Choosing a revenue model for an online business is a very difficult task. Advertising or subscription based? If subscription then how much? Not an easy question and possible one that should be placed in the hands of the buyer. As Radiohead displayed last fall you can still be profitable selling music even when the buyer decides on price. For some a Radiohead “CD” might be worth $20 or $30 dollars but for non-fans the value might only be $2. In today’s digital download era the cost of selling one copy is the same as selling one hundred copies. So when the cost to sell another copy is zero wouldn’t it be better to sell it at any price rather than not selling it at all?
Radiohead brought up a very interesting business concept in determining the value of a product. The cost of a product is not the same for everyone since not everyone values the product the same. Their choose your own price experiment brings up a very interesting revenue model for internet startups. Why not let your visitors choose the price of your service? Since it costs virtually nothing to add another subscriber to your website wouldn’t it be better to get $4 out of him rather than nothing at all? $4 might be less than expected but at least you have a new customer, four dollars and the potential to sell him additional services in the future. If you lost him to price then you’re out $4, a new customer and the potential for future income from him.
It’s this up-selling that Radiohead was betting on in terms of concert tickets and t-shirt sales. Internet entrepreneurs should be thinking of up-selling in terms of consulting services and new web applications. Since musicians can’t physically play more than 365 gigs a year the choose your own price model could become far more lucrative for the internet where the ability to scale is endless.
Really interesting post Tom,
Imagine if Radiohead had used a value leaderboard on their site, showing – who paid the most/who is the top fan!
I think a small margin business could do well in the right niche, solving a real problem. Its definitely something a well funded startup who were aiming for free, might try, maybe Twitter could try it for a Twitter Pro version?!