Posts filed under 'Business models'
An odd title for a blog that promotes free access to content but the issue of sustainability is ever more urgent. For years people have been trying to work out how to make money off the back of free access to digital content and services. A global credit crunch may be a good time to admit defeat and say if we haven’t found a solution yet, we probably won’t in the next five years. Obituaries are being written for the death of the freemium model, no longer to be bank rolled by rich VC’s. But it’s hardly a good time to tell the consumer that you’re going to start charging for things you’ve previously given away for free. They might nod in sympathy but they won’t pay. We could all rely on getting a cut of advertising monies that are going largely to online (scaring the hell out of TV and print people) but doesn’t most ad budget online go to Google? The rest of us might get enough so the bailiff can have milk in his tea when he calls.
Working business models seem to be few and far between or secrets of success not to be shared. In a recent conference I attended a panel session on monetising media. One of the speakers later asked me what I thought. I had to admit I’d heard nothing new. He thought for a second and replied that, yes, indeed he should have shared some examples about what worked because there were plenty out there. Then he exited left.
So it’s good to see that in these times of financial crisis there is still support for innovation. The current climate will certainly provide the necessary focus.
The Technology Strategy Board currently has £5 million to give to UK based companies and research organisations to develop applications or tools which help rights holders commercially exploit digital content. Expressions of interest need to be in one month from now on the 23rd April so if you are interested check out Accessing and Commercialising Content in a Digitally Networked World.
The Technology Strategy Board are interested in:
- Development of new business models, business processes, consumer experiences and approaches to deriving commercial benefit from IP.
- Applications that make it easier for rights holders to efficiently and effectively collect revenue from their content/services.
- Solutions to broaden the market access of digital content services; this could include the development of new platforms designed to deliver scale to small businesses, or solutions to support multiplatform distribution of content based services.
- Applications to help provide intelligent access to context relevant content, e.g. driven by individual consumer behaviours, habits, preferences or device selection.
- Development of intuitive tools and applications to increase participation and extend democratisation of the Web for generating and interacting with content and networks.
- Applications or tools to support the emergence of new value chains.
An interesting starting point would be the Guardian newspaper’s Open Platform which enables commercial applications to be built on their Content API and their Data Store. I love this column by Emily Bell from 2006, where she talks about how originators and aggregators need to provide value for each other. Certainly the Guardian should attract more advertising revenue if its content and data is as valuable to third parties as they suspect it will be. So is everyone a winner? Everyone with stacks of good content and data and a current advertising model perhaps.
March 23rd, 2009
It’ll be sad to see Marshall Smith’s term as the director of the Hewlett Foundation’s Education Program come to an end in January. He has been instrumental in helping us launch the first OER project in the UK and he gave a really inspiring speech at our launch of OpenLearn in 2006. Barbara Chow, from the Budget Committee of the U.S. House of Representatives, is the new director. In a recent interview she was asked what she sees as the Foundation’s role in Open Educational Resources over the next decade. Her answer was on the money:
“The next key piece is for organizations offering Open Educational Resources to become financially self-sustaining. Web sites that provide high-quality educational materials for free need to find ways to recover their costs and then some so they can grow. It has to reach that point. And there may be an important role for Hewlett in helping the movement figure out what the business models are.”
I hope she’s been reading the commentary on the UNESCO OER mailing list over the last week – some really interesting insights into the issue of sustainability.
November 14th, 2008
At last week’s Web 2.0 Expo Alan Patrick from Broadsight (strategy consultancy on Web 2.0) concluded his talk saying ‘Don’t make the user the free lunch’. He pointed out throughout his talk that free content causes problems. One example is Facebook – as they own your content they can make money from it, making you, the user, the free lunch.
He gave a really useful view on the limits of freeconomics. Free fails as every node in your network has a transaction cost. Your costs increase with growth.
Basic economics suggest that if you price something correctly in a market you can get demand. So, if you make something free does that create infinite demand? Only if something is new and unique. If everyone does free, you spend to keep your share, paying customers to come to you.
