Thursday, June 18, 2015

Free Trials

The Trials of Free

The digital music business controversy of the moment is centered around free trials. Specifically, some people are expressing outrage over Apple Music's desire to not pay artists (or any content owners) for the 90-day free trials users receive.

That is to say while users may get to play all the music they wish during the first 90 days, Apple doesn't have to pay the artists or composers or labels or publishers anything. Then again, Apple doesn't make any money either. Some artists and composers think this is unfair.

This "don't pay for free trials" has been standard practice in the digital music business for nearly the entire time it's been operational. There may be controversy here, but this is not a new or unique practice, and Apple's not the only one who's doing this. Every subscription service is doing it, and most have been doing it for years.

This issue is getting blown way out of proportion, largely because Apple is somehow involved. I am disappointed but no longer surprised that neither the traditional press nor the digital music/media "press" knew about or included these points in their stories.

Jimmy Iovine, king of Apple Music and current outrage target
My more cynical side thinks this current outrage is a ploy to change these industry-wide deal terms by publicly embarrassing Apple and getting a critical mass of consumers to say "yeah, hey, that doesn't seem fair!" This is unlikely to succeed.

More importantly, the folks agitating for Apple and others to pay during these free trials are misguided, unless their objective is to make all the subscription services fail and shut down. (Which it may be, and that is also unwise, but that is a post for another day).

WTF Is This?

Getting people to sign up and understand subscription services has proven difficult since the industry's inception. The industry has tried a few things: unlimited free :30 clips, limited numbers of complete plays monthly (i.e. free 25 plays per month), guaranteed satisfaction or your money back, and so on.

When they tried :30 clips, users were confused. Who would pay for :30 clips? So they tried limited numbers of complete plays, and users were so worried about using their plays they failed to play anything, and didn't use the services. Users were reluctant to start a billing process knowing how difficult and tricky it could be to get un-billed.

Giving away the service for free is pretty lazy, but it seemed to work better than the other options. Even the beloved Netflix has a 1-month free trial.

Curtailing the free trial would almost certainly cause subscriber acquisition to plummet for all services.

Yes, it is true that with free trials, you do get a ton of "freeloaders" who have no intention of subscribing, and who try to bounce from one free month to another. But you also get users who want to understand the size of the catalog, or hear the sound quality, or test the user interface out.

Free trials are better than nothing. And given the extremely high costs of content the artists, composers, labels, and publishers charge, it is the only way to make customer acquisition work.

Broke Before You Start

Some quick math: Typically services have to pay $8 to the content owners every month, taking it out of a $10 total fee. If the services had to pay for the first free month, it would take them 4 months of billing just to recoup that $8 of customer acquisition cost.

That's not realistic for several reasons. One is that most subscribers don't stay that long (citing the high cost -- the $10 price -- as a key reason for leaving!). Another is that acquisition costs don't consist of just the $8 for a single month of free use. They include advertising, promotion, marketing, and all the other things that go to getting that message in front of customers.

It is also conceptually similar to the practice of "free goods", whereby ye olde record companies would allocate some percentage of the albums shipped to record stores as "free", either to cover against damage in transit (yeah, right) or for the generic "promotion". Everybody in the industry knew the stores sold all of these copies and pocketed the additional revenue (while the artist got nothing).

As per usual, the digital world is still better -- you have perfect accounting, ways to adjust the amount of free plays, and no cut-out bins (and associated shady practices).

Laziness and Responsibility

The digital music business and the various players, past and present (including Rhapsody, Spotify, etc.) are not without fault here, either, however.

There's been scant innovation in the customer acquisition department. The on-boarding and first-run experience for these complex services remains poor, with brand-new users lucky to get a sub-smartphone welcome screen explaining what to do and why.

The services generally understand some users will have a kind of epiphany, see the value of the service, and stay subscribed almost indefinitely...but they have very poor understanding of what causes that for users, and how to accelerate that process or make it happen at all.

The current mindset is basically "hope the user gets it". The most effective way of acquiring users has been hoping your existing users will (continue to) evangelize on your behalf, and explain everything to new users.

My research and experience has shown very little correlation with the length of the free trial and the likelihood of user conversion.

If anything, there's a trial length which negatively correlates with user conversion: make the trial too long and the user loses all urgency to sign up and pay, and in fact finds themselves saying "I hardly used the service at all over the last several months, I guess I don't need to pay for it".

Longer trials don't help. The problem with trials isn't the length, it's the total inattention paid to the user experience during that time. It's as if you walked into a car dealership thinking about buying a car, and they threw a keyring at you, said "bring it back in a month", and turned back to their keyboards and paperwork.

And really, if your experience isn't captivating users within the first hour, if not the first 5 minutes, you're probably doing something wrong. 90 days is forever. Even 30 days is a lot. And this is for a product that costs a mere $10 per month, or $100 per year. If products with much more at stake don't offer those types of terms, why should music have to?

This is something Apple normally understands quite well: their products generally "demo" extremely well, inducing instant want and desire in customers. Apple's insistence on long free trials -- the same thing everyone else has been doing for years, and which obviously produces only mediocre results -- is indicative of the lack of innovation they are bringing to market here.

Start With ONE

I would humbly suggest that rather than asking for 90 days free, the industry collectively work on making the first 5 minutes or hour or even day excellent, compelling, and worth paying for. If one day isn't enough to convince me, do you really think 89 more will help?

No comments: