This past week there has a been a lot buzz surrounding Apple’s announcement that they would be offering a subscription service, only to be followed by Google’s announcement of their own subscription service a day later. Both services support auto-renewal, a huge opportunity for advertisers to increase revenue. This is obviously a great revenue generator for Apple and Google, but what about the advertisers?
Apple will charge advertisers 30% of the revenue through iTunes and its App Store, while Google will charge an estimated 10% of the revenue through its own Android mobile operating system, or what is being rolled out as “One Pass”. Advertisers are already balking at the price. Many advertisers claim this would make the transaction unprofitable, but is that the truth?
Let’s use the Wall Street Journal as an example. If you search for Wall Street Journal Subscription, the sponsored listing takes you to. Let’s assume this is one of their better offerings online (it should be noted that both Apple and Google will require the product/service they promote must be at the same price-point as what can be found outside of their platforms). The promotion states that the user can subscribe for $1.99/week if the user is a first-time subscriber.
Outside of the promotional method used, after scrolling down, I noticed there were two payment options (assuming the user is not a first time subscriber).
There are two price points. The first is the annual Payment of $103, and then there is the Monthly Payment of $8.62. Most users will of course take the Monthly Payment of $8.62, particularly as there is no fiscal advantage or call to action, driving users to the annual payment of $103. There is a small advantage to this – if the user pays for the annual subscription, they do save $0.44 cents. Outside of this promotional method, the WSJ should consider incentivizing the user towards the annual service with a 10-20% reduction in price, in order to get more users to convert to this more profitable (annual) plan. All that being said, the model is simple.
If you look at what the WSJ pays affiliates, it is generally anywhere from 15% – 35% on a revenue-share. Let’s assume the average user is worth about $80.00. This means the cost to acquire a new users is anywhere from about $12 – $28 per user using this model. The same cost on a Cost per Action (CPA) model may be anywhere in the $35 – $55 range, so perhaps a bit higher acquisition cost. Internally, through targeted search, the WSJ may acquire users on average, lets say for about $25 per user. All acquisition models have pro’s and con’s and will of course produce different LTV’s. You get the picture.
Apple and Google are now stating that they want 30% and an estimated 10% respectively of the revenue for themselves. It’s probably safe to assume that publishing companies like the WSJ are against this, but should they be?
Look at the cost to acquire users using the above models, it’s not cheap and it takes a lot of effort to do so. Apple and Google in this regard are the marketers and the distribution source. Is a new $80.00 newspaper reader not worth the 30% cost of $24.00? I am not in the newspaper or publishing business, but I’m guessing it is.
If the current model does not work for advertisers, perhaps the below models could. Here are a few ideas:
- Charge advertisers a tiered percentage of revenue with performance metrics tied in. For example, a subscriber to the WSJ subscribes to a monthly plan but subscribes for less than six month. Instead of Apple charging 30%, it could charge 10%. If the user stays on for more than six months, but less than twelve, charge 20%. Finally, if the user stays on for more than twelve months, charge 30%. There are clear advantages for the advertiser using this model, but less so for Apple, particularly given their current model.
- Charge advertisers on a set CPM, with advertisers paying for premium placements. This way, advertisers have more control over their placements and can asses value and placements appropriately based on their individual goals.
- A hybrid model incorporating performance with organizations individual goals.
Regardless of the model, by presenting alternative models to what is currently offered, and perhaps viewed by some, at least in the press, as being perhaps to aggressive, Apple and Google could remove these barriers and provide other options. Obviously the model will continue to evolve. With this evolution, one would anticipate more options down the road.
Tien Tzuo, the CEO of Zuora, provides some great examples in an article that appeared through PaidContent.org. Among the examples:
• “Amazon (NSDQ: AMZN) is a great example. Through the Amazon Prime program, Amazon customers are provided unlimited, free shipping for a $79-per-year membership fee. Though Amazon is primarily a transaction-oriented company, Amazon Prime provides a stream of ongoing, predictable subscription revenue. (Prime provides arguably a much bigger benefit to Amazon, too: by offering free shipping, customers are far more likely to purchase their goods at Amazon and remain a loyal customer.)”
• “Software developers realize they stood to make a lot more money by offering their iPad and iPhone apps on subscription vs. simply as one-time purchases. They stand to make significantly more money by offering an annual subscription to their applications (say, $3) as opposed to merely getting paid 99 cents up front.”
This is an exciting time and clearly there is a lot of opportunity for all parties involved. To capitalize on it, advertisers and developers need to have a clear and open mind. Let the creativity flow!
No matter how you look at the model, it is a work in progress and clearly holds a lot of promise, particularly given the scale of Apple and Google. Right now there are only so many players in this arena. There is Apple, Google and let’s not forget Facebook and their 600 million users with Facebook credits. Like Apple, Facebook takes a 30% cut of revenue, but is much more at this time, focused on social gaming.
One thing is for sure; advertisers simply cannot ignore these new opportunities. Advertisers need to jump on this now, test the model, assess the lifetime value of the users and hope that the space becomes more competitive, so the prices drop. Advertisers need to ask themselves if the 30% fee Apple charges for the subscription service and the increased conversion from once click purchasing justify the acquisition costs. Likely for some companies this will make sense and for others, it will not.
- U.S. and EU regulators eye Apple subscription plan
- Google One Pass is a payment system that enables publishers to set the terms for access to their digital content
- Apple Launches Subscriptions on the App Store