He also pointed out the problem with advertising based business models. In 2009 the total value of the US advertising market is $50bn. Google have a quarter of the market share and other major players take up most of the rest, leaving start-ups fighting for long tail advertising budgets. If everyone wants to be a $100million company, there is room in this long tail for about 100 companies globally. In addition, if you are making ad revenue from content and you don’t own the copyright, you will get sued. He argued that the YouTube business model is flawed due to the high cost of monitoring video for copyright infringement. Most people don’t have their own content, they use YouTube as a distribution mechanism for copyrighted material.
He sees the 4 freeconomics myths as :
- sustainable free content
- others will give you stuff for free
- unmetered hosting and distribution
- open free services
Digital sharecropping – the top sites harvesting profits from free labour in terms of user generated content – has been a point of discussion for years. Alan referenced Mike Arrington’s post in TechCrunch, These crazy musicians still think they should get paid for recorded music which suggests that both the content provider and the site owner get value. Arrington argues that social media sites raise the profile of the media producer and allows people to succeed based on talent and demand.
Alan said that the rise in paid-for TV is evidence that people will pay for quality content (end users and advertisers) when lower quality content floods the free channels.
He identified the main risks in a freeconomic model:
- Acquisition costs – are you more expensive to run than anyone else? Reduce costs, do something others don’t do and that people value to avoid high marketing costs.
- Distribution costs – community care costs on social networks, hosting costs on video sites.
- No added value – in the current economic climate this can’t be about cool stuff, it has to be about stuff that saves money. Do you know what users really really want (nice reference to the Spice Girls here proving his point this isn’t about the cool stuff)? Think quality and productivity. A deeper relationship between you and your user is necessary for success.
Models include:
Razorr and blade model – mobile phone companies give you something really valuable upfront to take the risk away from the purchase, then make their money back through call plans.
Freemium – supplying premium services that users want at cost. This is difficult to retrofit, as you must know what people would pay for. You can lose users introducing paid for services they don’t want. Premium services are only going to be taken up by a small percentage of your users so you need a huge user base to make money at the prices people are willing to pay.
Pay per poke – gaming model. Alan gave the example of H&M fashion in Sims2. Boys have worked out that if you dress avatars (even in girls fashion) they perform better so they are buying the fashions!
Advertising – make it easier to advertise with you and provide good metrics for advertisers if you want to get some of that long-tail budget. Consider a payment model for removal of ads.
October 29th, 2008
With six ISP’s signed up to a UK Government drive to stamp out illegal music downloads everyone is looking for the next big thing in legitimate file-sharing. I met the Grooveshark team earlier in the year when they were in beta. They had a plan to entice users by giving them a share of profits. If you upload music to Grooveshark and someone buys the track, you get a cut (probably tiny but gift horse, mouth). P2P advertising that keeps the publishers happy.
CNET have said:
In the turbulent, choppy waters where P2P networks and copyright law chomp at each other’s fins for dominance, there’s at least one beast that thinks it has a solution to keep everybody happy. Its name: Grooveshark.
Free streaming. Social networking. Music discovery. Oh, and reimbursement for sharing when somebody buys a song that you’ve uploaded to the collective.
And Wired magazine wrote:
If you’re looking for a way to grab music from peer-to-peer networks without that nagging feeling that you’re depriving a starving artist of her next meal (or a label exec of that Learjet upgrade), Grooveshark might help.
Publishers who own the third party material on OpenLearn have suggested we do a similar thing. If they could find out more about who is interested in their materials and see some resulting sales, they might make more of their materials freely available on OpenLearn.
August 4th, 2008
Channel 4 have started to invest in start-up companies, hoping to get a better view on where their industry is going in the next 25 years as they move from traditional broadcasting towards new platforms. See the interview with Matt Locke from minibar. Notice how about 4 minutes through someone must have mentioned minibar was looking too male oriented and ushered in the girls 
July 8th, 2008
(define: dough)
It feels ages since I’ve blogged. Ever get those times when there is so much going on in your head you can’t articulate it? As we move towards the end of the OpenLearn pilot phase, there’s a lot of evaluation and reflection to do. I’ve been doing more talking than writing recently to work through these thoughts… I’m not there yet. But I’ve spent the last few days at the Economies of the Commons conference in Amsterdam, so I feel it’s time to at least think out loud here. (Other people have blogged the event here so no need to post my 14 pages of notes).
