26 March 2010

Charging with the Times?

News International Group has announced that it will start charging £2/week to access The Times and The Sunday Times Online. While I'm not well versed on exchange rates, I'm pretty sure that £2 isn't free.

I'm not surprised by this news (Rupert Murdoch has been promising this move would come for almost a year), and fully expect that major media outlets in the United States follow suit in short order.

I'll be the first to admit I'm a cheapskate. I rely on free online services all day long. From Blogger to Twitter to Wordpress and the rest of the web, I expect "free" and make the most out of it. I also provide "free" on a regular basis (priced appropriately, usually). I seek out "free," expect "free," and love "free."

I suspect that many of you do too.

We're so used to "free" that if we were actually forced to (gasp) start paying for things like online news, social networking sites, popular blogs, and search engines we'd probably convince ourselves that the world is coming to an end. And just as the land of the free has decisively turned its back on the free market, I wonder how long we can afford (both from the consumer side and the business side) to keep on rocking in the free world?

How much longer can credit unions afford to offer free checking? Free membership? Free online services?

The next big thing in financial services innovation may not come in the form of a new gadget, new software, new charter, new savings account, or new branch layout. Instead, it could very well come in the form of a pricing strategy that (finally) eliminates the phrase "loss leader" from our lexicon.


Mark said...

I see where you're headed and what you're getting at, but I do think it's worth noting that free does not necessarily mean "loss leader"

Google gives away it's search for "free" and makes a ton of money doing so. (Ads.)

Craigslist is "free" for almost everything, and they're doing pretty good as well. (Very selective charging.)

Twitter has even starting pulling in revenue from it's deals with Google and Bing to serve up "real time" search results. (Auxiliary services.)

I actually think this is an exciting time for "free"...anyone can charge directly for a service (and there are times when this is a very good strategy) but I believe there is a ton of room for differentiation in services that are both free to the end user, but profitable to the organization. (And I'm talking real free...not free today cuz I hope you'll overdraft tomorrow free.)

It will require radical changes in the systems (where's my open source core?) and approaches to traditional services. It takes the realization that we do "pay" for these services, sometimes it's with reduced privacy, sometimes it's with dollar bills.

For some...well it's just easier to charge dollar bills...but for the ones that figure out how to leverage alternate currencies from the end user and turn those into dollar bills...those I see as the big winners.

Matt, the Credit Union Warrior said...

@Mark By definition Google's search function is a loss leader. Google AdWords is not. A loss leader is something priced so low it excites people about coming into your store to buy other, profitable products/services.

Is offering a loss leader bad? Absolutely not...especially if you have something to sell that is so profitable you can make up the difference. Google has that with AdWords. Twitter has that with its search engine deal. Craigslist has that with its add-on services.

With loan demand in the dumps and interchange under attack, credit unions arguably don't have that "something." As I've said many times before, we need to learn from Costco's model. Or maybe we should become ad supported (not joking).

Our model isn't broken, but it's under attack. The sooner we start considering charging for things that people value, the sooner we can prepare ourselves for the realities of the future.

Evhen said...

The loss leader approach is one that, as evidenced by Google and others, could work and could continue to work as long as the other services are properly structured. But it's the point you make in your comment reply (not so clear in your original post) that really matters - interchange fees, Reg Z changes, Reg E changes, etc. are what are really putting the future of the "other services" in question.

But I don't think moving away from free is an option. Someone else will always offer free, and the day that they do and you don't is the day your members start walking away.

How about "freemium"? This approach is being increasingly used online. You can get basic (teaser) services for free. And then once you're sold on the services (and on the service) you upgrade to a paid plan to get more value and more features.

Following this approach basic checking, savings, and credit card accounts would be free. But then premium services could carry a fee. You could even institute a ceiling on the free services. High enough to get people in the door, but low enough to keep your loss leader from getting too far out in front.