Revenue Models for Online Book Sellers We Can Learn From

Most online business models are plain simple. Keeping it simple in fact is one determinant of success. So this post from the O’Reilly Tools of Change conference is just awesome! Incentives for knowledge, better economics for the publisher and a better experience for the visitors. Just great!

Here is a portion of Sarah Milstein‘s post on TOC Day 2:

(Bob Pritchett)…presentation on two unusual pricing models he uses.

The first is pre-publication subscriptions.
When Logos is trying to decide whether to do a book that’s on the
bubble profitability-wise, they post a page about it and let their
customers help decide. If enough people commit to buying the book,
Logos will publish it (they build a profit margin into the equation).
If a reader signs up early, s/he gets the book at a lower price than
those who sign up later. Even more interesting, readers do a lot of
marketing, because they have a direct interest in a book’s gaining
enough sign-ups. Bob said the system has saved the company from a few
potentially bad decisions, and it has rewarded them with a bunch of
surprises.

The second model is community pricing. Bob described this system as a sort of a reverse
auction in which readers tell them how much they’ll pay for a book,
with a minimum price based on the number of people at that price Logos
would need to publish the book. The more people sign up, the less Logos
charges. Again, readers do a lot of marketing for them. For this model,
Bob included a couple of graphs with price-demand curves that showed
exactly the price at which he would make the most money. Astonishing.
(“Wouldn’t you love to have this data?” he asked. Um, yes!)

On this topic, I am always on the lookout for ways our clients can structure their
business models. We get a lot of startups  as prospects where you are
thinking, but rarely say, "oh man, this newco ain’t never gonna survive
if they do that!" In practice we try to direct these folks to low cost methods so they can convince themselves and test their economics in a sand box so to speak. But entrepreneurs aren’t always easy to convince, so some just drift off. And that is for the best.

One rule of web economics I find I have to explain over and over is quite simple. You can’t give stuff away, build a community around it, and then suddenly start charging for that same service to those same people. They will rebel. Duh. You can add value and charge for the extras.  But if Google started charging for basic use of their search engine their would be chaos!