The conference, as the name suggests, was about how you make money from open content so you can sustain its production. Refreshingly, it wasn’t just about fab shiny young startups making tons of cash for a good idea that’s cheap-ish to produce. Speakers included those managing the digitisation projects for National Archives and the scale of these projects was overwhelming. For example, Images for the Future is the largest digitisation project in Europe. The facts: 173 million Euros to restore, conserve, digitise AND contextualise the assets (eg for school curriculum as they recognise just putting assets out there isn’t useful enough). Between now and 2014 they will digitise 137,200 hours of video, 22,510 hours of film, 123,900 hours of audio and 2.9 million pictures. They calculate that reuse of the assets will generate between 20 and 60 million Euros for the Dutch economy.
Interesting questions were raised such as: Are we creating a commons for a rich community? Who is paying for the gift economy? Is free culture just a fad? If scarcity of information is now over, might it return? How do we tip the idea of openness so it becomes commonplace? Are the community the new archivists? When will copyright die?
Free is not an option for digital businesses, it’s a reality. The value of what is easily copyable is low and getting lower. So we need to monetise the uncopyable (eg live performances making more money for an artist than their MP3s) and understand how the drivers to pay for open content relate to education – Embodyment (the live experience of seeing a band in concert), Immediacy, Personalisation, Interpretation, Patronage, Findability, Authenticity, Accessibility. We’ve understood this from the beginning – OpenLearn makes our educational resources freely available but doesn’t replicate the experience of being a student at the University. We’ve also recognised that times are changing – copyright may not be dead but it won’t necessarily make us money in the future. Plus while the copyfight (copyright vs copyleft) is in stalemate, innovators (albeit often illegally) are moving the world forward and shifting cultures in profound ways that we can’t ignore or change. So OpenLearn is The Open University experimenting with the Creative Commons license. And we’re not the only sector recognising this need to experiment with new models (see the news on Harpers Collins).
At this point in the lifecycle of OpenLearn we need to do more than experiment and start work on the new business models. OpenLearn can’t be seen to be a nice standalone experiment that makes everyone at the OU feel good about working here – although it is and does – but as something that presents an ongoing challenge that needs to be worked out for the future sustainability of our entire business. Economic equilibrium takes time as we move from one cultural paradigm to another – it doesn’t happen overnight, or even in the lifetime of a 2 year pilot. The example of Le Monde, France’s national newspaper taking 11 years to get to economic equilibrium with its website is a powerful one.
One business model won’t be enough. The French National Archive project made half of what it spent last year by employing several models (which doesn’t sound good but 600K is better than nothing). So what models are peeking over the parapets?
Pre-finance – get someone to fund you. We were lucky to be funded by The William and Flora Hewlett Foundation to start OpenLearn and certainly other sources of funding have been realised for research projects and are being investigated.
Sponsorship – there are organisations we have worked with over the past year that might have paid us a sum for the opportunity to say “we offer free learning in association with the OU”. We sponsor events in the real world such as Edinburgh Festival, so there are relationships that could work the other way, extending and capturing the knowledge of real world events in open content form and providing sponsorship opportunities.
Subscription – essentially charging for extra services. This needs some thought around how people could be enticed into a stronger ongoing relationship with OpenLearn, past dropping in for a cup of tea and a slice of knowledge from a search engine and only returning by chance (actually not chance, but the fact we are taking over search engines real estate – add evil laugh and cat stroking here).
Currently about 3% of our visitors have registered for free extra services, so what services would be so compelling that these people and more would pay for them? With many sites it is about the user’s social status in that website, so Last.fm make something like $2.50 from each user who wants to indicate their fan status on their profile (this means their user icon changes from one colour to another – costing Last.fm next to nothing to satisfy a user need).
