Sunday, April 6, 2008

Death by million posts

How difficult is it to produce that one more blog post?

Could the last post you and I wrote be the last one we would ever write?

Is there a pricing model from Miroeconomics we can apply to blogging?

Is your blog meant for transactional readers or relationship readers?

The New York Times talks about the difficulties in driving users and hence generating revenue from blog posts. With no barriers to entry, infinite supply, zero switching costs and customer loyalty, and limited number of reader-hours blogging is taking its toll on those who blog for money.

The very fact that reader volume is unpredictable and determined by when the post hits the blogosphere relative to other posts points to world of "transactional readers" and not "relationship readers". The latter is also known as subscribers to the RSS feed. Blogging for the transactional readers is unproductive, the marginal cost of producing one more post is way more than the marginal traffic (revenue) from that post. Since the probability that any single post can generate positive revenue is zero, the marginal revenue is zero as well.

If it is anything Microeconomics teaches us worthwhile, it is the concept of marginal costs and revenue. It is unpardonable to produce at marginal cost higher than marginal revenue.

On the other hand, going after relationship readers is a different game. The marginal revenue from one additional post is not the additional traffic and Ad clicks it generates but how much it adds to your credibility as an expert which gives a justification to your current subscribers for subscribing to your feed and for the transactional readers to become your subscribers. Note however that in relationship model, the marginal revenue is sill zero. But you are not producing and selling one post at a time. You are selling your expertise as a whole and it is irrelevant whether or not a single post brings in readers.

Once you realize this, there is no more pressure to produce in volume or beat others to break a news. There is no need for "toiling under great physical and emotional stress created by the around-the-clock Internet economy that demands a constant stream of news and comment" (NYTimes).

The other way to look at relationship blogging is to see it as an output of the work you did to gain and improve your expertise. This means that blogging is all fixed cost and zero marginal costs. Since the marginal cost and the marginal revenue are equal (of course, they are both zero) this is the right profit maximizing point to be.

But how do you recover your fixed cost when marginal revenue is zero? The pricing scheme that models the relationship blogging is Two-Part-Tariff. When the readers subscribe to your blog they pay the one time entry cost. You earned your revenue by gaining a share of their mind, time and space in the RSS reader. By charging this fixed price and a unit price of zero you have captured all you can from any single reader.

It is not difficult to see which model is better to pursue.

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