Here I’ve listed some of the most popular revenue models used by content-based businesses.

While I admit that this is not a comprehensive list of all possible revenue models, it can be a good starting point for anyone interested in generating revenue with content creation and delivery.

Direct vs. Indirect Revenue Models

Generally speaking, there are two fundamentally different types of content revenue models:

• direct revenue models
• indirect revenue models

While direct revenue models consider the audience (or content consumer) as their source of revenue, indirect revenue models differentiate between users and customers.

It means that the audience consumes the content freely and the content business generates revenue through third parties.

Some Examples of Direct Revenue Models

Here you can find a list of the most popular direct revenue models used by content-based businesses:

• Content as the facilitator of the selling process
• Selling Content as a product
• Subscription-based revenue models
• Collecting donations

Content as Facilitator of Selling Products and Services

This is one of the classic approaches to revenue generation in the online world and most of the first e-commerce websites were grounded on such a basis.

For example, you have a CRM solution, and create a large amount of content around this topic.

There are various roads to revenue through this approach to the content creation:

• Attracting visitors who are interested in CRM products (inbound marketing) and introducing/selling them your solution.
• Educating people and aligning them with your approach to the CRM (It will be easier to convince them / their companies to buy your product)
• Building brand awareness for your company/product and using it as a competitive advantage in the market

Selling Content as a Product

The content itself can be sold as a product. Selling audiobooks, pdf files, research papers, and market reports, are still popular in various topics and can be considered as a source of revenue.

However, you have to find your own ways of dealing with the content piracy.

Subscription-based Revenue Model

Subscription-based revenue model, sometimes call time-based access models, are very popular in the content industry.

Many news outlets offer different packages for monthly, quarterly and yearly access to their articles.

But such a model is not limited to journals and news publishing companies. Many streaming services (such as NetFlix and Spotify) use a similar model for selling their content to the audience.

Further Reading: Subscription Revenue Model (Definition & Examples)

Collecting Donations

Yes. Collecting donations can be a revenue model for content creating organizations. In this model, you provide content to the audience and ask them to donate if the content is helpful and they are happy with it.

Brainpickings and Wikipedia are just two examples of the content creation services based on user donations (Brainpickings as content pipeline and Wikipedia as a content creation platform).

Collecting donations can be considered as a crowdfunding business model in which funders are not looking for their principal money and its interest.

No matter you call it donation game or crowdfunding, sure the success of this type of revenue model depends heavily on the audience culture and type of the content you provide.

Many of the donation-based revenue models, use it just as a complementary revenue stream. It means that they have a primary revenue source (such as creating and delivering sponsored content) and use donations to complement or cover the other revenue streams.

Some Examples of Indirect Revenue Models

Here I have listed some of the popular indirect revenue models used by content creators:

• Selling Advertising Space
• Collecting User Information
• Sponsorship

Selling Advertising Space

Selling advertising space is still the most popular indirect revenue model in the online content-creation world.

Many social media companies, news websites, personal blogs, and professional forums, rely on selling advertising space to the other businesses.

Some of these businesses (usually the ones with a large audience base) sell ad-space directly to the others, while smaller ones, use the third-party platforms such as Google’s Adsense service.

The Ad Space Selling (ASS) Revenue Model is as old as the modern content industry itself. This practice got popular even before the digital age by newspapers, radio stations, and other mass media.

Collecting User Information

Latest advances in big data and data mining practices have resulted in various opportunities for turning the user information into money. Here are just some of the marketable user information which many companies and organizations are willing to pay for them:

• Market Demographics
• User Values and Preferences
• Search Terms
• Product Comparison Cases
• Contact Information
• Market Gaps
• User Needs

As such reports need a large user base, it’s more often used by content platforms (e.g. social media) than content pipelines.

Extracting and selling this kind of information has always been a source of debate, with many ethical activists criticising them as unethical. However, the companies usually refer the critics to the not-read-but-easily-signed terms and conditions while users register for the service.

Sponsorship

Sponsorship contracts are used by businesses as a part of brand awareness or brand identity management efforts.

