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Chapter 10 E-commerce: Digital Markets, Digital Goods 419

books, music, and other products), LLBean.com, and Gap.com, all have sales
revenue models. Content providers make money by charging for downloads
of entire files such as music tracks (iTunes Store) or books or for downloading
music and/or video streams (Hulu.com TV shows). Apple has pioneered and
strengthened the acceptance of micropayments. Micropayment systems pro-
vide content providers with a cost-effective method for processing high volumes
of very small monetary transactions (anywhere from $.25 to $5.00 per transac-
tion). The largest micropayment system on the Web is Apple’s iTunes Store,
which has more than 250 million credit customers who frequently purchase
individual music tracks for 99 cents. MyMISlab has a Learning Track with more
detail on micropayment and other e-commerce payment systems.

Subscription Revenue Model
In the subscription revenue model, a Web site offering content or services
charges a subscription fee for access to some or all of its offerings on an ongo-
ing basis. Content providers often use this revenue model. For instance, the
online version of Consumer Reports provides access to premium content, such
as detailed ratings, reviews, and recommendations, only to subscribers, who
have a choice of paying a $5.95 monthly subscription fee or a $26.00 annual
fee. Netflix is one of the most successful subscriber sites with more that 25
million subscribers in September 2012. The Wall Street Journal has the largest
online subscription newspaper with more than 1 million online subscribers. To
be successful, the subscription model requires that the content be perceived as
having high added value, differentiated, and not readily available elsewhere nor
easily replicated. Companies successfully offering content or services online
on a subscription basis include Match.com and eHarmony (dating services),
Ancestry.com and Genealogy.com (genealogy research), Microsoft’s Xboxlive.
com (video games), and Pandora.com (music).

Free/Freemium Revenue Model
In the free/freemium revenue model, firms offer basic services or content
for free, while charging a premium for advanced or special features. For
example, Google offers free applications but charges for premium services.
Pandora, the subscription radio service, offers a free service with limited play
time and advertising, and a premium service with unlimited play. The Flickr
photo-sharing service offers free basic services for sharing photos with friends
and family, and also sells a $24.95 “premium” package that provides users
unlimited storage, high-definition video storage and playback, and freedom
from display advertising. The idea is to attract very large audiences with free
services, and then to convert some of this audience to pay a subscription for
premium services. One problem with this model is converting people from
being “free loaders” into paying customers. “Free” can be a powerful model for
losing money.

Transaction Fee Revenue Model
In the transaction fee revenue model, a company receives a fee for enabling
or executing a transaction. For example, eBay provides an online auction
marketplace and receives a small transaction fee from a seller if the seller is
successful in selling an item. E*Trade, an online stockbroker, receives transac-
tion fees each time it executes a stock transaction on behalf of a customer. The
transaction revenue model enjoys wide acceptance in part because the true
cost of using the platform is not immediately apparent to the user.

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