Pricing Lesson: Subscriptions Aren’t Big Winners
November 20, 2008
In the early days of the commercial database business, I participated in discussions about the relative merits of different pricing models. There was the “by the drink” approach. This model allowed a customer to buy a single item just like a 20 something hanging out in the local watering hole and buying one Perrier at a time. Then there was the “membership plus pay as you go”. The idea was that a customer would sign up for a service and pay a fee either a one time hit each year or a monthly tab like the bill one gets from the Harrods Creek Country Club. The country club knows that there will be a certain amount of revenue each month and management hopes that enough farmers and bootleggers will show up to buy dinner and gold to make the business pay off. We also talked about the leasing model. The idea was to provide the customer with a piece of hardware and then charge a fee for that equipment. Variations included a certain amount of data. I know the leasing angle seems strange today, but in 1980, the red LexisNexis terminal made a lot of money because the terminal used Mead Data paper with a nifty LexisNexis logo on each side so the information could only be printed in narrow margins. Even better, LexisNexis charges $0.02 per cartridge return and the system double spaced. Mead had discovered the same revenue source that Hewlett Packard applies to its ink business.
These long ago conversations flooded through my mind when I read the CNet story by Ina Fried “Microsoft, Labels Try to Revive Subscriptions” here. The story reports that Microsoft’s subscription plan for Zune music is not hitting its financial targets. Ms. Fried reported, “Both Microsoft and music industry executives acknowledge that the uptake for subscriptions has not been what they’d hoped.”
In my opinion, this admission is quite significant for these reasons:
- Spreadsheet fever makes it trivial to create wonderful payoffs. The problem is that subscriptions are not working too well today, and they did not work too well in the 1980s either. Poke around for fees for the original Wall Street Journal online service or the original LexisNexis New York Times online service. When these publications set up their own subscription based systems, the services sank in a sea of red ink. Now the Zune crowd has discovered that what’s possible in a spreadsheet doesn’t match behavior of online customers.
- The Apple model worked and continues to work. What’s interesting about the Apple approach is that it worked in spite of rampant piracy by people worldwide. Microsoft may want to me too Apple’s pricing and skip the effort to find a better way to price.
- The pricing models are less important than the perceived utility of the service. Lawyers will pay Thomson Reuters or Reed Elsevier big bucks to get access to information when it is must have information. The pricing model becomes irrelevant when the client will pay, there’s a risk of going to jail, or a huge payoff will result from having the information. Music is also must have information but there’s a growing price sensitivity which makes pricing music more difficult than pricing a law review article. This means there probably isn’t a fixed answer to “which pricing model?” The Zune pricing approach may find itself in a state of constant experimentation until the right combination produces the payoff Microsoft wants. The problem with this approach is that there may never be a payoff. So, the question becomes, “How long will Microsoft be willing to fund a product that costs the company money?”
With the death of the print version of PC Magazine, subscriptions may not be a pricing option for magazines either. In short, the conversations we had in the 1980s are being held today at Microsoft. Unfortunately, in the world of online information, the company that cracks the code first remains in the preeminent revenue position until another model displaces the incumbent’s pricing model.
My thought is that Microsoft should duplicate what Apple is doing and accept the fact that its maximum Zune revenue will be capped behind the market leader. Constant experimentation is the hand maiden to this approach. Maybe Microsoft will crack the pricing code? My experience suggests that the flow of red ink will continue for the foreseeable future. What pricing approach should Microsoft take? Amazon’s? Apple’s? Some other?
Stephen Arnold, November 20, 2008
Why Countries Must Compete with Google
November 20, 2008
A happy quack to one of my two or three readers in Australia. The story “Massive EU Online Library Looks to Compete with Google” sparked a number of ideas in my mind. You can find the full text of the Syndney Morning Herald’s story here. The story described that the European Union will launch what will be called Europeana. The made up word suggests big collection of European content. For me, the most interesting comment was:
By 2010, the date when Europeana is due to be fully operational, the aim is to have 10 million works available, an impressive number yet a mere drop in the ocean compared to the 2.5 billion books in Europe’s more common libraries. The process of digitalisation is a massive undertaking. Around one percent of the books in the EU’s national libraries are now available in digital form, with that figure expected to grow to four percent in 2012. And even when they are digitalised, they still have to be put online.
