Pricing Teardown: Beacon Reader

Thursday, November 20, 2014

Disclaimer

This article is part of a series of pricing teardowns for companies and their products. I have no private information about their profitability, no knowledge of their business goals and (possibly) no particular background in their industries. I intentionally avoid performing research on what others have said as well as writing in the companies' blog posts and twitter feeds. I do this so as to ensure that my evaluation is based entirely upon their websites. As such, this analysis may contain invalid assumptions and plenty of guesswork. Fortunately, this makes the resulting analysis much more fun.

The Product

Beacon is a page for writers and readers. Part of the startup accelerator Y Combinator's Winter, 2014 batch, it's ready to take the world by storm and introduce a form of patronage to support writers.

Through the sale of crowdfunded, subscriptions, the site will allow non-wealthy folks to support topics that either engage readers and cover topics that are not discussed by existing media.

While news organizations are increasingly being bought up by larger and larger organizations, it is exciting to see a new player enter the market.

Why Beacon?

I was immediately interested by their efforts because they are attacking a two-sided market.

Most businesses attempt to enter one-sided markets. Those firms produce a product and then sell it to a group of consumers. Despite the high failure rates, many businessmen clearly believe that their efforts are worth the risk.

Businesses entering two-sided markets face significantly more risk. Not only do they need to attract consumers (in this case, readers), but they also need to attract producers (in this case, writers).

Two-sided markets are especially difficult to enter because of the chicken or the egg problem. Few readers will be interested in this site until there are writers creating content, but few writers would be interested in creating content unless a readership were willing to pay for their efforts.

The traditional solution to these problems is to address one side of the market before attacking the other. It's not precisely clear from the site which side of the problem was attacked first, though it appears as though the firm has established a stable of 150 writers and is now primarily focused on attracting more readers.

The Opportunity

It is hardly a matter of debate that the state of mainstream journalism leaves much to be desired. Whether this is due to increasing conglomeration of news outlets or an increasing focus on style over substance is up for debate. That being said, the internet has opened up the potential for hyper-focused reporting outlets not only to exist but to thrive.

The Image

Few conservatives would be willing to pay for memberships in the left-leaning PBS just as few liberals would consider contributing to the right-leaning Cato Institute. This despite the fact that both are highly respected organizations within their constituent communities.

Why do I bring this up? Narrowing a target demographic (whether by political ideology, area of interest, level of education or some other attribute) is critical to both content creation and marketing efforts. Without a firm understanding of one's readership, it is very difficult to write targeted articles guaranteed to be of interest to them, and thus the ability to command higher prices is reduced.

It is for this reason that I was surprised that the site made no attempts to specify its target audience. While the average visitor might simply give up (for lack of interest) at this point, I soldiered on and attempted to make a few educated guesses as to the type of person that the site would be eager to attract.

I went to the site's writings page and clicked the "more" button to get an idea of the topics that were written about.

There were some generic categories that could go either way like world news and humor. Whether a reader is a fan of Bill O'Reilly or Bill Clinton, the average newspaper reader might be interested in those topics.

The more I looked at the topics, the more confident I became that this site was targeted to folks on the liberal side of the spectrum. Categories such as those listed below made this targeting quite obvious:

There is no value judgment involved. I'm not necessarily implying that any topic listed is (or is not) worth investigating. I firmly believe that there is money to be made reporting on almost any topic and that many niches could benefit from a higher quality of reporting. Why did they put the onus on me to gether this information? The consumer should be given a simple question: "Do you want this product at this price?" It's the business' job to make the case that the product would be a good fit. Don't make the customer do your job.

Some might argue that I am cherry-picking the topics and that the site is more balanced. There were only two subjects that could be argued as firmly in the "conservative" category:

The religion writer was also listed as a writer for LGBT Rights and appeared to focus on interviews with various folks rather than an analysis of scholarly texts. This would lead me to assume that the resulting articles would likely be of a liberal bent.

As to the national security writers, I would label that category as entirely misleading at best. Not one of the three writers mentions any topic that would be directly relevant to national security (mass incarcerations, the topography of the internet and cell phone tracking). While I am not taking any particular side as to whether any of the topics merits discussion, the mislabeling of them leads me to question the veracity of other topic categories as well. Suddenly, I (as a potential reader) am questioning the face that this site has shown to me.

So, I believe that this site has a firmly liberal point of view. What else can I glean from the webpages?

I performed a "random" sampling of writers. I put random in quotes as some authors may appear in multiple categories. Look at their photographs and see if anything jumps out at you:

If you answered that they are all thin folks who look like they are in there twenties and thirties, you win the prize!

The writers are relatively young and probably liberal. If I were to really go out on a limb, I could say that "thinness," youth and liberal outlook statistically correlate with folks who live in urban settings, but that might be a shaky conclusion - even for me.

Why Am I So Obsessed with Profiling the Writers?

As discussed already, the site has given me very little direct messaging about its content, so I have to make assumptions based upon something. But that's merely descriptive.

There's also a predictive value as well. Because the site is invite only, and the writers all appear to be young and liberal, it makes sense that they'd continue to invite folks just like themselves. Based upon the evidence presented, when trying to predict the types of writers they'll invite next, one has only to look at their existing writers.

But Their Writers Are Good, Right?

I don't know. Without access to the member's section of the site, a cursory search only turned up a small handful of articles that were shared in their entirety.

That being said, I was willing to put great effort into investigating the methodology used to select writers for the site. Fortunately, Beacon made it easy - I was able to take a peek at the application process. Although the hiring process is initiated by invitation only, an application is available.

The form immediately raised some serious concerns about the standards in place. There was a question about gender and a request for a photograph (two big no-nos when hiring in the United States). Also on the form were questions about location and twitter handle. Rounding out the form was a request for a couple of sentences about your background, and what you want to cover, with the advice to pick a subject that will engage your audience, or that you feel is not covered well by existing media.

