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Wang et al.

: Subscribe to Fee-Based Web Services

SUBSCRIPTION TO FEE-BASED ONLINE SERVICES:
WHAT MAKES CONSUMER PAY FOR ONLINE CONTENT?

Cheng Lu Wang
Department of Marketing & International Business
University of New Haven
cwang@newhaven.edu

Li Richard Ye
Accounting and Information Systems
California State University, Northridge
richard.ye@csun.edu

Yue Zhang
Accounting and Information Systems
California State University, Northridge
jeff.zhang@csun.edu

Dat-Dao Nguyen
Accounting and Information Systems
California State University, Northridge
datdao.nguyen@csun.edu

ABSTRACT
Increasingly, Web-based content or service sites are turning to a subscription-based business model. This article
examines factors that influence potential consumers’ opinions about such paid services. A survey was conducted to
examine the impact of several factors on consumers’ willingness to access subscription-based Web content. The
results indicated that respondents’ intentions are significantly influenced by these factors. Specifically, their
willingness to pay for online content or services is positively related to their perception of convenience, essentiality,
added-value, and service quality, and to their usage rate of a given service. In addition, their willingness to pay is
negatively related to their perceived unfairness in a subscription-based online service model. Managerial
implications based on our findings are discussed.
Keywords: subscription-based online services, paid online content, willingness to pay, consumer survey
1. Introduction
During the Internet boom, a vast number of websites attracted Internet surfers by offering them with large
amounts of free information ranging from news, business data to sports statistics. However, the once well-sold
business model of offering free content to secure advertisement revenues yielded rather disappointing results for
most of the e-service providers. Increasingly, advertising revenues alone are insufficient to meet the bottom-line
needs of a company for survival [Addison 2001, Dewan et al. 2003, Turban et al. 2002]. Forced by the harsh
business reality to seek alternative sources of revenue, many of these web operators have begun charging users a
subscription fee for access to online information and/or services [Olsen 2001, Goldman 2001, Prasad et al. 2003,
Taylor 2001]. For instance, when advertising rates plummeted, companies such as Encyclopedia Britannica and
NetZero had to diversify their sources of revenue by moving into a pay-for-content model [DiCarlo 2001, Streitfeld
& Cha 2001]. If this continues, the era of totally free content might eventually diminish. Instead, free content will be
used primarily as a marketing ploy: a complementary trial period is strictly used for purposes of enticing customers
to subscribe to a service or buy a product online. Alternatively, some sites attract customers by offering a limited
amount of free content. They then hope to convince their customers to shift to a variety of “premium,” fee-based
content [Outing 2002].
Will consumers be willing to pay for online services or content after they have been so accustomed to receiving
it for free? According to research conducted by the Online Publishers Association, consumer spending for online
content in the U.S. grew from $1.31 billion in 2002 to $1.78 billion in 2004, for an annualized growth rate of 17%
[OPA Research 2003, 2004, 2005]. The categories that experienced the most significant growth, however, appeared
to concentrate on content that is of an entertainment nature, such as adult materials, music, gaming, and sports.
Skepticism remains that consumers who once feasted on online content at no cost are now ready and willing to be
charged for accessing the same content. For example, despite an increase in the number of sites that offer fee-based
content, Jupiter Research reported that slightly fewer people seemed willing to pay for online content in 2002 (42
percent) than in 2000 (45 percent) [Crosbie 2002]. In a survey conducted by the Pew Internet & American Life
Project in 2002, when asked to pay for access to a site that was previously free, only 12 percent of U.S. Internet
users indicated they would pay, while 50 percent would find a free alternative, and 36 percent would simply stop

