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
Hulu and YouTube: Catching Up and Its Implications
November 20, 2008
NBC and its media pals are trying to catch up with YouTube.com. I am not a video addict, and I don’t pay much attention to video search and video serving sites. We put video on the Web in 1995 with some of the Auto Channel’s com engineers. We learned that it was a bandwidth pig, and unless you knew exactly what you were doing with codecs, you could spend a lot of dough and trigger an avalanche of email from cranky users. I scanned TechDirt’s “Hulu To Catch YouTube–Great but So What?” here. The peg for the article was the Financial Times’s story about this arms race. What I overlooked in my own analysis of the dual was the question, “So what?” The TechDirt point was that there is sufficient room in the market for user generated videos and the slicker mind candy that Hulu pumps out. I’m going to make this insight my own. GigaOM’s comments about Web video as an “inexact science” are germane to this great race.
Stephen Arnold, November 20, 2008
SharePoint and Document Management
November 20, 2008
If you are in the midst of a discovery process, you will find some surprising information in the article “MOSS 2007 Document Management Services — Document Centralization” here. This Web log post appeared on Mastering SharePoint Community on November 19, 2008. The author was Bob Mixon. The write up covers a number of SharePoint document management topics, but for me the most important point was in this comment:
I don’t believe you will find anyone (or I at least hope not) at Microsoft recommending the use of a single Document Library to store all of your organizations documents.
What this means is that Microsoft is opening the door to third party vendors who can build a single collection of documents, put them in one place, and provide access control tools so the documents in the repository cannot be changed. The fancy word for this is spoliation. SharePoint, the Swiss Army knife for content, ships with a broken knife blade and some rust on the moving parts. You may find the many collections approach useful. I don’t think some senior managers who are facing litigation will be too thrilled to learn that special purpose systems will be needed because SharePoint doesn’t recommend a single repository. If you have licked this problem, let me know.
Stephen Arnold, November 20, 2008
Complexity Is Definitely the Way to Go
November 20, 2008
My newsreader flagged “Enterprise Mashups Need Complexity to Create Value”, an article by Gil Yehuda. I surmised that Mr. Yehuda landed a think tank type job. I was right. He works at the mid-tier consulting outfit Forrester Research. I think that Forrester has an “in” with ZDNet, so the article appears as part of “The View from Forrester Research”. The point of Mr. Yehuda’s write up is:
… each data mashup is interesting, the right combination can transform my work behavior. There’s a who, what, when, and where, that all have to intersect onto a map and onto a calendar.
The idea, I think is to take multiple mash ups, use them as building blocks, and create mash ups of mash ups. In Mr. Yehuda’s opinion, these meta mash ups deliver:
data streams that matter most to me, (e.g. my CRM data), along with other streams and network information, it results in new information. The triangulation of these data sets means that I could predict whom I meet and what to do when I plan my trips. Moreover, my manager would be able see where the team’s travelers are now, and where they will be in the near future. My sales manager could see which of us will be traveling nearby other clients, and she may want take advantage of the proximity opportunities. Travel still happens, but we can get more value out of each trip. Enterprises like to hear that.
The conclusion to the write up is:
I have renewed faith in the relevance of mashups to enterprise computing. It’s just more complex than splashing a data set onto a map. That’s OK, enterprises are used to leveraging complexity to create value. And mashups can be the building blocks to enable their success.
I have mixed feelings about M. Yehuda’s argument. In a very general sense, I think that applications will combine data to deliver solutions. For IDC, Sue Feldman and I described Google’s dataspace work. Take it us, creating a dataspace to make meta mash ups work is not trivial. Some thorny problems have to be resolved, and I don’t think most organizations will have the appetite, the technical expertise, or the resources to handle the data management issues such as transformation themselves.
Instant potatoes, like facile consultant assertions, are a side dish with empty calories, not the main course.
However, on a more “here and now” level, I think Mr. Yehuda is 25 percent right. First, how can I accept him as an expert in Enterprise 2.0 when I don’t know what that means and when Enterprise 1.0 outfits are struggling. Mr. Yehuda must not correlate stock prices and quarterly reports with an organization’s ability to embrace Enterprise 2.0 technology. I do. Companies in the financial gutter won’t be doing much Enterprise 2.0 thinking until those firms can pay their bills and keep the lights on. Second, what the heck is knowledge management. I write a column for a publication called KMWorld, and I am upfront about my lack of understanding what this buzzword means. My current view is that it doesn’t mean much beyond information applied to decisions in an organization. Finally, people who “connect the dots” make me nervous. The dots have to be related in a meaningful way. Grabbing a range of applications that can run in a browser is not connecting dots. The collection is an impressionistic arrangement. I am not convinced that Mr. Yehuda is a management Marc Chagall based on his essay.
