Digital Content Business Models: Key Developments and Best Practices
Service providers are caught in a trap of thinking that business models for digital content polarize into an either/or scenario of premium versus free service models. The reality is not this simple or reductive as there are so many variables involved. When assessing potential business models for digital content, service providers need to consider all the available options and consider mixed models that combine multiple revenue streams.
Executive summary
In a nutshell
Ovum view
Don’t be afraid to experiment
Mixed business models are attractive but hard to execute
Key messages
Premium content is not evil
Hard pay-walls are an option for the few
Free does not automatically cancel out paid, but it makes premium propositions harder
Pay-walls can depress traffic – will paid content offset reduced advertising revenues?
Provide support for micropayments, but keep an eye on transaction costs
“Freemium” models are attractive but hard to execute well
Virtual economies are promising but could be limited to certain environments
Ad-funded content models need updating
Plenty of scope for improvement
Applications can provide valuable support for content business models
Combining devices with content can also help in certain scenarios
Report focus
The business model framework
Premium content business models
Premium content can work but the opportunity is a narrow one
Drivers
A mix of opportunity and defense
High acquisition cost can tip the balance towards premium models
Challenges
The free expectation makes premium models difficult
Piracy contributes to over-supply
Best practices
Understand content value constituents
Make conditions transparent and payments easy
Don’t let “free” blinker your view of the competition
Be very diligent with cost control
Business model approaches and considerations
Hard pay-walls are an option for the very few
Flexible model will work far better – think metered access and beyond
The importance of micropayments, and their limitations
Quality of service as a premium proposition
Think outside the box: money is not the only way to pay for content
Alternative digital content currencies: the contenders
“Freemium” models
The “freemium” concept is wider than you might think
Drivers
Free can be a powerful acquisition tool, and lends itself well to viral marketing
Free can help counter scarcity of attention, but is not a panacea
Free services are not really free, which means a more robust model
Challenges
“Freemium” models are difficult to execute well
Free services still cost
Best practices
Maintain a fine balance between free and premium
Nurture the free customer base
Get the right metrics for the business
Be open and get developers on board
Business model approaches and considerations
Feature- and service-level-based models
Customer-segmentation-based models
Membership/clubs
Time-based models
Virtual economies
Drivers
Increased engagement, stickiness
Convenience
Virtual economy revenue opportunities
Facebook Credits: the beginnings of a web-wide virtual currency?
Expanding the Credits ecosystem
Challenges
Virtual economies are just as challenging as real ones
Security issues and scams
Virtual economies need scale to flourish
Are virtual currencies limited to specific environments?
Best practices
Get to grips with the legal framework – don’t be caught out
Virtual goods are slippery – make sure you understand the value proposition
Keep the virtual goods economy fresh
Make virtual currencies easy for the consumer
Carefully consider joining a virtual currency exchange
Business model approaches and considerations
Advertising-based “offer walls”
The advantage of mixed models
Branded virtual goods
Ad-supported content models
A model in need of an overhaul
Drivers
Consumers like “free” – and are willing to accept advertising as a trade-off
Consumers are more willing to share personal data, as long as it is protected
Ad-supported content models can help curb piracy
Online advertising is growing
Richer formats promise higher engagement and more creativity
Challenges
The glut of free services makes loyalty and attention hard to nurture
Advertising is easy to ignore
Advertising revenues are unpredictable, and more so in a downturn
Major scale, impressions, and revenues are in the hands of the few
Digital content dynamics are changing, and with it traffic flows
The slowdown in funding turns up the pressure
Best practices
Make sure your free service is compelling and engaging
Richer formats and conversational marketing can help
Get the ad load right for your audience
Building online trust will strengthen the service and business model
Ad-supported models do not have to be standalone
Keep on top of new advertising metrics
The role of apps and devices in digital content business models
Applications
Apps are not a business model but can help support one
Applications in the premium content business model
Applications in “freemium” models
Applications and advertising
Application and content stores
Content-provider-controlled versus third party
Devices
Adding devices to the distribution mix
Appendix
Research methodology statement
Further reading
In a nutshell
Ovum view
Don’t be afraid to experiment
Mixed business models are attractive but hard to execute
Key messages
Premium content is not evil
Hard pay-walls are an option for the few
Free does not automatically cancel out paid, but it makes premium propositions harder
Pay-walls can depress traffic – will paid content offset reduced advertising revenues?