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By early 2001. from medical advice to match-making – all to be delivered instantly and in a variety of media and presentation formats. it is the net value of these benefits and costs. The Wall Street Journal (WSJ) Online. As a result. First.000 of its 2. which influences their purchase decisions.com had managed to convert at least 10% of their regular visitors into paid customers. Since Consumer Reports started its online version in 1997. such as those traditionally paid news or information services that are now also available online (e. we propose potential factors that may influence consumers’ attitude to subscriptionbased online content and services. the service had signed up one million subscribers by the end of 2002. it had successfully migrated 500. Meanwhile. Finally. This article is organized as follows. it managed to convert less than 1% of it regular visitors to become subscribers. Based on an economic analysis on empirical data. this study identifies and explores the following factors that may have a significant impact on consumers’ willingness to buy online services. which introduced the free internet service provider (ISP) model to Europe. the Web makes it a simple matter the offering of an unlimited selection of content – from travel to legal counsel. as perceived by individual consumers. These factors are: convenience. and Hoover’s Online are the three most notable examples of information goods providers that analysts say are well-positioned to earn paid subscribers. Moreover. barely a month after Yahoo! began charging for auction listing fee. For example. we discuss managerial implications based on our findings. With a few notable exceptions. initial resistance to paid content can be so strong as to exert a negative business impact on the provider. there are signs that some businesses have been successful in converting their “users for free” to “customers for a fee.1 million users to paid subscribers [Addison 2001]. Consequently. but also the processes of obtaining those products/services. consumers may decide that the convenience of getting instant access to the desired content is a major benefit worth paying for. Thus the Internet has greatly increased the convenience of accessing information goods and services. Chun and Kim [in press] suggest that as the convenience associated with obtaining goods and services increases. subscription-based Web services have yet to make a significant financial contribution to their providers [Boumans 2004]. their belief about fairness. ranging from customer’s perception of value and importance. there are clear benefits in receiving information products/services online. 2005 accessing the online information or service altogether [Crosbie 2002]. both WSJ. The Wall Street Journal Online and Consumer Reports Online) and various gaming sites.Journal of Electronic Commerce Research. and they sometimes are even willing to pay a higher price for goods sold online [Bailey 1998.4. there are benefits and costs associated with not only the products/services being purchased online. while the long-term prognosis of a fee-based online service business model remains unclear.. The purpose of this article is therefore to explore and understand factors that influence potential consumers’ opinions and purchase decisions regarding fee-based online content and services. to their general attitude towards paying for such services that were once freely available. Because subscription-based online services typically distinguish themselves from free sites by offering highly specialized or privileged content. Page 305 . perceived service quality. Consumers’ Willingness to Pay for Online Content: Possible Contributing Factors The factors that compel consumers to adopt subscription-based online services may be multi-fold. By 2003. the prices charged by the online market tend to exceed those charged by the traditional offline market. Based on an extensive literature review. it also lost banner advertising revenues [Boumans 2004]. Such an understanding can be critical to the long-term viability of the online service industry. Compared to traditional delivery channels. VOL 6. We then report a survey examining the impact of each of these factors. When Ireland.” Freeserve. Other studies have reported that the convenience perceived by consumers appear to have a strong impact on their e-commerce activities [Eastin 2002. 2. Indeed. Consumer Reports Online. 2005]. Elliot and Fowell 2001].com and Hoovers. added value. it can be argued that. perceived fairness. Today’s online consumers take it for granted what was unthinkable only a generation ago: shopping 24 by 7 from home.com changed from a free access site to a paid site. started to charge users for unlimited Internet access in April 2000. 2. A survey of current literature suggests that there is a dearth of empirical research devoted to this important issue. a level considered sufficient to make an econtent portal profitable [Ooi 2003]. NO. Both successful and unsuccessful stories call for an understanding of why consumers choose to subscribe or not subscribe to fee-based online services. Convenience has been found an important component of online consumer satisfaction [Schaupp and Bélanger. essentiality.g.1 Convenience According to the Internet commerce value proposition by Keeney [1999]. the volume of listings had dropped by an estimated 90% [Schiffman 2001]. This study therefore explores the possibility that the perceived convenience provided by an online service may have some influence on consumers’ willingness to pay for that service. usage frequency. instead of engaging in a time-consuming and potentially unproductive search of similar content for free. and security concerns. Lynch and Ariely 2000].