This is about making what we already do more attractive, which might be extending our offer (pay to join an online video conference with an OU tutor) or communicating it differently (pay to see who else is studying online) and perhaps even closing off some of the current functionality (since closing down access to content would be detrimental for both users and the promotional/ business benefits of having freely accessible and distributable content).
This depends on us understanding our market and finding out what organisations and individuals will pay for – hosting and branding their own open content on OpenLearn, DVDs of content to upload to their own Learning Management Systems, Print on demand etc – and how much they will pay for it. As Jan Velterop, CEo of Knewco succinctly said, “He who has most interest pays”. So who has the most interest in open educational resources – the institution, the learner, the teacher, the private business or the government?
Freemium – pretty much the same concept as subscription where people are paying for added services but the paid for offer is usually made more cleverly at the point of need and familiarity with the product (ok I made that up, I just needed another sub-heading as this blog is getting text heavy). When 1% are paying for 99% of users to use the system, the costs of production and maintenance need to be lower than ours are currently and the user numbers need to be higher. Freemium works for Web 2.0 sites because of low costs and high user numbers. This could be a model we could pursue once we have mainstreamed the production of open content (so instead of digitising legacy material, we are working with new materials that have been developed with open content in mind). Perhaps we could bring down costs in areas other than production. For example, rights as we begin to gain more experience in rights clearance for online use. To bring rights costs in line with the economic model for open content, perhaps we need to seek new agreements. Could we pay the rights holder per download of their asset, or offer the rights holder an affliate deal where open access to their content proves to bring them income? Could we negotiate deals that are more like the public lending rights agreements that libraries have where authors get a capped payment per year related to the amount of times their content was lent from a public library? Could we give tiered access, so that users pay to get access to the versions that include third party materials and a portion of this money goes to the rights holders? (I should point out, if its not already clear, that I’m not the OpenLearn rights expert).
Advertising – this could be cross selling our own services through OpenLearn more effectively (something we’ve been quite timid about) or it could be selling third-party services. We need more eyeballs to make any money. Advertising brings its own costs as it needs to be managed. However, it is one possible income stream. Almost immediate benefit could be gained from affiliate partnerships with retail partners (selling tickets to museum exhibitions, books on Amazon that related to the content – having a targeted audience is as good as having a large audience). And since we can’t get a marketing budget for OpenLearn unless we can prove it generates student registrations, perhaps we can make income from our own Marketing department for every clickthrough from OpenLearn that results in a registration. And perhaps we can think more deeply about whether rewarding informal learners for their study can grow our student numbers rather than canabalise them – if you track use of OpenLearn and give people time/money off the relevant paid-for course, will that increase use of oepn educational resources, improve conversion rates from enquiries to student registrations and ensure the student is better prepared for study?
Of course once you have advertising you can charge people a sum to have it turned off in their ‘advanced profile’ (isn’t this why people pay for their TV license?). We all know how people who love education, hate advertising, so voila!
Private partnerships – eg Google paying for digitisation of assets. Normally this would include some sort of exclusivity agreement but hybrid models that tie the market economy with the commons are worth investigating because of the huge sums of money that are available. In these partnerships negotiating the best deal is crucial to avoid becoming an imaginary owner of our own content (the third party has the potential to make more revenue than we do from our content so ensuring a fair deal is crucial). See Peter Kaufman’s report Good Terms – Improving Commercial-Noncommercial patnerships for mass digitization.
Community donations – appealing to the good people of the internet. This is where we can learn lessons from the pirates and the open-source community, like the producers of Steal This Film and the animation guys at Blender who got 100KE from their users to make their closed software open. The Steal This Film guys consider subscription, advertising and pay-to-download, doomed business models. With 4 million viewers of their pirate film in 1.2 years, 1 person in every 1000 donated sums of between $1 and $500 in the first 1-2 months. Most donations were in $15-$40 range. People connected with their ‘League of Noble Peers’ identity which set them out as pioneers in the field so the financial viability of this model might depend on whether you have cult status or can appeal to someone’s passionate defence of freedom and democracy.
