away information and solutions in order to increase sales of their products. Rockwell has been doing this for years, but Emerson is really becoming a content generating force. They get it.
- Web 2.0 is turning traditional content consumers into producers. While automation professionals are probably slower to adopt than others, this is what I call the “silent killer.” The root cause here is the cost of bandwidth and storage approaching zero. This trend will continue as more and more specialists in the automation profession will become their own publishers. Greg McMillan, for example, could be a very successful professional blogger and speaker right now if he had the inclination.
- It is no great surprise to say that the print medium is becoming less and less popular. ISA is dangerously behind the times with regard to all things digital, but I am seeing glimmers of hope from leadership that this is changing (as recently as emails I received this afternoon).
- Advertising in all forms (magazine, web, television) is changing. The traditional, interruptive model is becoming less effective every single day. People are getting better at ignoring those sorts of advertising and effective advertising in the future will be permission-based, inbound marketing. The problem with that approach is that it requires an organizational shift that will be extremely difficult to pull off.
- Due to the exploding availability of information, people are shifting from fewer, longer articles to more, shorter articles. I have ready many statements from leadership about the “world class” content of InTech, and I am not saying that it is or is not. My point is that it doesn’t matter whether or not the content is world class if nobody is reading it. The articles are too long and too poorly marketed right now, in my view. I know this is heretical to say, and many engineers will take violent exception to this statement.
- Another effect of Web 2.0 is the immediacy of information. The process and delivery mechanism for InTech is too bogged down to respond to quickly developing situations. By the time an editorial calendar is adopted, articles are submitted, reviewed, accepted, edited, printed and read, people frequently don’t care anymore or ISA has missed an opportunity to be part of a conversation.
- ISA has killed the golden goose by overwhelming its members with low value, un-targeted, interruptive marketing. As a result, they have unsubscribed from our emails and generally tuned out ISA. That will make everything we do from now on that much harder.
Don't confuse Web 2.0 with social media - they are related but not the same thing.
So those are my thoughts on what went “wrong” and the forces that are influencing publishing in general. Here’s what I think we need to do:
- First and foremost, abandon the traditional paradigms which include viewing InTech as a source of revenue. It needs to be transitioned to a (hopefully) break-even content generation engine that serves a higher calling (e.g. inbound marketing, member engagement, community building). Again, I understand this is heresy and will be very controversial.
- The deal with Automation.com should be undone as soon as possible. This was dilution of the InTech brand and in a Web 2.0 world, the opt-in email list is the most valuable asset any publisher has. Sharing this with Automation.com greatly diminishes its value.
- InTech should formulate a strategy for migrating its focus from print to blog. Many people will misunderstand what I’m saying here. I am not saying abandon print – done properly this can actually become a very high margin product. I am not saying we do this overnight – it needs to be a transition that takes place over a two to four year period. The end result must be a more nimble, online blog that publishes shorter, timelier content from a wider variety of members. The InTech magazine will then become, as Seth Godin calls it, a “souvenir” that people will want to buy because it contains enhanced and embellished versions of the online content. It should be available as an online, downloadable e-book as well as an on-demand (that is, not subscription) purchase.
- InTech needs to abandon traditional concepts of advertising and look at online affiliate advertising, sponsored content, and selling products. And the term “product” needs to be defined as well. Currently, this would encompass books, standards, and training but it remains to be seen whether this remains the case. As an example, a blog article on cybersecurity needs to (automatically) include include links to “Click here to download ISA99,” or “Buy ‘Industrial Network Security’ now,” or “Attend a security webinar.”
- The concept of an editorial calendar is antiquated and needs to be reconsidered. While it was once a necessary tool, it seems to me that it is now an encumbrance. As I’ve said, InTech needs to be a more nimble, crowd-sourced publication platform that can address the most pressing and current issues that are of interest to our members.
- We need to educate our members on how to be better content producers. This does not mean what it used to mean. The skills required to author a five thousand word text article for a print magazine are much different from the skills required to write a shorter (thousand word), more concise, compelling multimedia article (or video).
- If we reclaim sovereignty over the InTech newsletter, it needs to be revived as an instrument to deliver value to our members – not to sell more stuff. This is CRITICAL.
- ISA staff and leaders need to be trained to adopt a “content” mindset, which means thinking about turning every bit of work product (like this email, for example) into content and distributing it through multiple channels. I describe this approach in more detail on my blog.
You’ll notice I have not made a single mention of social media. The reason is that social media is a means to deliver remarkable content to people and then talk about it. Without the content, social media will simply be an empty, uninteresting echo chamber. However, the level of coordination and scope/degree of change required for this transformation make it a tall task to say the least.
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