marketing, advertising, revenueI have been going through a research paper, which has the following line here:
The ability to select among revenue streams has broadened and complicated a decision previously restricted to pricing. First, for many firms, the choice between revenue models involves trade-offs that arise because increasing revenue from one source (e.g. subscription) most often reduces revenue from an alternative source (e.g. advertising or the sale of user information)
Why does this happen? How does one revenue stream compete with each other?
The example you provided is pretty common with digital goods. As an example, I’ll use mobile apps:
The more incentive you give for users to purchase your app, the more “subscription” revenue you receive, but those purchases reduce your ad revenue.
Another example is Microsoft:
More licensed sales could lead to fewer subscription sales.
There are many examples that are similar, but the point is that the proper selection of revenue model (pricing, terms, etc.) can lead to dramatically different results.
Let’s consider the examples described in the text you cite: subscription vs. advertising.
Some sites, apps, etc. first offer you a free version (to encourage you to try it) in order to maximize downloads. But the free version contains ads which somewhat degrade your user experience. This is the advertising model at work.
Then, while you are using the free version, they will offer you a no ads version that requires you to pay a fee. This is the subscription model at work.
If you purchase the subscription, you are paying the app maker to turn off the ads. And whatever other features they might or might not add to your experience.
That’s how the two models compete with each other. Turn on the subscription to turn off the ads.
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