

Subscriptions are the New Black - terrellm
http://500hats.typepad.com/500blogs/2010/02/subscriptions-are-the-new-black.html

======
jacquesm
Subscriptions have been 'the new black' and a mainstay of my income since 2000
or so, but subscriptions do not lend themselves to all kinds of content.

Advertising has always been a way to make otherwise losing propositions
profitable, and as long as there are companies marketing products there will
be advertising. It would be wasteful not to tap in to those dollars.

As Patio11 elsewhere already pointed out adsense is a form of micropayments,
and micropayments are the 'pay-as-you-go' of subscriptions.

The only problem with that is that adsense is not transparent and it doesn't
allow you to set your own price. In fact, you don't even know how much your
inventory is really worth.

So if your site does not have a very tight coupling between the users and the
sites, one that you expect to last for many months or years advertising is
actually a very good solution, but adsense in particular may not be the best
you can do.

Another problem with adsense is the fact that clickfraud benefits both google
_and_ the fraudsters, so for advertisers it is very difficult to track whether
they're spending their money correctly or not.

I wished someone would start to give google some serious competition in this
space.

~~~
patio11
_Advertising has always been a way to make otherwise losing propositions
profitable_

Or you could, you know, be the guy paying for the AdWords. I sell a product to
consumers over the Internet. Stop the presses, I know. I have many competitors
who do free versions essentially the same product, monetized by ads. My ads,
since if Google polled the entire world saying "Hey who of you would pay cash
money to speak to an elementary school English teacher currently making
Reading Rainbow bingo cards?" I'd be up in the front row shouting "OOH OOH
PICK ME!"

Since I know what Google charges me and I can estimate what Google keeps, I
can ballpark estimate the CPMs for their sites. Its in the $2 a month range.
The effective CPM for my site is more than twenty times higher than that.

Ads also have a pernicious effect on your product design. A core skill for B2C
products is optimizing them so that the user gets through the workflow
successfully. We optimize for success, because successful users pay us money.
If you have CPC ads on your site, you have to _optimize for failure_ : the ad
has to be more enticing than your application/content or _you don't get paid_.

Granted, there are some audiences who don't pay money for anything (why hello,
students) and some applications whose users will not pay money for them (why
hello, URL shorteners/social networkers/anything starting with the letters
Tw), but _you don't have to make these_. There is literally infinite need for
solutions to problems, even in B2C (C stands for consumer, i.e., one who _buys
products_ ), that you could deliver profitably. And then spend a portion of
those profits tossing nickels to sites without business sense so you can steal
their users and charge them dollars.

~~~
jacquesm
> If you have CPC ads on your site, you have to optimize for failure: the ad
> has to be more enticing than your application/content or you don't get paid.

I've been saying that for years, nobody believes it.

But it is definitely true, if you're a destination site and your clickthrough
is lousy then you are in a good spot to do subscriptions. It means your
product is better than that ads.

~~~
Sukotto

       If you have CPC ads on your site, you have to optimize
       for failure: the ad has to be more enticing than your 
      application/content or you don't get paid
    

If either of you ever come back to this conversation, would you please point
me to a detailed description of this point?

I'm having trouble getting my head around it.

------
supermetroid
I personally enjoyed the articles bombastic formatting and snarky tone, but
I'm not sure the author says much of anything. The fact is, Dave's second
assertion (that e-commerce/subscriptions is the new default startup business
model) isn't based on more than speculation. He makes this second assertion
with great conviction ("Get Dem Bitches to _PAY_ You, G.") and I almost want
to believe him--until I remember that most of both the media and content
industries are still fumbling with whether or not selling subscriptions
/digital content is a worthwhile business endeavor.

Also, the idea that a service's success hinges on a user's ability to remember
a password is preposterous. Seems as if it could be somewhat of an obstacle
when a service is first launched (Dave's early Paypal), but come on. Passwords
have become commonplace, and for the most part--especially when money's
involved--people don't seem to forget them. They may have when e-commerce was
in its absolute infancy, but with the rise of ebay, Paypal, online banking
services the password has garnered undeniable legitimacy among the majority of
people. I have no data to back this up, but this isn't too outrageous a claim.
Right?

Maybe I'm looking at this from the wrong angle.