The request for a photograph threw up many red flags for me, for reasons best unsaid. Asking for a photograph for a journalism position led me to assume that it was being requested as a proxy for requesting information that couldn't reasonably be asked in an application form.

Far more upsetting was the required field demanding a twitter account (but not a linkedin account). While the former can be used to demonstrate whether a person has a following (that would hopefully carry over in terms of a built-in audience willing to pay for access), one has to wonder why a person with a strong following would gain by handing his work over to Beacon in the first place. Meanwhile, linkedin is an excellent tool for surveying a person's educational and work background. If I were evaluating applicants for a serious journalism position focusing on finance, for instance, I'd be on the lookout for someone with degrees, training, certification and work history in finance. My methodology is imperfect, but makes more sense than the existing process when evaluating for quality of writing.

Yet another takeaway form the application: it appears that the firm is looking for "passion" rather than "expertise." Should this be the case, a rebranding of the site might be in order. Something like "A left-leaning newspaper for passionate 20 somethings" would make much more sense than the current slogan "Fund writers directly. Get access to every story."

Beacon's line gives me an idea of how it works. My version helps readers identify if they'd be good targets and what the product is. If the company then added another sentence to highlight that the paper isn't beholden to anyone but its readers, the firm might just have a surefire winner on its hands.

The Pricing for Readers

The business model for this site is both simple and complex.

There's a bit of confusion on the part of consumers, due to a lack of information. The front page says "Fund writers directly. Get access to every story," yet it's not immediately clear if there is a minimum amount that folks have to pay and if payments automatically recur on an ongoing basis.

Many of the authors had pages like Katherine Sanderson who offered the following funding choices:

Having written a book on software pricing, I found these choices to be absolutely bizarre. The selection forced users to figuratively choose between apples and oranges.

Let's take a look at the pricing tiers:

Interestingly, at least one "writer" (known as "Techdirt") offered additional pricing tiers and changed the price of the super subscriber level - somewhat. I say somewhat, because the availability and pricing of his tiers differ depending upon whether users look at the writer's project page or his profile page (you'll see the pricing on the latter after hitting the button marked "BECOME A SUBSCRIBER").

Pricing for Readers Déjà Vu

Now that we've looked at their pricing page, let's look at their pricing page.

Wait, what?

It turns out that there is a second pricing page. If you want to buy a subscription for yourself, you can go to a project page, but if you want to give a subscription as a gift, you must go to the choose a gift page.

The fact that you can't just click a button during ordering to select "send as a gift" is odd. But there is something even more odd. The pricing is different!

When purchasing a gift membership, users are presented with three tiers. It's worth noting that one is unable to pay more than the traditional $5 per month. That means no "super subscriber" status, and no "over-funding" a particularly well-liked author. The only choice provided is one of length. Buyers can select either 3, 6 or 12-month options, I think.

I say "I think," because I'm not exactly sure. The options are $15 for 3 months ($5/month), $30 for 6 months ($5/month), $55 for 1 year ($4.58/month). But the six month option says "bonus month" and the 1 year option says "2 bonus months." If the price is being reduced per month, they should make it more clear. Even crossing out the full price month-equivalent and writing a new value would be more understandable.

Pricing for Writers

The payouts for published works are fairly straightforward for writers. Each writer receives a full 85% of money pledged to his crowdfunded efforts.

But what does a writer get for this 15% cut? After all, both Paypal and Stripe charge 2.9% plus 30¢ per transaction. Other alternatives are similarly inexpensive. Web hosting can be had for but pennies a day.

Climate Confidential is presumably the highest grossing "writer" on the site. Depending upon which page is viewed, they have either raised $60,000 or just over $46,000. Although I cannot explain the difference, a 15% cut of that is either $9,000 or $6,900. In either case, that is plenty of money to pay a good web developer for a basic membership site and afford the credit card processing fees as well.

The truth is that while the firm proudly proclaims that "Climate Confidential is a team of 6 environmental journalists who have raised nearly $60,000 on Beacon," there is no talk of averages, medians or what can be expected for a new writer. Even though we do not know how much the average writer could make, the expense still seems high.

So what else do writers receive in return for this 15% cut?

They receive the opportunity to earn Big Money Bonuses. Of course there is no mention of how much money is "big money" and the fact that it only flows to the top stories will only reward folks who write the most sensational stories with the broadest appeal, thus disincenitvizing the reporting of marginalized stories (one of the goals of the site).

The truth is that the incentives are completely misaligned for writers and need to be changed for this site to become successful.

What's Wrong with the Incentives?

Plenty!

One of the main problems is that the primary value a customer receives is access to the archive of past and future articles for all writers, yet the vast majority of income goes to the writer whom he originally funded. As each reader is promised access to all of the site's articles as a consequence of payment, there really isn't any incentive for a reader to donate to multiple parties. Even those who want to support multiple authors probably won't want to have a large number of separate recurring charges on their credit cards, all being billed on different days throughout a given month.

Using the current incentivization methods, the author who will make the most money is the one who is best able to attract new users - not the one who writes the highest quality articles, or the stories that the members value the most.

Although I doubt this was the intention, I predict that the current incentive structure will create a two tiered marketplace of writers.

While such a scheme may not cause trouble for the site owners in the short-term, once the majority of writers catches on, they will leave for greener pastures, and the firm will have to find new writers to generate additional content.

In Summary

The company has a valid idea, but needs to consider a few big changes.

Shameless Plug

Did you find this teardown helpful? My company can write a private teardown for your own company. Contact me, and we'll work something out. Oh, and don't forget to buy a copy of my software pricing book.