A Journey of Monetization: Subscriptions, Ads, and Web Monetization
Tags: webmonetization, research, ads, subscriptions
Published: 2022-04-06 12:18:09

> Part II: 'On Subscriptions, Ads, and Web Monetization' in a an overview of a study in alternative business models for the web. [Part I: Monetization for Digital Economies](https://dev.to/mankins/monetization-for-digital-economies-4546). [[Part 3: What if the Web had Rewards?](https://dev.to/mankins/what-if-a-reward-system-was-built-into-the-web-1mad)] 


![Image description](https://dev-to-uploads.s3.amazonaws.com/uploads/articles/824nxkjxdfyvl381qacv.png)
 
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How much is my content worth when I put it online? A reasonable answer would be "it depends"–on the reader and their current context. But how can we arrive at the right price for a particular reader? What if that amount is less than the transaction cost–the cost our providers charge us to make a transaction? For many content producers the question isn't "what's the right price" but "how can I earn anything from my content?".

In looking at alternative business models for the web–[my mandate for 2021](https://foundation.mozilla.org/en/blog/introducing-two-new-fellows-reshape-economics-web/)–I found myself looking at existing systems to see what I could learn from each. One of the surprising things for me was looking at how the dominant forms of monetization evolved themselves into their winning position as a chosen monetization method.

I found though that the real opportunity in web monetization is unlocking the long-tail of content where per-unit revenue is less than the transaction cost of transferring money from a user. Because of this large transaction cost we've been left with blunt instruments to monetize content, namely advertising and subscriptions.

## Lorem Ipsum Books: A Study in Pricing

![Image description](https://dev-to-uploads.s3.amazonaws.com/uploads/articles/jsshnirhnjfz7ekaaw0w.png)

I used to own a bricks and mortar bookstore called Lorem Ipsum Books where I experimented quite a bit with pricing. For a while we stopped putting prices on our pricing stickers, instead asking our customers to "Ask Us". Then every day before the store opened we'd run a pricing algorithm to change the price of books–or entire categories of books–that weren't selling. Or we'd increase the price for books we know would sell immediately. I learned several things from this experiment, the most important being: **customers hated it**.

When someone came into Lorem Ipsum, they wanted to find something to buy. They were our customer to lose once they walked in the door. An inability to understand the price of a book turned out to be a good way to have someone leave empty-handed. Many potential customers didn't want to ask. Many more thought the pricing absurd: $5.17 was a common price–why not $5.25, or $6 as in other stores, they'd ask?

This Lorem Ipsum experience reminds me that customers are a key part of the story of monetization. New methods need to be put out into the wild and tested or it's all theory. We have web-scale systems that work at a mind-boggling scale to maximize revenue per page view, yet these are closed systems that are meant for corporations, not individual content producers. 

What can we learn from ads?

## Advertising is a Micropayment

Ultimately it was advertising that fueled the growth of our early web, but unfortunately it has come at the cost of tremendous complexity and lack of trust and transparency in the usage of our data.

Part of this complexity is how modern ads work. It used to be that everyone saw the same ad, since ads were built into the web page. Have a look at [Yahoo! from the 1990s](https://web.archive.org/web/19970109130853/http://www9.yahoo.com/) and you can see ads directly served from the yahoo.com domain. Everyone got the same ad because it was hard-coded into the page. (Up until recently these ads were still hosted on www.yahoo.com so anyone with cached HTML would get the same page layout as in the 1990s.)

![Image description](https://dev-to-uploads.s3.amazonaws.com/uploads/articles/qukzhindfp6bja26ksa9.png)

But in 2021, my ad experience is different from yours, and the amount of money generated per page-view is in constant flux, depending on the whims of the advertisers–or data available. For content producers it's not always clear how much money is being made until the deposits happen, often months after a given page view. On the one hand, this variable pricing is a strange arrangement: if you sold cars this way it simply wouldn't work, as there are fixed costs involved in auto production. Yet consuming digital content has an incremental cost near zero–yet definitely not zero–and so a different set of rules apply to ad economics. (Or maybe the same rules apply but the per-unit pricing has more wiggle room than the average car salesperson?)

It's remarkable to think that the rules defining digital advertising organically emerged as a means of extracting the most value possible from a random person on the internet viewing a given web page. 

At first ads were hard coded into the page, like in the Yahoo! example above. 

Next we figured out that we could sell ads capped to a certain number of views. 

Previously we'd sell ads based on time, like you might in a print world that is issue based: "buy the homepage on March 7th". When this was coupled with some server logic, we had the ability for an ad on the same page to be sold by multiple ad sellers.

Rather than linking to a static file, this dynamic link would first serve an in-house ad, but if we'd already sold our ads, we'd redirect to a third-party ad seller who might have inventory available. We'd set that provider up so that if it didn't have any ads available it would go to the next highest valued tranche of ads.

This all worked fine, but centralization of the "ad server" made this easier to maintain.

Furthermore, centralization has many benefits, including that ads would be served from a single domain, giving the ad server the ability to develop a profile about the user to "serve better ads" by looking at the user's http "cookies". With this centralization, the ad server grew incredibly valuable and was able to extract large amounts of money from the content ecosystem for its operating company.

We're still grappling with these tradeoffs today, reigning in where possible without toppling the house of cards that is today's ads-based revenue streams.