~~~
davemc500hats
>> Paypal, online banking services the password has garnered undeniable
legitimacy among the majority of people. >>I have no data to back this up, but
this isn't too outrageous a claim. Right?

nope, sorry you're wrong & yes you have no data to back this up. even with
"100's of millions of account", it's likely PayPal has never been used by a
large % of internet users -- perhaps even a majority -- and it's certainly not
used frequently (ie, >1x / month) by more than tens of millions of users. even
without me being there for 5 years i'm pretty sure any recent eBay quarterly
stmt will back me up on that (note: accts != users != frequent users).

trust me: "the forgotten password problem" is STILL a huge issue for PayPal
today, as it is with almost every large site... even one as frequent as PayPal
(or Amazon).

if you think i'm mistaken, i suggest you talk to any major tech blog site that
has switched to using Facebook Connect or Twitter oAuth for comment
authentication, and the subsequent increase in comment activity.

it's not too much of an extrapolation to draw a similar conclusion around 3rd-
party auth integrated with payments (which is what PayPal has been doing for
10 years).

------
jhancock
McClure gets close to a good point but fails to convert.

Here's his solution to password friction: "Make a brain-dead simple, frequent-
use product. If users login a lot, then they don't forget their password." He
then lists the following examples that solve this better than PayPal: Social
Networks, Email, IM, Games, Music, Entertainment.

I can't recall the last time I needed to use my password to login to Facebook,
Skype, gmail, etc. The cookies are set to let me in. If I were a low-tech
user, the password friction problem still exists as it always has. Amazon has
me logged in; I can add books to my wish list without retyping my password.
But to make a purchase, I have to type my password. The password friction
problem does not go away.

~~~
jessep
I think he's implying that your site won't have a password. You'll instead use
one of these services for both auth and payment.

~~~
jhancock
I understand what he's implying. His case is thin. PayPal is huge and can
easily afford the customer service required by noobs forgetting their
password. Can you think of another way to operate such a business? His
solution implies that google, yahoo, facebook should be the next PayPal in
this regard. OK, so now those organizations have to handle this type of
support.

~~~
davemc500hats
>>PayPal is huge and can easily afford the customer service required by noobs
forgetting their password

nope, wrong again. ARPUs for PayPal users are probably only around $5-25 per
year (excluding the minority of fanatic eBay regulars), and you can easily eat
up all of that cost or more in telephone customer support.

~~~
patio11
To elaborate on Dave's point here, the ARPU for Paypal is low because Paypal's
revenue is just a cut of the transaction value that they facilitate. For
example, I pay them about ~$1.19 or so out of every $30 purchase.

US-based customer services reps cannot complete a phone call for less than $7
fully loaded. You really, realllllly do not want to have a CS infrastructure
taking multiple calls to resolve Mrs. Smith's inability to successfully use
her computer when Mrs. Smith is probably going to be worth less than a buck
fifty to you and will likely need more handholding next time, too.

~~~
jhancock
I understand the math. Every business since the world's first has prioritized
customer support relative to the value of the customer; this is hardly a
secret exclusive to PayPal. Dave's proposition that other sites may alleviate
some of these costs seen by PayPal is interesting, but unproven.

A more likely case than relying on "maybe users will remember their passwords
better" is that Facebook could capture a larger part of transactions (say 30%
as App Store does) which enables them to better cover support and fraud.

------
maxklein
People don't want to subscribe to stuff. They only do it when there is no
other choice. If your site only offers subscriptions, I'll make a site with a
one-time payment thing, store the users payment information and sell them new
'innovations' and 'features' that will be as easy as clicking a button to get,
and that will bring me more money that your subscriptions.

If I have someone using my site all the time, it's easy to sell him something
new.

~~~
terrellm
I agree that people prefer a sense of ownership rather than renting, even if
renting is in their best interest.

However, the problem with a one-time payment is that the vendor loses
incentive to continue supporting the buyer after the transaction. The primary
way to generate additional revenues from that customer is, as you say "sell
new innovations and features".

This adding of new features can increase complexity which eventually impacts
the ease of use and increases the learning curve. These two side effects can
have a negative impact on new user signups.

I'm optimistic of the web app user model after having developed desktop
software for the past 10 years. Each version has to "work just like the
previous, but better". You can only do that for so many versions :)

~~~
gte910h
I honestly prefer fee-per-month software. It is MUCH cheaper than the
equivalent valued software would be for the first 4-5 months, and most
software is used infrequently, so I usually save money with the starting and
stopping of subscriptions.

~~~
jhancock
I like SaaS subscriptions as well. Most that hold my data as opposed to just
providing a cool tool do not allow you to turn off your subscription for a few
months without losing your data.