Provide support for micropayments, but keep an eye on transaction costs
“Freemium” models are attractive but hard to execute well
Virtual economies are promising but could be limited to certain environments
Ad-funded content models need updating
Plenty of scope for improvement
Applications can provide valuable support for content business models
Combining devices with content can also help in certain scenarios
Report focus
The business model framework
Premium content business models
Premium content can work but the opportunity is a narrow one
Drivers
A mix of opportunity and defense
High acquisition cost can tip the balance towards premium models
Challenges
The free expectation makes premium models difficult
Piracy contributes to over-supply
Best practices
Understand content value constituents
Make conditions transparent and payments easy
Don’t let “free” blinker your view of the competition
Be very diligent with cost control
Business model approaches and considerations
Hard pay-walls are an option for the very few
Flexible model will work far better – think metered access and beyond
The importance of micropayments, and their limitations
Quality of service as a premium proposition
Think outside the box: money is not the only way to pay for content
Alternative digital content currencies: the contenders
“Freemium” models
The “freemium” concept is wider than you might think
Drivers
Free can be a powerful acquisition tool, and lends itself well to viral marketing
Free can help counter scarcity of attention, but is not a panacea
Free services are not really free, which means a more robust model
Challenges
“Freemium” models are difficult to execute well
Free services still cost
Best practices
Maintain a fine balance between free and premium
Nurture the free customer base
Get the right metrics for the business
Be open and get developers on board
Business model approaches and considerations
Feature- and service-level-based models
Customer-segmentation-based models
Membership/clubs
Time-based models
Virtual economies
Drivers
Increased engagement, stickiness
Convenience
Virtual economy revenue opportunities
Facebook Credits: the beginnings of a web-wide virtual currency?
Expanding the Credits ecosystem
Challenges
Virtual economies are just as challenging as real ones
Security issues and scams
Virtual economies need scale to flourish
Are virtual currencies limited to specific environments?
Best practices
Get to grips with the legal framework – don’t be caught out
Virtual goods are slippery – make sure you understand the value proposition
Keep the virtual goods economy fresh
Make virtual currencies easy for the consumer
Carefully consider joining a virtual currency exchange
Business model approaches and considerations
Advertising-based “offer walls”
The advantage of mixed models
Branded virtual goods
Ad-supported content models
A model in need of an overhaul
Drivers
Consumers like “free” – and are willing to accept advertising as a trade-off
Consumers are more willing to share personal data, as long as it is protected
Ad-supported content models can help curb piracy
Online advertising is growing
Richer formats promise higher engagement and more creativity
Challenges
The glut of free services makes loyalty and attention hard to nurture
Advertising is easy to ignore
Advertising revenues are unpredictable, and more so in a downturn
Major scale, impressions, and revenues are in the hands of the few
Digital content dynamics are changing, and with it traffic flows
The slowdown in funding turns up the pressure
Best practices
Make sure your free service is compelling and engaging
Richer formats and conversational marketing can help
Get the ad load right for your audience
Building online trust will strengthen the service and business model
Ad-supported models do not have to be standalone
Keep on top of new advertising metrics
The role of apps and devices in digital content business models
Applications
Apps are not a business model but can help support one
Applications in the premium content business model
Applications in “freemium” models
Applications and advertising
Application and content stores
Content-provider-controlled versus third party
Devices
Adding devices to the distribution mix
Appendix
Research methodology statement
Further reading
LIST OF FIGURES
Figure 1: Factors that determine the digital content business model
Figure 2: Traditional and new content currencies
Figure 3: Applications usage over time
Figure 4: Digital advertising formats by richness
Figure 1: Factors that determine the digital content business model
Figure 2: Traditional and new content currencies
Figure 3: Applications usage over time
Figure 4: Digital advertising formats by richness
