by Ben Elowitz

With the recent announcement of the iAd advertising platform for iPhone/iPaApple Monetizes Contentd applications, Apple is filling one of the last major gaps in content monetization.    They now have a full spectrum of monetization options for their platform: ad-sponsored free content; free trials; “bite sized” in-app billing for impulse buys, premium apps, and subscription billing.  Publishers can choose the revenue model that best suits their content and audience.

For consumers, the Apple model is remarkably easy.  Granted, the initial iTunes account set-up is somewhat of a hassle, but once completed, consumers can painlessly make purchases thereafter.  Apple solved the micropayment problem years ago in creating the iTunes store for selling songs, and has carried forward that same keep-it-simple philosophy for premium content and applications on the iPhone.

Here is my take on the magic formula for getting consumers to pay for content:

Desire + Relationship + Ease = Spend

Desire is straightforward: how much do consumers want your content?   Desire is a function of the degree to which your content and experience are unique and compelling.

Relationship is a measure of your brand and the extent to which you’ve consistently delighted a customer (or their friends) in the past.

Ease is achieved by making it effortless to pay for content.

Apple has nailed all three of these drivers, resulting in substantial and growing spend from consumers.  On desire, they’ve made a product and a content experience coveted by loyalists and consumers en masse.  On relationship, their platform has proven itself with a billion consumer delights.  And in ease, Apple has set a new standard with the 5-second purchase process consisting of a just a password.

Many publishers and app developers complain about Apple’s closed system (indeed, Adobe has reason to do so), but that same closed system allows a controlled – hence predictable – experience for consumers.   Apple is reducing the friction to purchase by leveraging their relationship and making the purchase easy.

This leaves me to wonder however: why is Apple the only company to innovate a complete platform for content monetization?  The result for publishers is that they are better served by jumping on the Apple bandwagon than by striking out on their own.  But as Apple continues to amass share of eyeballs, the media industry will resist the premium that Apple charges.

Can publishers directly offer consumers such high levels of desire, relationship, and ease and crack the code on getting consumers to pay?  That is their challenge; and if they do, the money- and their independence – will follow.

  • RobertinSeattle

    Ben – You have some good points on Apple's ease-of-use approach to their micropayment solution. However, to bring it into proper perspective, as well as to answer your question as to why this seemingly logical solution hasn't been adopted by others, here's the under-the-covers short answer:

    Apple actually makes little money on the songs it sells on iTunes. Their entire business model is based on reversing the time-proven Gillette give-away-the-razors-and-sell-the-razor-blades Marketing 101 rule that has proven itself for almost a century. But instead of making your money over a long period of time by selling the razor blades (in this case the songs), Steve Jobs decided to charge high prices for his iPods and make the profit on the razors instead. Two things came out of this model: You have to have a closed system to carry on this Ponzi scheme (does it start to make more sense now?) and you're now on a treadmill coming out with new models at inflated prices to keep replacing your older cheaper models (and fighting off competitors). And when that market starts to erode, then you have to come up with another razor: the iPhone. When that model starts to get thin (Google Android and Microsoft phones are eating away at the iPhone market), then you come up with the iPad which costs a lot more than netbooks, of course.

    I suspect that the surprise unintended consequence was that it really forced Jobs and Apple to continue being innovative (not a bad thing!). However, it may have been more sheer survival than business smarts. Sometimes you just get lucky.

    So back to your original question of why other companies haven't embraced the Apple model – does it make more sense now? It never works if you try to expand an unprofitable model out to other platforms.

  • http://www.digitalquarters.net Ben Elowitz

    Thanks, Robert. I would look at it differently. Apple has built a whole new ecosystem. Yes, it is device-centric, so Apple gets to make a huge pool of profit on the initial purchase up front. But they also get to collect some change every time each of the other content and application providers does so.

    More to the point, Apple seems to be the only one who is innovative enough to come out with devices with enough consumer appeal that people keep buying them, and is the most successful to date at creating a marketplace big enough to get third parties from media companies to small app developers adopting it massively. They've made razors so awesome that consumers pay hundreds of dollars for them, and they get to tax tens of thousands of other companies that make the blades.

    And now they have a complete offering for those third parties to get audience and make money.

    Seems like more smart than lucky to me.

    –Ben

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