0. Introduction
1. Digital Business Models
1.1. Micropayments – Fragmented Content
1.2. Pay-Per-Use – Streaming/Pay-Per-View
1.3. Subscription
1.4. Membership
1.5. Freemium/Premium
1.6. Embedded Advertising
1.7. Open Access
1.8. P2P – MOOCs
2. New Models:Somewhere Between Experimenting and Rationalization
2.1. Pay-What-You-Want
2.2. Bundling
2.3. Crowdfunding
2.4. Gamification
2.5. Direct Selling
2.6. Self-Publishing
2.7. Library eLending
3. The Current Situation.eCommerce and the Evolution of Paid Models
3.1. From Retail to eCommerce
3.2. Big Data. The Key to Digital Business Models
3.3. From Free to Diversification. Moving Towards a Merged Model
3.4. The Active Consumer: Prosumers and User-Generated Content (UGC)
4. Conclusions
5. Acknowledgments / Authorship
Over the last several years, the Internet has transformed business models and the way companies in various sectors, like the media, airlines, tourism, financial intermediaries, etc., are organized. Every company that packages content and markets it through intermediaries will go through a change in its business model, and companies in the cultural sector will be no exception to this structural transformation process. A new era is fast approaching in which the way a business handles its relationship with consumers (B2C) will outweigh the current business-to-business (B2B) intermediation model.
The objective of this study is to provide professionals in the book world, whether they are publishers, agents, authors, booksellers, or librarians, with a broad analysis of the business models currently available on the Internet so that they may determine where their business opportunities lie and what the benefits of each of these models are for their companies.
History has shown that every time new technology appears, it stirs up a host of fears stemming from the unknown. For example, when the codex was first used, it was widely criticized because it interrupted the reading of texts. Before long, however, the initial worries which had been the basis of heated debates were quickly forgotten. People realized that there were actually numerous advantages to being able to compile long texts into a single unit instead of using several scrolls. Discussion of the new business models on the Internet is today’s version of this situation.
The description of the business models that are analyzed in this study is meant to provide companies and organizations in the cultural sector with a clearer view of the advantages and disadvantages of these models in their particular cases. Not all readers will be willing to purchase a subscription package regardless of how appealing it is in terms of content and price, and not all of them will want to get involved in a crowdfunding campaign either.
The arrival of the Internet in the book world is not just about the digitalization of books. Its impact goes far beyond that. The Internet has had an effect on the entire publishing process, from production to distribution, to marketing, promotion, copyright management, etc. Whether we like it or not, the traditional methods of creation, access, and use are all undergoing a historic change. Over the next few years, the time will come when consumers will have unprecedented access to vast amounts of user-generated information and knowledge which will lead to the reorganization of the cultural sector. Faced with these new ways of creating, accessing, and using culture, book industry professionals need to reflect on what type of business model they are going to implement in order to meet the challenges of the coming uses of the Internet.
No one today has a clear idea of which business models will last, which are pure marketing strategies, and which are the most sustainable, etc. Not having this information should not delay the implementation of these models, however. The title of this study refers to the future business models of the digital age in the plural because no single model will likely exist on its own. Rather, several models will co-exist next to each other.
Choosing the right business model will depend on the characteristics of each publisher, its specialization, size, and catalog, among other variables. The aim of this study is to help professionals in book-related industries design the best mix of business models in order to meet the needs of each and every one of their customers. Throughout this study, our definition of the new business models will be about the constant search for the ideal mix, about having a flexible mindset, about creating “contradictions” at times, and even about making mistakes. Science has shown time and time again that the only way to make progress is through trial and error. In order to innovate, we should not be afraid to make mistakes because, by learning from these mistakes, we can better understand the times we live in.
We hope that this study will provide our readers with a broader view of the multiple opportunities that the new business models of the digital age offer and that it can resolve any of the doubts and help dispel any preconceptions they may have. More importantly, we hope that it will help our readers reflect on how to begin to integrate these models into their business strategy, whether they represent a publishing house, a bookshop, a library, a university, an online shop, a distribution platform, or a media outlet.
