The Content Dollar

A few weeks ago, our seminar’s discussion grappled with content monetization, and whether charging money for blogs would work. While opinions were divided, a common objection was one of consumers’ propensity to pay for blogs. “I’m not sure people, including myself, would pay to read a blog” said several people, “I just don’t see myself doing it.”

I suspect what some of my friends were trying to express is what Josh Kopelman, a prominent investor and blogger, calls the Penny Gap. In a nutshell, Kopelman argues that there’s a discontinuity in the demand function for digital content and that charging any price above free ($0) pummels the demand curve with a gaping ‘gap’ (excuse the pun).

Kopelman points to the empirical failure of paid content services to achieve ‘viral distribution’ to the tune of free services like Napster (40 million users) and Kazaa (400 million downloads). It’a lot more effective, says Kopelman, to build a free service and use secondary revenues, like advertising and affiliate marketing, to support content production.

The numbers seem to work in Kopelman’s favor, for the time being atleast. The Atlantic’s monthly revenue, for example, is now dominated by online ads rather than print ones, a complete reversal of historical precedents.

Sure Kopelman offers a hypothesis based on the past, but the Web is changing fast, and with it, the way consumers see digital content.

With the rise of digital content devices like ebooks, tablets and smartphones, I think that the utility value we assign to digital content is increasing. The  iTunes store showed that convenience, accessibility and an ecosystem of applications can radically change the way we value content like music. This is nothing revolutionary, but people often overlook the ‘timing’ of content consumption trends. It always takes the volume of consumption technology, whether it is personal music players or DVD drives, to reach a critical mass before people begin assigning a concrete economic value to information based goods (like data and content).

So the Penny Gap may well hold true for the time being, but if current retail trends and the dollar votes of thousands of digital consumers are any proxy of future developments, then the Penny Gap stands to narrow. And very quickly at that.

Next post: The ethics and scale of content monetization.

//Resources:

The Penny Gap by Josh Kopelman

The Psychology of Free and the Penny

Latest Report on US Online Ad Revenues

NY Times: Ad Revenue Continues to Rise