In this model, a business covers the whole business costs (sometimes with a markup) and asks the content creator to guarantee a certain level of some performance metrics.

Alexa Rank and total monthly visitors are among the most popular metrics used

These kinds of sponsorship contracts are not limited to the companies. Nowadays, you can find many individuals who enter sponsorship deals with content creating businesses, to improve their competitive position in the professional services market.

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History of the Subscription Business Model and Recurring Revenue

The subscription-based revenue model is not new for content publishers.

As John Warrillow mentions in his book, The Automatic Customer, about five centuries ago, the European map publishers were inviting their customers to subscribe to the future versions of the maps. This offer was reasonable because, from time to time, new lands were discovered or conquered around the globe.

Newspapers, cable TVs, and many other media and communication businesses are more recent examples of the content creators employing this model, even before the birth of the internet.

However, with the boom of the content economy, content businesses became one of the leading examples of generating revenue through the subscription model.

In their book, “The Network Imperative,” Barry Libert and his colleagues have listed The Ten Principles for Creating Value. There they referred to “moving from transaction-revenue to the subscription revenue” as the sixth element of the list.

Although many points in this article apply to various subscription businesses, my concentration would be mainly on the content creators and how they use this revenue model.

Definition of the Subscription Revenue Model

There are many different definitions of the subscription business. Most of them address the same features with different wordings.

Alternatives to Subscription Revenue Model

• One-time selling
• Pay-as-you-go
• Perpetual License

Hybrid Models: Combining One-time Selling with Recurring Revenue Model

Although I have called the above options as alternatives, it’s also possible to include them as a complementary element in your selling proposition.

Outside of the content industry, you can find such hybrid models in many e-shops and online retailers such as Amazon.

Amazon offers a subscription option called Subscribe & Save on the product categories with recurring orders. The Amazon model provides free shipping and up to 15% discount on selected categories of products (Amazon’s Prime service is just another subscription offer, more similar to the classic style of subscription-based systems).

However, in the content industry, the hybrid model is not as popular as in e-tailing.

There are many content businesses with one-time purchase offers (e.g., a video file or an ebook), while some others prefer to sell subscription services. Again Amazon is a great use case of the hybrid revenue model with its Audible business. There you can experience a well-elaborated content revenue model utilizing the advantages of both types of revenue models.

Different Types of the Subscription Business Models

John Warrillow, in his book “Automtic Customer,” has listed nine different types of subscription business models:

• The Membership Website Model
• The All-You-Can-Eat Library Model
• The Private Club Model
• The Front-of-the-Line Model
• The Consumables Model
• The Surprise Box Model
• The Simplifier Model
• The Network Model
• The Peace-of-Mind Model

Some Examples of Using Subscription Revenue Model

• Universities and MOOCs
• Online Libraries
• Journals
• News Sources
• Music Streaming (e.g., Spotify, iTunes, Deezer)

Advantages of the Subscription Revenue Model

• A better opportunity for developing and deepening customer relationships (relationships tend to be longer)
• Lower barrier to entry (because of the lower price)
• The potential for reduction of customer acquisition costs
• Steady flow of revenue and more manageable cash flow (predictability of revenue)
• The possibility of providing customized services and creating personalized experiences

Disadvantages of the Subscription Revenue Model

Although the subscription model looks very attractive (it seems like sitting idle and just counting transactions), it has serious challenges. Here I’ve listed a few of them. So you can see if this model is the right choice for you and your content business:

• The recurring purchase-decision
• Maintaining value over the long run
• A significant part of your content is buried under paywalls (So it’s harder to attract organic traffic via search engines)

Critical Success Factors in Subscription-based Business

It’s not easy to list some factors as CSFs of the subscription business model. However, it’s safe to consider the following items as three pillars of success in a subscription model  (Don’t forget that no one knows the total number of the pillars):

• Viable Acquisition Strategy
• Powerful Retention Program
• Reliable Pricing System

Key Metrics and Performance Indicators in Subscription Revenue Model

• Total Number of Subscribers
• Subscriber Acquisition Cost (SAC)
• Active Subscribers Ratio (ASR)
• Monthly Recurring Revenue (MRR)
• ARPU (Average Revenue Per User)
• Share of the New Customers in Revenue (SNCR)
• Retention Rate (RR) / Churn Rare (CR)
• Customer Lifetime Value (CLTV)
• Trial Conversion Rate (TCR)
• Service Upgrade Rate (SUR)

Future of the Subscription Revenue Model

There are different imaginable scenarios for the future of the content subscription business model.