If there is something that defines the digital economy it is the need to look for new business models and to combine them to best reach one’s intended goals. Because these new business models will be mixed, which is to say that they will be combinations of several models, it will be difficult to classify them as belonging to just one type or another.
The new digital economy is based on this fusion, on the absence of a single fixed model, typical of the Internet’s fluid nature. It is the foundation on which business relationships, through eCommerce platforms, can be built. For this reason, it is important to remain open to the possibilities that combined models offer and not to see them as the inflexible models that are often associated with the analog or physical world.
It must be understood that, when adapting to the digital arena, all models will either evolve or combine with other models.
The concept of micropayments was born in the age of the Internet and, in some ways, is closely linked to fragmented content and per-use content. Micropayments are usually defined as small-quantity transactions ranging between 1€ and 5€, although, according to PayPal and Visa, micropayments can reach as high as 10€ or 20€, depending on the type of purchase. This kind of transaction is used to access a certain type of content, which could be an article on a webpage, a song, or the next level in a video game.
The truth is, however, that the transaction does not always have to involve money. Transactions can be as complex as to include bitcoins, loyalty tokens, or any other type of non-monetary or non-conventional form of payment. Though there are many types of transactions possible in the digital world, their technological implementation is the complicated part. This study, however, will focus on the commonly accepted use of micropayments as a low-cost method to access content or services.
The average consumer became familiar with the concept of micropayments when Apple began selling content for its devices. As a company, Apple was quick to comprehend the potential of the new business models that were made possible by the digital world. Their rejection of the “all or nothing” policy towards content, making it possible to buy piecemeal what was once considered a whole, truly revolutionized the sector. Now customers had the chance to buy individual songs for aound $1 instead of having to buy an entire LP or CD. When the concept hit the eBook sector, it forced publishers to a certain extent to redesign their pricing policy for piecemeal purchasing of sections, chapters, and extensions, as will be seen shortly.
The use of micropayments is becoming more common. Pagantis’ 2012 study1 on online content use in Spain showed that the average Spaniard spent 2.80€ in micropayments that year, up 12% from 2011. The most frequently used payment methods were SMS (39%), credit cards (26%), and phone calls (25%). Online games topped the list with a 41% increase, with users in this sector spending an average of 2.89€ in micropayments. The music and video sector proved more stable, increasing by just under 3%, with an average expenditure of 2.52€ per user.
According to Tecnocom’s 2013 Report on Trends in Payment Methods (Informe Tecnocom sobre Tendencias en Medios de Pago 2013), an increase in the use of micropayments entails a reduction in processing costs2. The use of micropayments in the peer-to-peer (P2P) and shared-economy business models has grown too, leading to the development of new submodels. One of these submodels, called “direct operator billing” or “carrier billing,” allows consumers to use their mobile phones to make purchases which are then charged to their phone bill3. One new app for mobile phones is Mugipay, which is a cross between the online payment platform PayPal and instant messaging apps like WhatsApp or Line. Users of Mugipay can make small payments to other users without having to exit the app. A good example of a mixed model, this app falls somewhere between micropayments and P2P.
Though the transactional or micropayment model is well-accepted in the phone app sector, it is gaining ground in the gaming sector. It seems that the behavior and the particular profile of video game console players makes them less susceptible to this type of model due to their particular focus and nature. However, many believe that the micropayment and subscription models will one day define the gaming industry4. For the moment, League of Legends and Dota 2, both of which use micropayments, are two of the most played PC games in the world.
Whether users are offered the chance to purchase virtual objects or whether they need to buy their way into the next level, this model falls into the category of an “in-app purchase” or the “in-app” model for short. The aim of in-app models is more than just promoting the use of the app and the number of times it is downloaded. In these mostly free or reasonably priced apps, accessible content is fragmented. This essentially means that the first few levels of a game, or the first few fragments, episodes, or chapters depending on the type of content, are available for free, coinciding with the Freemium model, and users are then offered extra for-a-fee content during the use of the application.
