3 Internet Business Models

Learning Objectives

  • What are some of the business models most common on the Web, including the adaptation of old models and the development of  entirely new ones
  • How different business models  affect us as individuals and as a society
  • To understand the role of content for each of the business models

Key Messages

  • There are alternative business models outside of the classic advertising and subscriptions models
  • There are inherently problematic aspects to all business models as they all have consequences at different levels of society (individual and globally)
  • There are consequences of various models beyond any one individual business

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The rise of the Web has fundamentally altered the relationship between content creators and the publishing industry, with new business models that impact not only the distribution of content to wider and more diverse markets, but also the type of content being produced, and the social relations developed in its production. Technological advancements have fundamentally changed the dynamics of capitalism in the sphere of knowledge production and intellectual products. The internet has created a platform for knowledge to be socially produced and openly shared, potentially throwing a wrench in our economy based on the accumulation of wealth through systems of closing off access to, and creating private ownership and control over public resources.

Traditional publishing has, in various ways, been redesigned and adapted to the new and evolving technologies. Prior to the web, the publishing industry produced and sold products through the same basic model of production, distribution, and consumption as any other commodity. And like other commodities, it was limited by the finite material resources available—the printing presses, pulp and paper products, and the distribution network to get the goods to market.

Publishing on the internet requires a different set of material inputs (a computer or tablet, data storage facilities, and programmers), but the distribution network is limited only by access to the network. While the production of material goods under capitalism is approached as if unlimited growth is possible within the constraints of a finite material world, capitalism necessitates the opposite in the production of online goods—to turn immaterial goods, that are not limited by a finite material world, into an artificially scarce resource in order to extract profits. As Carson (2016) states:

“The current political economy is based on a false idea of “immaterial scarcity.” It believes that an exaggerated set of intellectual property monopolies—for copyrights, trademarks and patents—should restrain the sharing of scientific, social and economic innovations. Hence the system discourages human cooperation, excludes many people from benefiting from innovation and slows the collective learning of humanity. In an age of grave global challenges, the political economy keeps many practical alternatives sequestered behind private firewalls or unfunded if they cannot generate adequate profits.”

The consequences of the logic of capitalism encroaching upon the ‘commons’ of the internet is clear. The potential for human cooperation and innovation is stifled by the pursuit of profits.

Artificial Scarcity—iTunes

To better understand how artificial scarcity is created online, let’s take the example of Apple Music and iTunes. Prior to the Web, personal ownership of music was limited to physical copies that had to be manually produced—CDs, LPs, and tapes. These physical copies could be replicated but it took material resources to do so. The Web and digital copies changed this. They made files open and easy to share—you could just copy and paste them making infinite versions at zero cost. While this is great for the consumer, it challenges those relying on content ownership and control who rely on sales for profit. For them, the only way to prevent open sharing was by creating artificial scarcity, or a limited quantity of goods. But how do you limit something that is limitless? In the case of iTunes and Apple, this was done through embedding code to files which prevented sharing, restricted access,  and limited the amount of copies that could be made, and through a clever pricing strategy that made the ease of acquiring these restricted files palatable for consumers.

 

Models

In this section we look at the variety of business models used by content industries in order to provide us, as content creators, a better understanding of our role in the supply chain, and to enable us to make informed decisions on how we choose to create and distribute our content. While there are myriad business models to explore, in this section we will primarily be discussing five main models used on the Web, specifically discussing how traditional models have changed with the Web, and how new models have emerged. It is important to note that many of these models are not mutually exclusive and can be used alongside each other, and alongside models not discussed here.

Traditional Models

For many of us, advertising and subscriptions are the business model we associate with the content industry, but they weren’t always the default. The early 20th century saw rise in branding and advertising which was never seen before.  By convincing people they wanted something they did not need, advertising in Western societies became more about individualism and ‘self-expression’ than it did about the products themselves. Advertising feeds into feelings of inadequacy and positions the constant desire to consume products as a means of showing one’s individuality and selfhood, as well as creating a superficial sense of belonging to a social class or group. These methods have created a world of marketing driven by the ideals of individuality. Over the last hundred years, advertising has been the most effective model used by content industries to drive profit. The internet has not only changed the fundamental nature of advertising, it has also created a much wider platform and market for those advertisements.

Advertising Model

The Web utilises advertising in much the same way as print. Yet, the infinite space of the web means that advertising has a much wider reach and lower overhead cost, which out-competes the print, TV, or radio advertising with higher production costs. Analytics used by sites can now target specific demographics, cater ads to your search history, your location, age, and interests. At an individual level, these ads operate much as their traditional predecessors, selling products by playing at an individual’s unconscious desires. In fact, due algorithms and data collection ads are even more targeted to a specific person that ever before—and are much more effective. Socially, the rise of advertising has altered the Web drastically. Where the Web was once an open and free space to share ideas, it has now become a contested space where some people advocate for a free and open Web to share ideas, while most in power try to commodify it. The result is a modern Web which is entirely shaped around advertising. Just open any web browser, app, or podcast and see how long it takes before you come across an advertisement.

Subscription Model

The internet has substantially changed the ways through which subscription based content is produced, distributed, shared, and monetized. Much like traditional subscription models used by print magazines and newspapers, the online subscription model is a common means of monetizing online products and services. And like traditional subscriptions, online subscriptions take advantage of the convenience of receiving a product every month around the same time, with an upfront flat rate. For start-ups, this model allows for predictive revenue through recurring sales. In some cases, like Netflix, the service is only accessed by subscription, while others (SkillShare, Amazon Prime, Medium, and the New York Times) are set up in such a way that some of their material is behind a paywall while the rest is openly accessible. This can be tiered to premium content, content without advertisements, or unlimited access. Even software such as Adobe’s Creative Suite, which used to be just a one-time purchase, has shifted to the subscription model, where users now have to pay monthly to use the service and access its regular updates.