------
Mc_Big_G
I'm curious if the password problem is really as big as he says or if he's
just biased because of his experience at PayPal. I don't always remember my
password, but I've never encountered a site that didn't offer one of the
following:

    
    
      1) Password retrieval/reset by email
      2) Password retrieval/reset by secret questions
    

Also, don't most browsers these days ask you if you want it to save your
password? Then there is password plugins. I thought most people use the same
or an easy password anyway.

~~~
gte910h
Yes, I'm with you. "The password problem" is a non-starter for me.

~~~
chrischen
for me, remembering what username or email I used is the problem. It's further
compounded by the fact that password retrieval sends it to the email I don't
know I used, and that they usually don't have an obvious username retrieval
method.

------
anovaskulk
Making your site a frequently used one is not solving the password problem;
it's sidestepping it.

~~~
yungchin
I guess he forgot to add this corollary:

If you can't make your product a frequent-use product, use somebody else's
sign-on system (Google, Facebook Connect...).

~~~
davemc500hats
yes, that was the conclusion I was not-very-subtly suggesting.

------
callmeed
It sure took the author a long time to get to his main points–I almost gave
up.

Maybe reading Williams Zinsser should be the new black ...

~~~
davemc500hats
sorry, i'm sure with less insanity and a better editor i could have gotten
there much quicker...

but between sleepless redeye blogging and my usual retardedness, "i didn't
have time to write a short letter"

my apologies, and thanks for hanging in there if you got to the end. my
condolences if you didn't

~~~
callmeed
No problem—and BTW I wouldn't have said anything if I didn't think your main
points were worth reading (they were).

------
wmeredith
I couldn't even get through that due to formatting issues. Good lord I've
never seen a site more in need a little web typography restraint.

I'll just leave this here: <http://lab.arc90.com/experiments/readability/>

~~~
timb
I think Dave's unique formatting is an essential part of the experience of
reading his posts. Filtering it through the Readability tool is similar to
listening to MIDI file versions of your favourite songs.

~~~
ojbyrne
Or you could just not bother. I just skipped to the summary:

"This has been a complete ramble and i don't have time to edit this shit, so
i'm leaving it as it is."

------
PJNasty
This jumped out at me: "Unless MSFT develops Xbox into a widespread payment
system..."

After a couple years of being down on MSFT, I've gotta say that xbox360 is a
pretty brilliant product. Xbox live Gold can be purchased as a 5.99/month
subscription, or 45/year one time payment. (like itunes cards, you'll find
these in places like target and walmart).

------
davemc500hats
just to clarify: the post was trying to highlight both subscriptions _AND_
transactions, not vs. each other... they aren't mutually exclusive.

in fact, most likely a common model would be: 1) free for most users 2) low-
cost txn for first paid use 3) convert initial txn users into frequent use /
regular subscription later, but continue txnl model as well.

perhaps in mid-rant I failed to explain this clearly; possibly due to lack of
sleep, or the cocaine-heroin speedball I shot up before getting on the redeye
to NYC.

then again, maybe you guys just need to read that little part where I say
"AND" between subscriptions & transactions, not just draw your conclusion from
the headline... but I digress.

~~~
jhancock
If your point was that businesses need to start charging for their
services/content, ok fine, no argument there. But much of your rant is in
finding a solution for password friction by pointing out what a major cost it
is to PayPal. You make no case as to how google/yahoo/facebook will solve
password friction better than PayPal other than to say that users log into
these sites more frequently and therefore remember those passwords better than
they do a PayPal password. While users "use" these sites more frequently, they
do not type their passwords much. This does not solve the password friction
problem since transactions (with the exception of some types of micro-
transactions) will still need a password at the point of committing to the
transaction.

~~~
davemc500hats
a) people certainly use social networks (Facebook) and email and game /
entertainment sites more than they use E-Commerce sites -- one is daily (or
hourly!), the other is weekly or monthly

b) even if they don't type their passwords in "much", they certainly do so
relatively much more frequently.

whether or not my post was a rant, this is a fairly simple point based on
simple frequency of use.

------
vdm
I would have preferred if he just worked on his presentation.

------
Tim_M
> In 2015 the default login & payment method(s) on the web will be facebook
> Connect, Google Gmail, or Apple iTunes.

Why not openid?

~~~
cheriot
Regular users would need to:

a) care about managing their online identity

b) remember a valid URI

What do you think the odds are?