Recently, though, a problem was discovered with this model. Many times the users of these apps are children. While using this type of app, whether an educational aid or a game, users need to make a micropayment in order to advance, which can often be done instantaneously. The U.S. Federal Trade Commission fined Apple for permitting this type of payment to be used in apps aimed at young audiences. Although a password is initially required, children can spend large amounts of money to continue using these apps. The FTC’s ruling forces the Cupertino-based company to pay $32.5 million directly to the affected users. In one of the cases that set off all of the alarms, a girl managed to spend $2,600 in micropayments in just 15 minutes.
Though an extreme example, this case identified a key problem with this model. As a result, in order to prevent cases of future uncontrolled spending, especially in apps aimed at children, Google play developed a system which makes it necessary to enter a password every time a micropayment is required. The European Commission is also currently studying ways to regulate this type of model.
The publishing sector has been able to adapt to this model with ease. As was mentioned earlier, there are connections between pay-per-read, micropayments, and fragmented content. The main advantage of fragmented content is that users only need to pay for what they are truly interested in, without having to pay more for additional information, services, goods, etc. that they have no interest in, just like in the iTunes model.
One of the pioneering initiatives associated with fragmented content was actually introduced by The New York Times. The newspaper made its articles available to its readers on screens scattered around the streets of the city. This way, readers could use their mobile phones to download articles from NYT2day.com and receive a direct link to The New York Times website. Though this service is no longer in effect, it was a first attempt at using the new digital formats to offer fragmented content through mobile phone technology, stepping away from the free model made popular on the Internet in favor of a pay-per-content approach.
Shortly afterwards, Sunday Book Review, The New York Times’ prestigious literary supplement, became available for sale on several digital platforms (Sony, Kindle, NOOK, etc.). Readers who were only interested in the literary supplement no longer had to pay the $13.99 per month Kindle price to subscribe to the newspaper. They could instead purchase the items they wanted.
In the digital publishing sector, Amazon was one of the first to start using the fragmented content model in its Short Cuts series for Kindle devices. This initiative was primarily directed at readers who were interested in the subjects of finance, business, and business management. Working with the prestigious Harvard Business Review Press, Amazon’s idea was to offer individual chapters and summaries of articles written by prominent experts in each field. What was unique about the initiative was that the chapters were classified according to the time it took to read them, which varied between 10 and 30 minutes.
These examples highlight the advantages of being able to buy individual chapters of certain eBooks, especially technical manuals, textbooks, and guidebooks. Using this pay-per-use idea, users can build their own poetry anthologies, storybook collections, or even compile a list of their favorite passages. Readers who access a service like this are provided with a “do it yourself” or a “remixing” type of experience. This eventually gave rise to platforms based solely on this concept, such as eBookPie, SliceBooks, and BookRiff, whose focus is on giving users the possibility to customize content. This model is both affordable and reader-friendly and, once the division of royalties is worked out, can be advantageous for publishers as well.
eBookPie, now called SliceBooks, was a pioneer of this model in the publishing sector. It developed a service called Chapterizer which allowed publishers to divide up their books so that readers could access this fragmented content according to their interests. This made it possible to make and remake different editions of books with different chapters and even different covers. The users of this service had the option to download only the chapters (called eChapters) that they were really interested in. It could even be said that SliceBooks made the transition into creation. Publishers could re-edit, cut, fragment, and transform their books on this self-publishing platform.
This initiative encouraged publishers to revise their content and their catalogs so that they could quickly, easily and autonomously reconvert chapters or parts of books into a short-form eBook, remixed using SliceBooks’ innovative tool. These new short-form eBooks are, as a result, the product of a combination of several books. As SliceBooks points out, the short-form model is easy for the educational sector to work with, and it can also be used to create personalized travel guides as well as corporate, scientific, technical or academic packs, etc.
BookRiff has also gone in the same direction. BookRiff is a platform that allows its users to create content that has been gleaned from several sources. Its initiative is based on traditional publishing media but it also incorporates the advantages offered by new digital media in terms of access to content and use. Anything is possible when creating a customized book, including adding audio, video, and images. Users can easily “remix” their own books to include random chapters, articles, essays, or even their own content.
Copyright owners are naturally compensated for the use of their content. Applying a standard agency model, 70% of the earnings go to the publisher or copyright holder and the platform keeps the remaining 30%. According to Rochelle Grayson, CEO at BookRiff, the idea is to offer certain features that are being neglected in digital publishing, features such as providing readers with new experiences by giving them screen-based readability options and customized content.