About two decades ago, James Heskett of the Harvard Business School summarized the prospect of the subscription model as “down but not out”, in his article titled “The Future of the Subscription Model“.

In his article, he noted that the content providers might prefer to give away everything free-of-charge, just to attract more audience and generate revenue through selling Ads.

But now we know that the subscription model is growing yet. This is what McKinsey reports in 2018, referring to the 100% growth of the e-commerce market over five years.

It’s still too early to bet on one of the possible scenarios. But Robbie Boxter’s advice in The Membership Economy can help prolong the lifetime of the subscription model. He suggests that businesses should aim higher than subscription, Something he calls membership.

He considers the subscription as a financial agreement, while membership is based on an emotional relationship and community mindset:

Books about the Subscription Business Model

• The Automatic Customer (Creating a Subscription Business in Any Industry)
• Oversubscribed (How to Get People Lining Up to Do Business with You)

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Kelly calls these values “better than free.”

Among all factors, Kelly puts the immediacy on the top of his list.

Here’s his definition of the term:

Sooner or later you can find a free copy of whatever you want, but getting a copy delivered to your inbox the moment it is released – or even better, produced – by its creators is a generative asset.

Therefore, Kelly believes that still, you can charge the customer for a product that could be available in free. It’s just possible if the customer receives it before the late majority.

Here are some of the examples of the early delivery premium paid by the customers:

• Many people pay a relatively high price to watch a film in the cinema, although it’s possible to download it later for free or almost free.
• Many readers pay a higher price for the hardcover version of a recently published book, although they know that it would be possible to buy the cheaper paperback version just a few weeks later.
• Despite expected bugs and problems, many people are willing to install the beta-version of software products, just to experience them before the others.

The same idea can be applied to the content-based products. However, in some cases, it’s not as easy as it seems.

For a business that delivers news or digital magazines, it’s not so hard to charge the customers for early delivery. But for the evergreen content creators, it’s a bit harder to define and deploy a model.

Although I have found and implemented various ideas for immediate delivery of the evergreen content, willingly leave the case open to the reader, to find creative solutions for it.

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Up to now, The Automatic Customer and Oversubscribed (written by Daniel Priestly) are the best books I’ve found in the market dedicated to subscription revenue model. However, there’s a significant difference in the approaches of these two books.

The automatic customer is a categorized case study collection showing you various successful businesses using subscription business model. But oversubscribed takes a strategic design approach. So instead of reviewing different success cases, the book emphasizes on the mindset, values and infrastructures that can help you in building and growing a successful subscription based business.

So instead of reviewing different success cases, the book emphasizes on the mindset, values and infrastructures that can help you in building and growing a successful subscription based business.

Here you can find the some of the insightful ideas of the oversubscribed book:

• To become oversubscribed, you have to separate yourself from the market.
• To separate yourself from the market, there are four choices available which are called four drivers of market imbalance by Daniel Priestly:
  • Being innovative
  • Building differentiating relationships
  • being the most convenient option
  • Using price as a differentiative factor
• Building campaigns and promoting your business is not an option. It’s a must.
• A campaign is not a collection of push messages promoting your products. It can be even a unique approach to the product delivery process.

For a person who works in the digital marketplace, most of the points mentioned in the book may seem clear and not-so-new.

However, besides a roadmap for novice marketers, it can be a considered as a comprehensive and practical checklist for professionals.

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Providing a sample chapter of a book which was not practical in the paper-era was easily substituted by digital sample chapters and even selling single chapters of the book.

Amazon thinks about new revenue models based on charging readers per every single page, which means no one has to pay for the complete book anymore.