My research suggested in 2004 that Google was building a 21st century version of the pre-break up American Telephone & Telegraph system. The Google vision was global and the 19th century telco was giving way to an applications platform that could deliver digital services from Google data centers to any type of network aware device. In speaking with my publisher about the new distributor for my 2007 Google Version 2.0 study, we touched upon the idea that Google is essentially a country. It is not a company.
I won’t repeat the country argument that I explicate in my Google studies. The point is that the European Union has reached the same conclusion. No one is able to fund a start up that will index the European Union members’ information. Google is aiming for global information. The EU is happy with a couple of dozen countries’ information. More importantly, the EU approach will be to act on behalf of almost 24 nations.
That’s a fairly good example of my assertion: A single company cannot compete with Google. I hope you will disagree. I don’t want to say the pledge of allegiance to a kindergarten colors flag and recite such words as “googley nation” or “TCP/IP on everything”. Use the comments section to prove my assertion that Google can now only be challenged by countries.
Stephen Arnold, November 20, 2008
Microsoft and Pricing
November 19, 2008
I saw a new story in Seattle Tech Report here that Microsoft is making is OneCare security service free. A short time later I came across Microsoft’s own news release about this pricing change here. Bundling or giving away services free is not a new idea in software. The notion is to give customers a taste and then sell them more has worked many times. In the Microsoft news release, the company says:
Windows Live OneCare will continue to be sold for Windows XP and Windows Vista at retail through June 30, 2009. Direct sales of OneCare will be gradually phased out when “Morro” becomes available. Regardless of their method of purchase, Microsoft will ensure that all current customers remain protected through the life of their subscriptions.
The marketing technique is little more than shareware or freeware with a catch.
Then I remembered that Microsoft was reducing prices for its Dynamics products. The prices for its cloud services for Exchange and SharePoint were quite competitive as well. Even the Zune, according to CNet news is getting new features and a lower price. You can read “Microsoft Chopping Zune Prices” here.
The question I asked myself, “Will Microsoft’s price cutting and no fee initiatives extend to Microsoft Fast enterprise search?” My hunch is that the Fast ESP search technology may become more affordable in the months ahead. Here’s my reasoning:
- A number of high profile vendors have rolled out more robust content processing solutions that “snap in” to SharePoint. Examples range from Autonomy to Coveo to Exalead to Interse to ISYS to dozens of other vendors. Companies who want to “work around” SharePoint search problems have an abundance of options. Microsoft Fast may have to use severe price cuts to keep customers from getting out of the corral
- As the economic noose tightens on organizations, some vendors may offer a two-fer deal; that is, sign up now, get one year free and pay only for the second year. This approach may be quite appealing in some organizations. In fact, in a recent review of Google prices for the US government, one could easily conclude that Google is keeping this option available to its resellers. The idea is to get shelf space or the camel’s nose into the tent.
- New players may be willing to install a proof of concept for little or no money. These upstarts may provide “good enough” solutions that allow an organization to solve a tough content processing problem without spending much money.
I see the present economic climate forcing some Darwinian actions and Microsoft Fast may have to move quickly or face escalating competition within the Microsoft ecosystem. After spending $1.2 billion for a Web part and a police raid, there may be some strategic pricing changes Redmond may have to consider to adapt to the present enterprise market for search and content processing. If you are a Microsoft champion, please, help me understand if my analysis is on track or off track. Use the comments section and bring along some facts, please. I have enough uninformed inputs from my pals Barry and Cyrus to last the winter.