I see opportunity in the story of ads. If we squint we can see that advertising is a form of micropayments: readers viewing a web page generate money for its publisher along with a slew of intermediaries that know a little bit about that reader, web page, or other bit of valuable context. These bits of payments are regularly measured in units that need to be multiplied by 1000 to be on a currency scale we're used to using. **We don't regularly call advertising a micropayment, but it is.**

## Subscriptions

Media before the web was supported with advertisements, but also with direct consumer revenue in the form of profitable newsstand sales and slightly less profitable–but more reliable–subscription revenue. (Print and television had their own particular versions of this, but generally the point is that revenue for media was and is multifaceted.) It should be noted too that when you purchase a subscription to a publication you get the publication ads and all. It's not advertising or subscription, but you're supporting with both.

In 2021, "subscriptions" encompasses a few different sub-genres: paywalls, tipping, and premium email content are all different implementations of the same basic principle: a user is asked for money on a regular basis which supports the site or content. This direct payment from the reader to the publisher is less likely to go through many different third-parties, but often involves higher development and operating costs. (Like advertising this can be a significant portion of the cost of goods sold.)

If not ads, then what?

## Case Study: MollyMail

My first subscription web service was a web-based IMAP email client called MollyMail.com, started in the mid-1990s as a demo service for [EMUmail](https://en.wikipedia.org/wiki/SMTP_(company)#History), my company's webmail software. MollyMail was used by people who needed to check their existing email on the go when they were away from their desktop mail client. Somewhat surprisingly MollyMail had amassed a user base of hundreds of thousands of active users per month. We were running the service out of a datacenter in Los Angeles, and it needed more hard drives to store all the emails we were processing. We didn't have capital to buy more hard drives, so we came up with an idea: "Let's charge users for the service."

In no time we had a paywall setup, so that when you logged in the first time it would tell you this was a free trial for 24 hours. After your day access was up, you got a "No" and needed to buy a pass. Giving someone a reason to pay–the ask–is crucial for subscription revenue. This can be a soft ask, like Wikipedia does regularly, or can be a hard paywall like the Wall Street Journal.

I remember the difficult part for us was deciding how that pass should work. [Ultimately](https://web.archive.org/web/20011021170551/http://mollymail.com/support/index.html#cost) we settled on a day pass for $15, a three-month pass for $25, and an annual pass for $45. Our conversion rate was 7% and we definitely had money for the hard drives we needed to keep the service running.

One of the reasons we made the pass expire in three months is that we didn't have the infrastructure to automatically re-charge a user's credit card, so we built a pass system instead of subscriber access. A pass that automatically renews is a subscription, so it's certainly close.

Interestingly the harder the paywall the more incentives users have to find alternatives. Content creators (or "suppliers" in the case of some information-based services) are constantly looking at their messaging and the permeability of their paywalls to find the right balance for the long term. While MollyMail had a high conversion rate for the first year, the annual renewal rates gradually decreased until it was no longer profitable for the company to maintain as a service. A short term bump in revenue may tailspin towards insolvency if you don't monitor your metrics closely.

Since this first paywall experience I've gone on and built paywalls for many sites, and have always been amazed at the transition from paywall-free to gated. It always brings in some money, but it's not always worth the effort to build, maintain, and operate the paywall as users search for free alternatives. 

I'm really interested in low-effort solutions to help content creators monetize their content in ways that readers find agreeable in the long term that don't rely on large operations teams or infrastructure.

I have trouble imagining the ideal paywall system, because I think the ideal paywall is no paywall. Similarly I think the ideal ad is no ad. But if not these two methods, then what can we do? Everyone is a content consumer. Everyone is a content creator. We all need to eat. What's next?

## Web Monetization: Like Ads plus Subscriptions

What is new in monetization? Web Monetization. [Web Monetization](https://webmonetization.org/) is a proposed standard that enables the streaming of payments from a user to the website enabled by a privacy-preserving provider like Coil. In the future, users can pick from providers including some that charge a fixed amount per month, with small micropayments made to publishers based on time spent on a site.

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One of the intriguing things about Web Monetization is that it's a combination of ads and subscriptions, bits of inspiration from both. When readers visit websites that include a "payment pointer"–an address in which to send money–a small transfer is made to the publisher of that web page.
Unlike advertising this is done in a privacy-preserving way so that the publisher isn't able to know more than whether or not you're a subscriber or not. Each pageview generates money for the publisher from a fixed allocation on the user's side. There's no "mental transaction cost" of deciding if you want to support the site or not, it's an automatic allocation. Web Monetization is an open standard and itself promotes another open protocol, [Interledger](https://interledger.org/
).
Currently Web Monetization "streams" money to publishers as a reader visits various websites on the web. There's an opportunity here to take this standard and keep evolving it, just like the ad ecosystem evolved to find the right way to maximize value for all parties. In order for that to happen Web Monetization needs more adoption from sites large and small.

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In the next part in this series I'll go through a few waypoints in my journey through the land of alternative business models for the web, starting off with some things Web Monetization could do to evolve itself into an increasing prominence as measured in total web value transferred per month. In case you missed it, here's [Part I: Monetization for Digital Economies](https://dev.to/mankins/monetization-for-digital-economies-4546)