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.