Stephen Arnold, November 19, 2008
Google Monetizes Its Finance Site
November 18, 2008
Google Finance has improved since it appeared two years ago. I like the link to the America Online Relegence service. A reader sent me a link to “Google Begins to Monetize Google Finance… Good or Bad?”. You can read the full text of this story here. The Web log post reports that “the Google Finance site will definitely add much needed revenues to Google, which should help shore up any losses in other divisions hurt by the weak advertising market.” In my opinion, I think Google will monetize more of its services, and I also believe that the company will release some of its “potential energy” to monetize some of its more interesting technology. In my forthcoming Google and Publishing I describe an interesting matching operation that could challenge such online services as Amazon’s Mechanical Turk and similar buyer-service provider activities. I don’t think advertising alone can slake Google’s need for revenue. The cost structure is inelastic in my opinion.
Stephen Arnold, November 18, 2008
Ad Age Provides Color on Yahoo’s Rudderless Boat
November 17, 2008
The ad biz does not feather this goose’s nest. I received a mobile call today from a person from New York. He was annoyed that I have consigned Yahoo to the dust bin. I listened to the arguments the caller advanced. I recall the points about traffic, brands, and visibility on Madison Avenue. I told the caller, “Great points. Let me do some thinking.”
I poked around and saw a reference to the Ad Age article “Why Yahoo Still Matters for You.” You can read the full text of the story here. The authors were Abbey Klassen and Michael Learmonth. The headline, in my opinion, was misleading. The write up provided me with more evidence about Yahoo’s rudderless boat. Among the points I noted were:
- The company lost an account because it lacked ideas
- Yahoo has potential
- Yahoo has more levers to pull than some of its competitors.
None of these points has enough wood behind them to get me to change my mind. Yahoo has been around about 15 years. I think its lack of ideas is evident in the wacky and ineffective search system. One example today: I wanted a football score. Then on the sports splash page I wanted to find the results of last night’s NASCAR race. The search box beckoned me and returned Web wide results, not results about sports. Guess I am the only person in the world who wants to run a sports related query from Yahoo’s sports portal. Yahoo may have levers, but it needs to get a firm hand on its rudder and steer the boat away from Victoria Falls.
Stephen Arnold, November 17, 2008
Why Dead Tree Publishers Don’t Get the Web
November 17, 2008
I have had some push back about my “dead tree” essays. My position is that most publishers are following the trajectory of Ford and General Motors. I don’t think there is much hope for most of the US auto industry or for most of the traditional publishers. Slate published here a story I found wonderfully refreshing. Lesley M.M. Blume’s “Glossed Over: Why Can’t Magazines Get the Web?” contains a wealth of information. One point that I found particularly telling was:
And if magazine publishers were disinclined to build this infrastructure when they were relatively flush, now all of their dwindling resources are going to shore up their core products, making a meaningful transition online even less likely.
I think this is a key point. Plumbing–that is, infrastructure–is not understood, valued, or hip. Take a look at this excellent write up. You won’t want to sign up for one of those three year subscriptions of your favorite magazine after reading Ms. Blume’s essay.
Stephen Arnold, November 17, 2008
Overflight: Google’s Web Logs Aggregated
November 17, 2008
Overflight is now available on the ArnoldIT.com Web site. Click here to access the splash page. Google publishes more than 70 Web logs. When Dave Girouard made a comment at the Web 2.0 conference about Google Apps as a platform, this was old news. Via the Overflight service, the ArnoldIT.com analysts “knew” about this functionality and were able to relate the various posts about a hackathon and Google’s enterprise ambitions days before the Web 2.0 conference. Prior to the dissolution of several of the financial institutions to which ArnoldIT.com provided open source intelligence, we heard repeatedly, “You guys seem to be ahead of the curve when it comes to Google.” You can see how useful Overflight has been. Just click here and read about my two Google studies written in 2005 and 2007. The information revealed in these analyses are just now finding their way into the Google information mainstream.
That’s true and part of the reason is what we had been doing for a number of clients, including Threat Open Source Intelligence Gateway, which is not a public service. We also used these tools for projects when vendors wanted to know what type of activities one or more companies were likely to pursue.
