Finding the value in non-paying customers

I’ve been concerned for a while that publishers can be lulled into a false sense of security by their current audience size. The industry makes hay over increased reach of online and the 30-day audience metric, but I worry that many of the prevailing measurements mask some real weakness in daily numbers.

Either way, I think we need to spend more time and effort on audience growth.

Nick Carr points us to new research on the value of “non-paying” customers and how the network effect makes intangible customers more valuable than in previous models.

In an interview about the study, Gupta notes that the model applies only to fairly simple two-sided markets. But on the Net today, of course, nonpaying, “free” customers are also critical to other businesses with more complex network structures, from YouTube to MySpace to Skype to an open-source software company like Red Hat or MySQL. If you have a “community,” you likely have “free customers.” Gupta says that he’s currently

working on understanding and modeling complex network structures such as those of MySpace. Here the issue that we are grappling with is the tangible and intangible value of customers. In other words, customers provide tangible value to a firm through direct purchases but they also provide intangible value through network effects or word of mouth. It is quite possible that some customers have low tangible but high intangible value. Traditional models would label such customers as low value and would miss a huge opportunity for a firm.

This also says something about why paid-content models are a bad idea. A pay wall inhibits audience growth; it means you miss out on the networked opportunity. Publishers have much more to gain by continually growing audience than they do by squeezing a few dollars from a restricted and constrained group of people.

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