Liao and Cheung [2001] suggest that frequency and duration of Internet access can significantly affect the willingness of a consumer to shop online. win over subscribers not because they offer more programming but because their service quality is dramatically better than that of free broadcast television [Karikari et al. however. and expert analyses of bills scheduled for floor consideration. news updates.3 Added Value Given the vast amount of free content available online. the Consumer Reports’ Web site might be considered an essential online information source by over a million paid subscribers. found that consumers’ tendency to continue using a given e-commerce vendor is influenced by habit. enjoys the market leader position despite its higher access fees. should it become necessary. the online version of Congressional Quarterly.2 Essentiality Keeney’s [1999] value proposition also suggests that the perceived value of a given information product depends on how important or essential it is to meet consumers’ information needs. also suggest that consumers’ past online experience can be habit-forming and may play a significant role in their future e-commerce activities and satisfaction [Molla and Licker 2001]. 2. 2003]. This study therefore explores the impact of perceived service quality on consumers’ willingness to pay for online services. According to a study conducted by comScore Networks and the Online Publishers Association. there must be added value in subscription-based online services to make consumer feel that it is worth paying for. i. for instance. thus adding values to the otherwise free and readily available content [Sternstein 2005]. if the information satisfied their immediate information needs [Wolinetz 2001]. when federal bureaucracies began posting their documents online and ease access for everyone at no charge. As a result. Conversely. to get elsewhere [Shapiro and Varian 1999]. Some recent studies. because it may be perceived as offering better services (turn-key software for novice users. Consumers have also been accustomed to paying for Internet services because they believe paid ISPs provide better quality than free services [Suri et al. if consumers perceive a product or service to be of higher quality than another product or service. if not impossible. Therefore. this study further explores the impact of usage frequency on consumers’ willingness to pay for online services. of exclusive value. it posed a significant big challenge for CQ. good support. and no time limit) than its less expensive or free competitors. 2003]. because it provides important information to meet their needs and because the source of information is quite exclusive. The latest OPA report [OPA Research 2005] indicated that the top three paid content categories. as perceived by consumers regarding a premium online service. the content has to be proprietary and differentiated. one of the biggest challenges facing online service businesses is the Internet culture that has developed over the years: consumers have become accustomed to the belief that such businesses are financed by advertisers and therefore should provide their content/services for free. In other words. While certain information can be accessed for free. a subscription-based political publisher. online communities. For example. this study explores the impact of information essentiality on consumers’ willingness to pay for online content. for example. Within the context of the current study. easy to find and at little or no cost) on the Internet. the higher the price. Consequently. For instance. when asked to pay for content access. such as congressional daily schedules.com managed to keep its customers by providing them with expertise and professional assistance. Even Page 306 .4 Perceived Service Quality It is well known that consumers often use price as an indicator of product quality.e. Luarn and Lin 2003].6 Perceived Fairness Regardless of the value of content. In this study we also explore the impact of added value. and business/investment. the more likely they will buy from the same place again.. 2. it is conceivable that consumers may be willing to pay for the same information if the service quality is noticeably better [Kettinger and Lee 1994.com. online information providers are encouraged to concentrate on specialized content that is very difficult. consumers may perceive a certain degree of unfairness [McDonald 2002.. Gefen [2003]. 2. will have on their willingness to pay for that service.5 Usage Frequency The foregoing factors all have the underlying assumption that online consumers’ attitudes towards paid content are influenced fundamentally by a rational cost/benefit analysis. 2. The more they buy at a particular site. CQ. All three categories appear to offer content that is important to meet specific consumer needs but is not readily available (i.: Subscribe to Fee-Based Web Services 2. consumers appear most willing to pay for content considered of superior quality. Taylor 2001]. it is plausible that s/he would be willing to pay to continue accessing it. Another study revealed that commuters were willing to pay for travel information that was otherwise free. However. or to meet more emotional/passionate needs [Elkin 2002]. together accounted for 67% percent of consumer online content spending in 2004.Wang et al. they naturally expect to pay a higher price for the former [Zeithaml 1988]. Increasingly. for example. including a collection of databases with user-defined search tools for tracking the progress of legislation. no banner ads. Basic cable television services. the higher the perceived quality [Monroe 1990]. entertainment/lifestyles.e. personals/dating. if a consumer has become habitual in accessing specific content or service online. America Online.