Overflight is an RSS aggregation service. The service that is now publicly available aggregates the headlines from Google’s 74 Web logs. We group the most recent headlines using the same categories that Google favors. Our for fee service offers more bells and whistles, but now you can navigate to www.arnoldit.com/overflight and see at a glance what Google is publishing on its own Web logs. For example, click on one of these headings and you will be able to browse by individual Web log the latest headlines:
- Google wide, which is Google’s umbrella term for general Web logs. Most of the information that you read about the company in many well known news services appears on these Web logs first
- Google products, which is a collection of Web logs about specific products. Most of the postings are signed by product managers, but these posts go through Google’s internal clearance process to help ensure that the product comments are in sync with the corporate game plan
- Google ads, which is a round up of the advertising and and advertiser related Web logs. At ArnoldIT.com, we don’t pay much attention to advertising, but millions of people live or die because of the success of their Google ads. We noted that Google’s ad Web logs contain quite interesting references to certain little known innovations such as “matching”. You will be able to read more about these technologies in my forthcoming Google and Publishing study for Infonortics, Ltd.
- Google developer, which is a particularly interesting collection of Web logs that provide information about “where and how the rubber meets the road” when creating applications for the Google application spaces. Adhere Solutions, owned by my son, finds these posts quite interesting. The technical information is often unknown by Google’s public facing marketing and sales professionals.
- Google region, which is a collection of Web logs that provide information germane to Google’s segmentation of its global markets. Many of these Web logs are in English but some are not. You will need to use Google Translate to make sense of the postings. Our commercial version of Overflight automates the translation for you.
Why am I making this service available? There are three reasons:
- A number of people have discovered that my studies of Google (more information is here) are two or three years in front of Google. I thought that it would be easier to put up a version of Overflight to show people how open source intelligence can reveal significant information before the high profile media outlets or the big buck, dead tree tech writers reveal a scoop that is to me “old news”.
- I funded a new award at the JBoye 08 conference to acknowledge individuals who are putting actionable intelligence in the hands of European information and technology professionals. At the JBoye 08 conference, I explained that I wanted to “give back” cash, recognition, and tools. I am nearing the end of my career, and I don’t really feel the need to keep the Google Web log collection under cover any longer.
- Google has spawned an amazing number of news services, stories, and Web log postings. Frankly, I was tired of seeing information that was stale. Many of the stories appear on the Google Web logs and then these are recycled as breaking news. I decided to put the source in front of people so individuals can decide if they want to get Google information that is a bit fresher.
Keep in mind that Google would like to convert this addled goose into paté. If a Web log or Web logs disappears, we will try to work around a glitch. At this time, I plan to leave the service up for at least six months. If there is interest in the service, I may make available some additional content processing tools. I have no “search” function activated. If you think that would be helpful to you, post a comment.
If you wish to criticize the service or make suggestions, please, use the comments section of this Web log. If you are cut from the same cloth as Barry and Cyrus, two people who offer assertions, not hard facts, be aware that specifics are what makes this goose happy. If you don’t find the service useful, don’t use it.
If you want to talk with my team about our open source intelligence services, feel free to write me at seaky2000 @ yahoo dot com. Put “overflight” in the subject line. In a lousy economy, good intelligence can make the difference between a successful organization and an unsuccessful organization. Napoleon’s alleged statement is appropriate today, “The right information is nine tenths of any battle.”
Stephen Arnold, November 17, 2008
Prices for First Microsoft Cloud Services
November 16, 2008
Update November 18, 2008 More cloud pricing here.