“Voluntary supportive donations for the post-IP generation” are being exploited by sites that make it easy to donate. Each asset is given a fingerprint, and as it travels the inter-web with this identifier people can donate wherever they consume the asset. The aim is that 10-15% of all content consumed via P2P networks will result in voluntary donations. The P2P networks get a cut of the donations. A donation can be made from any point in the distribution chain – from P2P client to the embedded media player.
So when we think about voluntary donations it may not just be our website visitors donating, but also the consumers of our content in other online and potentially offline spaces.
At the moment we give no huge incentive to donate – we don’t strongly appeal to the learners to donate even though we know from feedback they love the resources. What if we made donating simpler? We could encourage small donations and make it possible to donate at every point in the distribution and consumption chain. What if you asked every viewer of an OU programme on the BBC to donate a small sum to create free study materials related to the programme? What if open content became an ethical gift – you could buy someone a study unit and dedicate its creation to them (massive OU friendly audience of teachers, lifelong learners and alumni that this would appeal to).
Open source consultancy/training – helping other educational institutions and organisations use open content/ Moodle. We know there is demand for this and some of our research projects (and the good people of the technical team) have been trying to meet the demand.
Gift economy – doesn’t this rely on gift exchange? “Oh, you shouldn’t have” is always a lie. Of course you should have! Give us something back – we didn’t go to all the effort and expense of using the CC license if we didn’t want our content repurposed and shared back with us. This is a model that hasn’t been realised to any great extent in the time of the pilot – perhaps because we are ahead of the curve in educational institutions. Early adopters have started to share and co-produce materials and their feedback suggests the process is of value, and that there will be opportunity to decrease the costs of course production through open content in the future. Making open content more visible to educators through things like the OER Recommender is essential to open content reaching a tipping point.
Deep breath. If you got this far, you are special
April 14th, 2008
On my way back from a meeting in Leicester today I bought some books from the train station’s newsagent. The Welsh Girl for my gran (who likes to keep her brain ticking over after 14 months in a geriatrics hospital ward. She wins the ward quiz every week, although she is the first to admit there isn’t much competition since the other contenders “are all ga ga”. Hmm… I wonder what playing buzzword bingo would be like in hospital… I digress) and The Witch of Portobello for me.
I love books. Many moons ago I studied literature and theatre in university and spent a fair share of my extra curricular time creating ramshackle sets for plays in the Students’ Union and writing reviews for The Badger. And if people’s houses tell you anything about them, watch closely because, remember, the clues are there, as we go through the keyhole…
Despite my passion for online media, I can’t see myself getting the same feeling from an ebook as I do from a printed copy (my boss who’s personal slogan is ‘print is dead’ will be hanging his head in shame at this point and I may find myself having to justify the business value in blogging at my next review 
). As Sony’s Reader and Amazon’s Kindle come to market, Random House and Hachette are among the publishers planning to offer cheaper downloadable versions of hardbacks. The “e-ink” technology makes reading from the screen a lot more comfortable, the convenience of carrying lots of books on one device is attractive for plane journeys, and if they are wipe clean, then bring on the receipe e-books. But I can’t see me spending two tons on a reader to spend my leisure time poring over another screen. I would suspect this is largely a toy for the business community but publishers are touting these to their novel reading market. Maybe I am just shamefully behind the times – after all, there was a time when I swore you would never get me on IM…
March 10th, 2008
From FOWA Miami
The speaker starts by saying he’s not sure why he is here because YouNoodle has recently launched and is an online startup predictor. Traits he gave for a successful start-up are listed here from the ones you can least effect to those you can do something about (except serendipity which was thrown in for luck).
Read the book Good to Great: Why some companies make the leap and others don’t.
1. Brilliance
2. Team
3. Confidence/Ambition
4. Depth of technology research – often best projects come out of universities
5. Discipline – I look around the room and everyone is multitasking and fast
6. Brass knuckles marketing – mentions sophistication of myspace in mobilising groups in different regions, the importance of targeting the leaders of the tech community. YouTube tried a lot of ways to create the viral effect before it actually took off when a creative user posted something.
