Adding Enough Value to Digital Content to Actually Make Money

The free availability of content on the Internet and the ease of finding that information with Google have put downward pressure on the information publishing markets. As a reaction, some publishers have attempted to compete with free content by selling shorter, less expensive forms of content online.

Empirical evidence has shown that conversion ratios of less expensive content are not high enough to justify offering less valuable and less expensive content on a pay-per-view (ppv) basis. We can see why this is from a purely mathematical point of view. For web-based sales, Revenue = Price X Conversion Ratio X Number of Visitors (R = PC*N). Since most mature web sites have a fixed number of visitors, we can consider N to be a constant for our purposes. On a comparative basis, if the price P of short form content is .1P then to make equivalent revenue from short form content the new conversion ratio would have to be 10C, but the numbers actually show a plus or minus 50% change (2C) in conversion ratios for content at any price. Publishers need to consider that for customers the transaction cost for ppv content is the same for cheaper short form content as it is for more expensive long form content. Transaction costs put an upper bound on the conversion ratios of less expensive products. In fact, these conversion ratios are all in the same range at around .4%.

If we place price and value on a coordinate system with price on one access and value on another, then each quadrant can be labeled as “Less value for less money,” “Less value for more money,” “More value for less money,” and “More value for more money.” It turns out that both “Less value for more money” and “More value for more money” are better strategies for niche based online marketing web sites on a purely mathematical basis. Of course, in order to maintain brand one shouldn’t engage too much in the “Less value for more money” space. ;o)

I propose that to make money and grow business online, strategies should be chosen to build product types that make the Life Time Value (LTV) per conversion as high as possible. The relevant data that publishers should pay attention to is Revenue Per Visitor (RPV), obviously the higher the better. There are several ways to add enough value to online content to make money and increase RPV. Subscription services can work since the ultimate price received per customer conversion (P) is relatively high over time. The O’Reilly School of Technology is succeeding in increasing Revenue Per Visitor by using instructors, development tools, and University Certification as value adds to online content. It will be shown that the way the content is entangled with these value adds is the key to keeping the value high.

In closing, I argue that for larger niche publishers to make money online and to compete with Google, they should become less like Google instead of more like Google. Premium services that build niche brands and bring higher LTV and RPV will ultimately bring more revenue than less expensive products with lower LTV and RPV since volume and conversion ratios don’t increase naturally as a result of lower price. In addition to increasing the revenue per visitor, the higher value for each conversion makes it possible to spend more money to acquire each new customer and, thus, publishers can afford to gain more control over potential revenue growth.