Grupo Planeta is an innovative Spanish publishing group that began offering users fragmented content through its Gestión2000 platform. For the first time in Spain, individual chapters of an eBook were sold, giving readers the chance to purchase only those chapters they were most interested in.
Content designed for specific spans of time, a new trend in the fragmented content market, continues to grow. An example of this type of content are the two-minute stories marketed in Japan which are intended to be read on mobile phones between stops on the underground.
Amazon was once again among the first companies to market this type of story through Kindle Singles, a specialized section of Amazon’s online store which sells short texts written by both authors and readers at reasonable prices. These texts, which range between 10,000 and 30,000 words, can be stories, articles, short essays, tales, etc. This model has been ideal at incentivizing the creation of and access to texts which are not long enough to be considered books but which do not deserve to be forgotten or made to wait until a suitable collection can be complied. The idea also exploits the market niche for short texts for mobile phone apps.
Since the introduction of short-form and fragmented content, the demand for eBooks in these formats has increased. According to statistics published in a 2012 study carried out by paidContent5, Amazon had earned approximately $1.12 million with this model at the time of publishing, selling 2 million Kindle Singles in this its first year of operation alone. This is a very respectable number considering that these eBooks were sold at prices that ranged from 0.99€ to 2.99€.
As a result, Bloomberg Businessweek decided to team up with Hachette to turn some of the magazine’s most relevant content into eBook singles. Random House and Penguin (which recently merged) and Open Road are just a few of the companies that followed their lead. In order to keep the success of this model going, however, it is necessary to maintain competitive pricing. Going beyond a certain price margin could interrupt the demand for this type of product6.
Amazon’s initiative caused quite a stir, even in Spain. What was formerly known as Random House Mondadori created a new collection in its DEBATE line called EnDebate to exclusively publish eBooks for less than 2€ apiece. These eBooks were approximately 10,000 words long and were appropriate for reading on eReaders and other similar devices. It was the first time that a Spanish publisher had applied a model of this type.
Shortly afterwards, Random House Mondadori then came out with RHM Flash. This new digital division sold short texts that were approximately 10,000 words long from among the best literature in its catalog by both classic and contemporary authors for just 1.49€. The idea behind RHM Flash’s initiative was to reach out to its most digital readers, the ones who were most accustomed to reading shorter, fragmented content, and to users who were looking to give reading a try on their new electronic devices.
Internationally, other examples of this model include Longreads, Byliner, Atavist, and TED books. TED books is the eBook version of the popular TED talks, made available through Atavist’s platform. These texts range from between 10,000 and 30,000 words and are sold at prices averaging between 0.90€ and 4.90€. Paradoxically, depending on one’s point of view, what some consider a short read, especially compared to a novel or a long essay, others call “long form.” The tendency on the Internet, however, is towards ever shorter articles. Journalistic articles, like Atavist’s research articles or TED talks, are good examples of what are considered short with respect to normal reading habits but long when meant to be read online.
The double intention behind this initiative to adapt to short forms is first to synthesize ideas that authors might not be able to transmit in a longer text because of time and space limitations, and second to take advantage of changing reading habits in order to reach a wider audience. In journalism, the perception of long and short are the opposite, but for digital readers interested in all kinds of content, these texts are still considered shorter than conventional books.
Longreads and Byliner are different, however. What Longreads does, basically, is help its users find and share the best long-form stories and articles. Like a search engine, Longreads classifies and lists all types of texts from publications known for their stories, articles, and think pieces such as The New Yorker, The Atlantic, Esquire, and a long list of others. It also includes stories, in-depth interviews, and historical documents found online in blogs or in digital journals. Along with the search results which Longreads lists by term or by topic, the approximate time it should take to read the texts (between 15 and 60 minutes) and the total number of words are also included.
Longreads made its debut in mid-2009 as a hashtag on Twitter. #longreads was used to indicate that the link was reference led to content that required a long, careful, deep read. The success of this simple initiative on Twitter developed into this reading-oriented webpage.
Byliner