20 MAR 2019

Microtransactions or subscriptions: one doesn’t exclude the other for digital publishers

POSTED UNDER Digital Goods Digital Publishing Direct Carrier Billing Payments Subscriptions
image of Mattias Liivak

Mattias Liivak

Head of Marketing & PR, Fortumo

image for Microtransactions or subscriptions: one doesn’t exclude the other for digital publishers
  • Consumers perceive the value of various digital services differently
  • Subscriptions can be difficult to sell to some audience segments
  • Microtransactions “ease in” the consumer to the paid service
  • Subscriptions and microtransactions should be tested and used in parallel

Digital publishing revenue is shifting from ads to reader payments. This requires publishers to make a choice: which payment strategy to adopt? Is the right approach to go with microtransactions and the freemium model heavily used in mobile gaming? Or with the goal of reader loyalty in mind, should subscription payments be used instead, as music and video streaming services are doing?

The intuitive answer would seem to be subscriptions. Subscriptions provide a predictable, long-term source of income. Publishers want to build loyal audiences who keep coming back for more stories. Subscriptions support this approach as readers already convinced of the value of the publication will only have to make the payment decision once.

But the choice of payment strategy does not depend only on the goals of the publisher. Consumers who are presented with the option to pay need to also accept what they are being offered. While approximately 80% of publishers have a subscription offering available, below 30% of readers actually subscribe to online news.

Different value propositions require a different payment strategy

Why are so many more people willing to pay for streaming? Aren’t music, movies and journalistic content equally entertaining to consumers? The subscription rates for digital publishing unfortunately indicate that they are not. Consumer behaviour data sheds some light on why that may be the case:

  • People spend approximately 15 hours per month on digital news, but over 25 hours on both music and video streaming
  • People consume music and video over long continuous stretches of time (playlist on the commute to work, or binge watching at home) while digital news pieces are consumed individually, for less than 2 minutes at once

Even though the overall time spent on each digital category is similar, the perception of the consumer on the category’s value can be different. The way digital news is consumed in small chunks means an equal offer (e.g. $9.99/month) will be perceived to be more valuable if it’s for music and video, and less valuable if it’s for digital news. If a consumer recalls only spending a few minutes at a time consuming news, the value proposition can become questionable for them.

Microtransactions for getting the user past the first step

This doesn’t mean that we are opponents to the subscription model. Quite the opposite: for investigative and unique content that readers can not find elsewhere, subscriptions work great. But for news stories, readers will always have a free alternative they can seek out on Google and the bigger commitment they are asked to make to the publisher, the more likely they’ll go and find another source.

While the eventual goal of publishers should be converting as many readers as possible onto recurring plans, most of the audience today feels this is a step too far. If it weren’t, they’d already be subscribed. Instead, publishers can “ease in” readers to becoming subscribers by asking for a smaller commitment at first. Here is where microtransactions come in.

Microtransactions and payments for individual articles should be considered over subscriptions in cases where:

  • The user is a first-time visitor and not familiar with the full value offering of the publisher
  • The user would have an easy time finding similar content elsewhere (e.g. news stories)
  • The consumer’s intent is clearly one-time or time-sensitive, e.g. accessing a sports broadcast

In cases like these, the user is unlikely to immediately sign up for a subscription. Instead, the one-off payment can be used to get them to sign up, make their first transaction and have them on file. This will allow to create the first point of engagement for future upselling through marketing.

Proper pricing of microtransactions

When microtransactions are implemented for individual articles, they should really be microtransactions. Asking $1 for an individual article is too much. Remember, the reader spends on average 2 minutes reading one article. Charging $1 for 2 minutes essentially translates into them paying $60 per hour to access your content.

When testing out microtransactions, it makes sense to start off with a few cents and increase pricing to see where the conversion starts dropping off. Unfortunately today’s credit card payment providers don’t support such an approach, as fixed fees (usually $0.25 to $0.3 per transaction) make this approach unfeasible. With carrier billing, it is possible to test it out, as each transaction does not incur a fixed fee.

Using “money back” guarantees

One additional incentive that is already used by some digital publishers and which can be used to convince readers to make the first transaction is to offer a money back (refund) guarantee. This can be time-limited (e.g. you can request a refund during 48 the next hours) and gives readers the confidence that they are not wasting money.

At the same time, the negative impact on revenue will be negligible. On our platform, we see refund rates for digital services usually below 0.5%. However, this should be approached with caution depending on the payment methods that you use. Credit card companies charge for refunds, while carrier billing providers don’t.

Conclusion: give your readers choice on how to pay you

Microtransactions and subscriptions are payment strategies that can be used in parallel. Since each publisher’s audience is different, there is no way to know in advance which works best. We recommend to test both approaches as much as possible, playing around with pricing for microtransactions, but also with how you present subscriptions (e.g. selling also time-limited access, such as a subscription for 7 days).

While consumer surveys may claim they prefer one option or the other, hard data usually is a better source of truth: run A/B and painted door tests instead of relying on intuition.

Want to explore microtransactions and subscriptions using carrier billing? Fortumo provides digital publishers with PayRead, a seamless payment solution for user and revenue growth. If interested, get in touch.

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