7. Scrapiness/Resourcefulness
8. Capital structure, Right VC, Angel funding, legal issues
9. Open – I get the feeling that after years of confusion about what The Open University is, it is going to become obvious as everyone becomes open.
10. Distribution – there is a lot of apps noise on the net. How do you get a product out – universities are the perfect viral place (is this true of the OU? does the demographic of your student body matter here?)
11. Extremism
12. Serendipity – nothing really matters, all is serendipity
March 4th, 2008
Battery power was a bit of a problem (note to self to take extension leads to conferences) so following blogs are all a bit out of order but come from notes taken at FOWA Miami.
@BarCamp
Interesting discussion on how much support to give your users. Acknowledged that you have to calculate your customer acquisition cost and the lifetime value of the customer and set your support levels accordingly. Analyze your support costs and reduce support on free services. Give more features on an advanced version that people will choose to pay more for. But do handhold all customers. So when they sign up to your service send them several email newsletters in the first month – getting less frequent throughout the month – and suggest things they might like to do to get deeper into the product’s features as they get more comfortable with the basics. Use questions from your FAQ’s in these emails to provide answers to problems commonly found by your users when learning the product. Preview things that can extend the service for them at a cost – “If you like this, you might like to register for this service because…”. Offer upgrades at appropriate points for conversion. Good support enables your user to move from a freemium to a premium service user – if they don’t get past the basics of a complex process, they won’t want any extra services later. They referred to the Get satisfaction company and ClixConnect who they use for outsourced support. Make it easy for your customer to leave and encourage paying customers who leave to continue using your free service.
“Customer service” has been an issue on OpenLearn since the beginning mainly due to it being an externally funded pilot that couldn’t be embedded into the support processes of the University before we learnt some lessons and also due to concerns about financially sustaining support for a free service past the pilot. There was also some concern that we wouldn’t really be able to research what independent and informal learners do, if we were providing the support our registered students get (and pay for).
What we have done is QuickStart guides and FAQ’s but these are not as well crafted as they might be because support was always an add-on to the project spec and not considered from the outset when the budget was set.
This also sets out some lessons for conversion that we have understood and discussed but again due to the pilot nature of the project, the idea of conversion of informal learners and adding ‘extension’ services using a micro payment system to monetize OER’s have not developed very far. As we embed OER’s into our mainstream production processes, we must also embed OERs into our marketing and support systems to guarantee success.
March 3rd, 2008
In between putting up banners and welcoming the first guests at reception, I thought I should write a quick blog… (ok I’m going to copy and paste from my press article because registration opens today and it’s a little bit hectic)…
(Q: Do I have to use quotation marks if I’m quoting myself? Jo help!)… A year since the launch of OpenLearn, The Open University are hosting a conference to share research in the area of open educational resources. OpenLearn 2007: researching open content in education opens today and welcomes 150 researchers from around the world. Focussing on the research agenda, sustainability, user experience and software and tools, over 30 presentations will be given during the 2 day conference. Keynote speeches will be given by John Seeley Brown, former Chief Scientist of Xerox Corporation and the Director of its Palo Alto Research Center (PARC) and Dr Cathy Casserly of The William and Flora Hewlett Foundation.
Research panels focus on Opening Up Education: Removing Barriers, Fostering Participation, and Promoting Sustainability and The future of open content. Papers include Embracing Web2.0: Online Video – Beyond Entertainment, From Africa through Germany to the UK and back again: the potential of Open Educational resources, Feeding From OpenLearn – Exploring the Potential of OpenLearn RSS Feeds, Learning about learning in Wikiversity through action research and Video conferencing in open learning. Selected papers will be developed for publication in a special issue of the Journal of Interactive Media in Education.
Conference papers have been made publicly available and live blogging will be aggregated and published at the OCHRE blog. A webcast of John Seeley Brown’s keynote speech will be available following the conference along with audio recordings (if we can get good enough quality from our variety of mp3 recorders!).
So watch OCHRE for the next few days… and then check out the conference website for more…
October 29th, 2007
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