Wednesday, November 30, 2005

Sometimes, the innovation is in the deal

Sometimes, the innovation is in the deal
There's an interesting post from Joe Kraus of JotSpot about the importance of pricing. Instead of charging the standard per-user fee for their wiki service, JotSpot is charging based on pages:

"When figuring out the business model, I thought a lot about what happened at Excite vs. let's say Overture. Excite had a business model in CPM, or cost-per-thousand, advertising that was divorced from value. The advertisers took all the risk: They might get five click-throughs; they might get a thousand—it's hard to know. What we got trounced by is the CPC model, which basically correlated much more closely to value.

With this in mind, I spent a lot of time interviewing users about what made JotSpot valuable to them. Their answer boiled down to pages: If there were a lot of pages in there, JotSpot's value increased. So we're moving to a model where you get 50 pages for free, and then at 200 pages, you pay $10 a month; at 750 pages, you pay $20 a month; and at 2,000 pages you pay $50 a month, and you can have unlimited users. The person who pays is the person who signed up."

I find this area of innovation fascinating. The other great example that Bill Sahlman used back when I was at HBS is RE/MAX, which offered a different deal to real-estate brokers. Their structure allowed top brokers to make more money, which led to their attracting the most successful practitioners.

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