Let me urge you to read his article and make your own decision. My thoughts are:
Google and P&G: Data Gluttons Team Up
November 20, 2008
I just finished my next column (December 2008 or maybe January 2009) for KMWorld. My topic was Google’s enterprise initiatives for 2009. I ran through the most important developments based on some interviews and phone calls I made in the last few weeks. I hit the addition of Google Analytics, and I described the purpose of Google’s hackathons. After I filed the column, I read “P^G, Google Team Up to Trade Knowledge”, a reprint of an Associated Press story written by Dan Sewell. I won’t quote anything from this AP story because I don’t want to be sued by an outfit that is going the way of the dodo. You can find the article here and probably on Google News. The main point is that the Procter & Gamble Co. (home of proctoids) is a data glutton. The company surveys, tests, and data mines to move those consumer products. The reason there are 20 types of shampoo is that outfits like P&G know that the average consumer can’t figure out what to buy and offers meaningless choices and different value points. The result of this baloney is selling more shampoo, which is pretty much the same stuff in different bottles. The partner for a data trade is Google, another data glutton. P&G may think it is a skilled data cruncher, but I know that the Googlers are bigger, better, and smarter about data. Frankly I don’t care what data these two outfits exchange. The point for me is altogether different. If a company thinks it can sell into P&G after Google starts delivering some useful analytics to the P&G crowd, those enterprise vendors may have to do some fast adapting. This tie up is a much more sophisticated enterprise relationship than trading data. Google has data and lots of it. What Google doesn’t have is a sure fire way to get close to a big, influential company. I think it is a very short step from trading data to Google’s plugging P&G into the Googleplex so the company can play with more of Google’s digital toys. Real time data, dataspace functions, and dossier functions will convert P&G from partner to customer in a way that will put the hurt on existing P&G enterprise software vendors. Let me know why I am wrong. Bring facts. I don’t need Barry and Cyrus assertions without data to enrich my understanding. Facts, please.
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
Google Version 2.0 in Research and Markets Catalog
November 19, 2008
The “world’s largest market research resource” is now reselling the 2007 study Google Version 2.0. You can read Research and Markets’ profile of the study, examine a sample of the 250 page report, and review the table of contents here. In the last six months, interest in this analysis of Google’s technology has spiked. If you have an interest in the technical underpinning for some of the services Google has recently launched, you will find this study a useful resource. The information in the study comes from Google open source publications; for example, patent documents and technical papers. In addition to the discussion of the nuts and bolts of Google’s hottest and most suggestive technologies, the book describes the business implications of these technologies. Google does not commercialize its many inventions, but it is important to think about Google’s technical capabilities in a broader context than a purely engineering frame. The information in the study is more germane to today’s Google because the GOOG has been expanding its services and products at an increasingly rapid rate into markets adjacent to core Web search and advertising.
Stephen Arnold, November 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 Israel
November 19, 2008
More data has become available about Google’s operations in Israel. David Shamah’s “Multinationals Discover Israel’s Wealth of Hi-Tech Talent” here reports that Google has two research and development centers in the country. Israel is, according to the Mr. Shamah is “one of the few countries outside the US where the company has multiple R&D offices”. The Google CEO is Meir Brand, who added:
We’ve found a huge pool of scientists, engineers and mathematicians full of innovative ideas. Israelis tend to think ‘out of the box,’ a trait highly valued at Google.
The offices are located in Tel Aviv and Haifa. There are about 100 Google employees in Israel. Among Google Israel’s project work are:
- Conversion of Google products for use in Israel
- Google Trends
- YouTube.com annotations
- Google Analytics’ function to compare trends across regions and categories
A happy quack to one of my Beyond Search contributors for this information. The goose is pleased.
Stephen Arnold, November 19, 2008
Google Apps: Schools as an Enterprise
November 19, 2008
Microsoft is using SharePoint as a digital Maginot Line in the enterprise. Google seems to be content to move forward incrementally in the enterprise. When the phone rings, Google gets a partner to answer it, and the approach seems to be working. You will want to read the ZDNet blog article “Is There Anything Teachers or Students Need That Google Apps Can’t Do?” here. The writer is Christopher Dawson and he presents some compelling reasons for a school to consider using Google instead of PCs or Macs. Geese are not good student, so I don’t know too much about education. I do know that schools with networked personal computers are in a world of hurt. The systems often don’t work and when they work, teachers are not sufficiently computer literate to use the devices as much more than bright typewriters. Apple and Microsoft have viewed schools as a viable market. If not today, then when the students get some cash, the users will be hooked on the system used in school. Now Google is playing this demographic angle. Judging from the ZDNet blog article, Google’s tactic is working. Cost, not features and cloud computing goodness, is the reason. Schools will find it is cheaper to just let Google do it. If Google becomes the next big thing in school computing, the longer term implications for Google’s competitors may warrant corrective action sooner rather than later.
Stephen Arnold, November 19, 2008
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