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Information Pricing Models - Now and the Future

Note: This abstract of the Info 2000 presentation was prepared, and the lecture was given prior to the late 2000/2001 dot-com stock market crash. Since then the "free information" model discussed has become less popular, although the general points outlined still hold.

The growth of the Internet over the last few years has allowed many content providers to offer their products directly, whereas previously such information would only have been available online through content aggregators. In addition such information is now available to a much wider audience than those that used the specialist online services of the 1980s and early 1990s. Further, the increase in access speeds and the move to the web has meant that traditional time based pricing can no longer be used as a pricing element. These factors are forcing all information providers to reconsider how information is priced.

Although the laws of supply and demand and considerations of price elasticity have been used to set prices, it has been producers rather than consumers who have traditionally established the actual price using their understanding of the market and business expectations. In the Western world, prices tend to be fixed – with little scope for negotiation, especially for goods and services sold to the general public rather than businesses. The Internet has changed this - with the growth of auction sites (eBay, QXL, etc.) or buyer co-operative sites (Mercata, LetsBuyIt, Adabra, etc.). As yet, these models have not been used for selling information - although the buyer co-operative concept could conceivably be used for information purchases. Nevertheless the Internet has led to a new price model for selling information where the information is available at no or minimal cost, with revenue principally obtained from advertising. This model was the primary one used in the early days of the Internet – and is still used by many newspaper sites world-wide. The fact that this model can work for high value content can be justified by the success of commercial television, as one example among many. The model takes two formats – passive, whereby the user accesses the information and is exposed to advertising in the process, and "push" where the user specifies the type of information wanted. This is then supplied to the consumer directly, alongside advertising. Some other variations exist - where the user can switch off advertising for a fee. This makes the service similar to fee based products, except that the charges are normally minimal and may only cover variable costs.

Apart from the "free information" model, two other models are currently used for charging for information: subscription based pricing, where a user subscribes to a service and pays for a specified level of usage. The fees charged vary between unlimited usage for all material, unlimited usage for selected material, with some material charged on a per-use basis, and a unit based approach, where the subscriber purchases up-front a selected number of units, which are used up on accessing information. This latter method is similar to that used for non-subscription based pricing - pay-as-you-go or pay-to-view models. Many providers offer customers a choice of payment methods.

The model selected will, to a large degree, depend on the target audience. The free model is less likely to be used for services aimed at business users. In fact, this can be viewed as a distinguishing element - with providers such as the Wall Street Journal and the Financial Times successfully switching from free to payment models. At the same time, the price for content is falling - with information aggregators such as Northern Light and Powerize charging considerably less than the traditional players such as Dialog and Lexis-Nexis. Essentially, the new Web providers have much lower infrastructure costs - which means that they can pass on savings to their customers, taking market share from the traditional providers, as their reputation for content grows.

Copyright © Arthur Weiss, 2000

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