InfoWorld reported that some Microsoft cloud services will be available on Monday, November 17, 2008. You can read “Microsoft to Launch Online SharePoint, Exchange on Monday” here. The article does not address who is eligible to buy, the minimum purchase, or how this service will fit into certified partners’ hosted offerings. I continue to be skeptical about the manageability of hosted SharePoint and its performance. You may be a SharePoint fan, but I am firmly on the fence because the costs associated with getting the darn thing to deliver on the marketing promises are too rich for some of my customers. In my opinion, the most interesting part of this InfoWorld article is not the absence of answers to my questions. The pricing is quite aggressive; for example:
- Office Communications, $15 per user per month
- Hosted Exchange, $10 per user per month
- SharePoint, $7.25 per user per month.
My reaction is that Microsoft wants to snag as much cloud market share as possible and put pricing pressure on anyone who cares to challenge the $65 billion giant. Google will have its paws full. Amazon has already introduced its Windows service. Salesforce.com has pointed out some of the challenges Microsoft faces. We’ll see soon enough.
What I want to see is a hosted Microsoft Fast search system that handles billions of documents.
Stephen Arnold, November 16, 2008
Useful Primer on How to Sell Software
November 16, 2008
I am not too keen on business books. I know. I know. Martin White and I have just written a business and management book called “Successful Enterprise Search Management (Galatea, 2008). Just because I write books doesn’t mean I have to like my own work. That’s why I have a superstar coauthor like Mr. White. The kind people who read early drafts of the book and made quite helpful suggestions suggest that Mr. White and I have done pretty good word. One person indicated that our 200 plus page study was a “benchmark volume”. I hope the person was not writing this from a dentist’s chair after a dose of laughing gas.
The point is that I don’t read much of the baloney that passes for management advice. I worked at Booz, Allen & Hamilton before the company became a body shop and evidenced schizophrenic behavior toward its different businesses. Moms love those flashy MBAs degrees from upscale universities. For me, I learned to winnow the goose feathers from the giblets when those kids explained how to “save” a business. Look up the history of John Deere to understand that to which I refer.
Please, navigate here and then here to see the two part article by Dennis Byron. His “The Software Channel: Lessons Learned from How the Biggest IT Spenders Acquire Enterprise Software.” You will find the write up quite interesting and useful. As the economic noose tightens around the neck of some search and content processing companies, Mr. Byron reminds us of the importance of understanding procedures. I don’t agree with a few of the points in Mr. Byron’s analysis, but that is small potatoes because he has delivered a very good main dish.
The key points in his write up for me were:
- His diagram of how the software channel works is quite useful
- He provides a summary of tips about how an established software channel can help a software developer
- He summarizes some of the new pricing and deal options that are becoming evident for the last part of 2008. Some of these will carry over into 2009.
I downloaded his article, and I think I may make some changes to his channel diagram. A happy quack to the reader who alerted me to this article in IT Business Edge.
Stephen Arnold, November 16, 2008
Yahoo Bites the Bullet
November 16, 2008
I have been a critic of Yahoo for many years. The company’s technology strategy makes an addled goose look like Leopold Kronecker. The company bought companies and allowed each to operate in a silo. The technology gurus fiddled as advertisers burned when the ad people couldn’t get data about Yahoo demographics across its different silos. Then the company went wacky and drove its share price into the ground. All Things Digital reports that reality has infected the Yahooligans. “Yahoo Layoffs Set for December 10 (And, No, Jerry Yang Is Not Leaving Too)” provides the details of the pre holiday event. You can read Ms. Swisher’s write up here. Mr. Swisher offers a bit of color about the proposed tie up of AOL and Yahoo. I won’t add to that subject other than to say the Yahoo crazy math of 1 + 1 = 3 doesn’t make much sense to me.
A more interesting question is, “Will the layoffs make any difference other than a pumping up the balance sheet a bit?” In my opinion, “No.” Yahoo has an untenable cost burden due to its technology promiscuity. The present management team does not have a way to address the cost problem effectively. More is needed than some layoffs. The company needs to begin the painful process of downsizing and rebuilding. Whole chunks of the business are going to have to be sold or shut down. Yahoo is a ship in need of an overhaul and quickly. Time is indeed running out.
Stephen Arnold, November 16, 2008
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