Wetpaint CEO Ben Elowitz on the Future of Digital Media
Earlier this month, John Donahoe, CEO of eBay (NSDQ: EBAY) and its subsidiary Paypal, was interviewed at the D8 conference. It was a flashback to see him speak: I had worked under him 15 years ago when I was a freshly minted undergrad just hired into the San Francisco office he ran for Bain & Company. A strapping and charismatic up-and-comer, John was known for his bold visionary talks and his strident walk.
But at D8, I didn’t see that confidence. He spoke of eBay’s connections between buyers and sellers as though he hoped we’d believe it was a new trend; meanwhile far from his Santa Clara headquarters, Gilt Groupe and Groupon are reinventing e-commerce. On Paypal, he looked backwards to the innovation of getting financial services online, rather than forward to the app revolution. Overall he looked staid, the way eBay and Paypal now look to me – entangled by their legacy, unable to cut the cords to freely enjoy the new boom around them.
With that in mind, I’d like to offer Paypal the chance to get ahead in an area that still has room for wild success. Media desperately needs help to become financially viable – and consumers will need to foot part of the bill to make it so. It’s clear that others see the opportunity here: Facebook surely wants to spread its Facebook Credits currency to take over the world the way ‘Like’ has; and now word comes that Google (NSDQ: GOOG) is readying Newspass in its bid to capture consumer payments for media. But more than these other companies, Paypal, with its huge footprint of consumer accounts and years of web experience, is in the catbird seat to be media’s savior.
I wrote recently that there is an easy formula for consumer spend on media:
Desire + Relationship + Ease = Spend
With ad revenues going less far to foot the bill for published content, making media profitable will increasingly mean turning to consumers to pay for content and experiences. And consumers open their wallets in proportion to how badly they want it (desire); how well they know the other parties (relationship); and how little work it takes (ease). This is why there is such a strong future in bite-size media consumption: for all the talk about paywalls and subscriptions, it is far easier to get payments of a buck or two. Apple (NSDQ: AAPL) demonstrates the value of bite-size with hundreds of millions of dollars of revenues from apps alone, far exceeding any leading online publisher’s subscription programs.
But while Apple is the king of creating platforms for desirable experience, its eminence is limited to its domain of devices, just as Facebook is confined to the social network. And publishers need to up the desire, relationship and ease for their whole online audience. Enter Paypal. Paypal works across the wide open web. With 219 million registered accounts and trust among users and merchants alike, Paypal has an outstanding position to work from. And so Paypal’s great opportunity is to enable quick consumer payments for media with fast, easy, lightweight universal payments.
What Will It Take: The Impulse Click
Media doesn’t rank highly in terms of the necessities on Mazlov’s pyramid. And so the essence of consumer-paid media is impulse, and the critical enabler of paid digital media is the “impulse click.” That click starts the brief moments/long window of consumer intent. For Paypal that means, it needs a button that completes the sale before the impulse fades – and needs to spread that button throughout media. If it delivers on that, Paypal can play as critical a role in the fast-growing digital media economy as it did in the person-to-person commerce revolution of Web 1.0.
To do so, it will take five key upgrades in ease and structure. Here’s what they are:
1) Lighter authentication: For a $50 e-commerce transaction (from which the merchant earns just a few dollars of gross margin), a transfer to the Paypal website and fresh login and password entry may be called for, but that won’t do for a $0.99 purchase of media bits, where the lack of ease would be a deal-killer. Recognize the user automatically for most bite-size purchases, as Facebook does for sites using its new open graph technologies. For a transaction of less than a buck, and considering Paypal’s preeminent capability in fraud prevention, it should be able to manage risk to make this effective.
2) One-step confirmation: Apple has set the bar for how easy it is to transact: on my iPad, I tap the “buy” price and then supply my password. That’s all that’s needed or appropriate for this transaction. And no one has done this on the web at large. If Paypal does, it will lead the industry in ease – and help media publishers in the process. The current process usually requires three or more pages and requires not only login with password, but confirmation of accounts to fund the transaction with; backup funding options; and often classifying the transaction. The interface is slow and kludgy, vintage 1990s, while the web (and user’s expectations) have had massive upgrades since then. It’s time for an experience overhaul, Paypal!
3) Simple billing: Offer fewer options to make it simple. Instead of bank cards, credit cards and different guarantees, keep one default payment method on file and just bill to it without asking for anything less than $5. For impulse purchases, the consumer needs to complete the transaction before the impulse fades.
4) Use the phone: For universal payments and quick setup, bank and credit cards are too cumbersome. But consumers young and old with good credit and poor alike have one thing in common: mobile phones. Paypal should acquire Zong, which would contribute an instant way to bill cellphones with minimal hassle that smart sites like Facebook are already taking advantage of. With this simplified experience, Paypal then is ready to offer its payment system on every device possible. As consumers are increasingly consuming content from their mobile phones, Paypal needs to be where the consumer is – available to apps on every platform possible.
5) Offer attractive revenue share: Platforms like Apple’s require that publishers give up 30% of revenues or more; Paypal’s heritage in banking and payment processing comes at it from a much lower pricing level of 5% plus $0.05 per transaction. For its bite-size payment system, Paypal should get adoption from every major publisher by holding to this structure for its most profitable transactions, and taking no more than 15% of other transactions; while using its massive scale to negotiate fees with credit/debit and cellphone providers on the back end. By competing on price to win adoption by publishers, Paypal will be expand its footprint to get more cost leverage.
If Paypal does these five things, it can supply a payment system that is so good that it will enable digital-media companies to charge and collect frequently for premium experiences and content. For Paypal, this will enhance its offering and help it win a huge share of the emerging paid digital media category. But more importantly, this will hasten our progress toward a profitable future for the digital-media industry. And I think that sort of change-the-world accomplishment is exactly what is missing to get John Donahoe as charged up again as I remember him.
With the recent announcement of the iAd advertising platform for iPhone/iPad 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.