Thanks to iTunes store, you do not have to pay for the whole album if you are interested in one of the individual tracks.

Everything seems clear and rational. Why shall I pay more when I can pay less?

This innovative revenue model of partial selling became the governing paradigm for many online digital content providers as a convincing offer for online customers.

However, there a new trend appearing in the market. A trend which gets stronger and more popular every day:

Instead of asking why shall I buy your product, the customer asks: why shall I pay for your product?

The piracy is much easier for partial products. Even search engines favor partial content providers! Just search for chapter 5 of a book and for the whole book itself. If someone put the fifth chapter somewhere on the web, with proper title and tagging, it would be ranked even higher than Amazon page of the same book!

In the same way, it’s much easier to find a single track than the whole album. Considering the time consuming and costly legal follow-up, even original content providers, do not care so much about the partial content piracy comparing to total product piracy.

So how can we charge the digital customer in a world when no one is ready to pay for the content?

Here’s the reason behind the rise of the all-you-can-eat business model.

According to John Warrilow in his book titled The Automatic Customer, the all-you-can-eat revenue model is becoming a model for content providers.

Instead of selling the whole product or a partial product, the content provider sells the access to a collection of products for a limited period.

Therefore, the content providers are moving from the single/partial product selling to the access selling. A more robust revenue model which can be less prone to piracy and more attractive to the customer.

Why shall I pay 0.99 cents for a single track or a single article every time I’m looking for something new? I’d rather have access to thousands of tracks and articles with paying a few dollars.

Although I know that my content consumption capacity is limited to a very small portion of your content, it makes me feel better.

So considering the current trends and taste of the market, it seems that the all-you-can-eat revenue model can be a successful model for the present time.

The threat of priracy will be less for the content providers and the content consumers will feel better and sure wil have a broader choice.

But it’s good to ask what will happen after this new revenue model gets mature and the content market becomes saturated with various similar all-you-can-eat content menus.

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Freemium is a word coined by Jarid Lukin combining the Free and Premium concepts.

May the Tom Hayes definition in the Jump Point be a good point to start:

Freemium is a pricing strategy by which a product or service is provided for free and the premium is charged for complementary products, services and features.

It looks like a bright idea:

• Give the customers a small free mailbox and charge her for more storage.
• Offer the client a free cloud storage service and charge her for more space and special backup plans.
• Give permission to the reader to read 5 (or 15) articles per month and charge her for more (Current HBR Plan).
• Visit the theme park free of charge but you have to pay for using the devices.
• Read the ebook online free of charge but pay some premium if you like to have offline access to it.

Everything seems logical and rational. Except the fact that most of the freemium business owners are regularly complaining about free riders and the paid customers who are bearing the load of these for-ever-will-ride-for-free customers!

In my future articles, I would discuss this business model in more details. Using the well-known cases and also referring to my personal experience, I would try to draw a more clear and realistic map of the freemium industry.

The post Freemium Business Model: A door to paradise or a road to hell? (Part I) appeared first on webmindset.

Still there are many books and business scholars who consider the subscription as a revenue model and not a business model, although John Warrillow’s book is not one of them.

Considering subscription as a revenue model means you can design your core product and even most of the internal functions of your business without taking the effect of the subscription model to your core idea.

John Warrillow is one of the rare cases who considers the subscription as a core component of the identity of a business. He even coined his own term for the subscription-based business models: Businesses with Automatic Customers!

The first part of his book has an exciting title: Subscribers are better than customers.

The title has an implicit yet clear message: subscribers are not a type of customer; they are something different and even better.

Although most books consider the subscription business model as a pure and non-dividable business model, Warrillow divides the subscription business model into nine distinct categories:

• The Membership Website Model
• The All-You-Can-Eat Library Model
• The Private Club Model
• The Front-of-the-Line Model
• The Consumables Model
• The Surprise Box Model
• The Simplifier Model
• The Network Model
• The Peace-of-Mind Model

It’s not so easy to find any other text visualizing the structure of the subscription economy better than The Automatic Customer.

A highly recommended book for any startup and should be filed under No Excuse for anyone who is thinking about starting an online business.

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