From the consumer perspective, subscription models limit information from users who don’t have financial access to pay for services. Content is available to only a select few, which limits viewership. Paywalls and subscriptions create artificial  scarcity (limited  access) to items which would otherwise be free and open to share. On a larger social scale, this goes against the fundamental principles of the free and open Web, which was predicated on sharing and linking to other content. Subscriptions, and paywalls, block this from happening, changing the flow of the Web and access to information. As a creator, this model will ensure you get paid for your work, but because you are producing work that the public is charged for, you content will no longer reflect the work you want to produce, but what the market wants to consume.

Platform Models

The platform model is a unique product of  the digital age. This model, ironically referred to as the “sharing economy”, or for short-term work the “gig” economy, utilizes the Web to create an online platform that organizes and recruits large numbers of people, who ostensibly work for themselves, while using the company’s platform as their base of employment. Labour is purportedly sold directly to the consumer, but the exchange is mediated by the platform, with the owners of the platform then take a cut of each exchange. There are two main versions of this model that we will cover in this section, platform capitalism and platform coöperativism.

Platform Capitalism

Within the service sector of the economy, there is an emerging business model called “platform capitalism”. This model allows companies—such platforms like Uber, AirBNB, and even Patreon and Medium to a certain degree—to provide a service through the use of an online marketplace, uniting a group of sellers with a group of buyers. For those who run the company, there is little-to-no overhead, no inventory, and nothing is manufactured (aside from the web-based infrastructure). Profit is made by charging a set fee or taking a percentage of the profit from each ‘self-employed’ employee for facilitating the exchanges. The result is a situation wherein labour is sold directly to the consumer, with the platform as a proxy, rather than an employer. In this scheme, the majority of standard operating costs are shifted from the employer to the employee, who also forgoes the benefits and protections that centuries of class struggle have carved out for the traditional wage labourer. Because every employee is treated as an independent contractor, the company-platform is able to circumvent regulations (such as labour laws and the minimum wage) and avoid taking responsibility. This business model is popular, as there is little or no infrastructure required, making it is inexpensive for the company to set up. But, like many models that favour the owners of the means of production, it fails to serve its workers. It creates an economy where employees are not protected by traditional labour laws, employment is not stable, and the labour “can be psychologically damaging and corrosive to communities”.

Platform Coöperativism Model

In opposition to platform capitalism and the “marketplace” model discussed above, platform coöperativism is an ownership model for the web. Much like the name suggests it is based on classical coöperative ideas of solidarity and democracy. In contrast to platform capitalism, platform coöperativism is rooted in coöperative memberships and democratic ownership. It is built on the principle of decentralising online power relations and allows individuals (or groups) to benefit from the evolving digital labour market. While venture capital-funded platforms are premised on extracting surplus value from employee’s (who are typically treated as independent contractors), the organizational principle of the coöp model is centred on the redistribution of capital, and on providing workers with the same regulatory protections as traditional labourers. Simply put, it is focused on sharing rather than exploitation. This model is used by startups like the stock photography site Stocksy, where each member co-owns the cooperative and, unlike Uber where employees are treated as independent contractors, each member has a say on what happens on the platform. While this model makes improvements to platform capitalism, it does still suffer from the same transitory nature of the platform and gig economy.

“Opt-in” Models

The last set of models we will look at is what we are collectively calling the “opt in” model. At the base of this model is a product or service which is available for free (sometimes with a hidden cost). Revenue is made by either appealing to people’s generosity and support of the service, or by creating a service where the paid version has benefits incentivizing the user to pay. Unlike the other models discussed above, this models doesn’t rely on creating artificial scarcity though paywalls or limiting sharing, but operates in a modified (sometimes commodified) version of the open Web.

Membership Model

In the case of journalism, the subscription model can mean that there is not always equal access to credible news sources. In some cases, news publications opt for a more openly accessible model called the membership model. This model, used by the likes of Wikipedia and the Guardian, does not create artificial scarcity thought the use of paywalls or by limiting access, but instead functions as a commons that asks for donations to those who can afford to contribute. Asking for donations may not appear to be a sustainable business model, but in the case of the Guardian, doing so managed to make the publication over a million dollars in profit. In an ideal scenario, this model will uphold the Web’s original intent to be open and allow for sharing while also turning a profit. While this model is often successful, it requires you, as content creators, to produce work that people will find worthy of paying for despite have free access to it. On an individual level, your access to this content is often at the hands of others people’s willingness to pay for the services.

Freemium Model

As the name suggests, the freemium model combines both free and premium services and is one of the most popular models seen online. In basic terms, the model offers a combination of “free” basic services and “premium” or paid services to members. This tiered system is used by the likes of Linkedin, Spotify, Medium, and Dropbox. This model has proven to be successful, as it allows the users to become familiar with, and sometimes dependent on the service prior to deciding to make a monthly subscription-based purchase. The cost for the user is often having limited access to services, or being presented with advertising (see above).

Readings

Further Reading

Questions

Answer any of the following questions and feel free to include any ideas from our class discussion. What do you think of the Medium model and its use of subscription? What can be the publishing version of services like Netflix and Spotify? How can platform coöperativism be applied to publishing? How can it make publishing better?

What are the challenges and consequences of particular business models becoming dominant?

 

License

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The Web, Publishing, and Ourselves by Juan Pablo Alperin is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License, except where otherwise noted.

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