As shown in Table 1. In addition. this study also explores the potential negative impact of consumers’ security concerns on their willingness to subscribe to fee-based online services. this study further explores the possible impact of consumers’ perceived fairness on their willingness to pay for online services. we found no evidence of the existence of multicollinearity in the results [Hair et al.638 1. 91 were male and 69 were female. usage frequency. The multivariate statistic for MANOVA is statistically significant (Wilk's Lambda = 0. 1998]. Montemayor 1996].g. The subjects were business students of a large Western US state university.860 1. convenience. In order to check the possibility of multicollinearity of the variables. The subjects’ willingness to subscribe to paid online services (will/ will not pay) was measured as a dependent variable.. Research Methods and Results Data for this study were collected through a survey instrument.99] = 5. consequently. Therefore.7 Security Concerns Ever since the commercialization of the Internet. the perceived security and privacy risks associated with transacting online has been a continuous concern for consumers [Belanger et al.0 and the tolerance values showed that collinearity did not explain more than 10 percent of any independent variable’s variance.973 . and with little or no work experience). followed by a canonical discriminant analysis. We believe therefore that the subjects in this study are more representative of online consumers than typical college students.4. this sample consisted of respondents that were relatively older (average age 26) and more mature. 2005]: they simply believe that goods sold online should be priced lower. Among the 160 subjects who reported their gender. Follow-up tests of group differences by examining the F-ratio indicated that six out of nine predictor 1 The questionnaire is available upon request.74. few Web users have warmed to the idea that it is fair to pay for online content.01). he/she is likely to feel unfair if a fee is now required and.035 1.611 . Studies have found that consumers tend to perceive price unfairness if products sold online are priced equally to those sold through traditional channels [Hardesty and Suter 2005. Thus. 2. who compete with brick-and-mortar retailers to sell physical goods.3% were above 35. When a consumer takes it for granted that certain online services (e.827 . Huang et al. 3. The analysis of the data started with a multivariate analysis of variance (MANOVA). Therefore. Table 1: Assessing Tolerance for Multicollinearity Variable Tolerance Added Value Security Perceived quality Essentiality Convenience Usage Frequency Perceived Fairness . they will be less willing to pay for it [Schonfeld 2001]. studying full-time.193 1. must deal with similar challenges. Elliot and Fowell 2001. online banking) should be free. demographic data such as gender and age were also collected as controlled variables. Consumers may be unwilling to use subscription-based online services simply because online payments are involved and they are reluctant to transmit credit card numbers or other personal information over the public Internet. and most of them had part-time jobs (average work hours 20 per week). p < 0.6. added value.047 MANOVA was first used to establish the statistical significance of group differences in whole profiles of predictor variables and to reduce the number of predictors for a classification analysis [Huberty 1984.538 . 2005 online retailers.838 . The subjects’ opinions were measured on a 5-point scale along the aforementioned variables including essentiality.491 .4%) and the 30-34 group (14. While Web companies hope that consumers will consider online paid content or information as a commodity to buy. Unlike the traditional profile of a college student (young. NO. The remaining 7.955 VIF 1.Journal of Electronic Commerce Research.744. perceived fairness and security concern. perceived quality. Brown and Muchira 2004. no VIF value exceeded 10. the VIF and tolerance values were examined as a first step in a multiple regression.028 1.0%). F[df=9. 2002. VOL 6. A questionnaire was developed to gather the subjects’ attitudes toward subscription-based online services and the factors that may have an influence on their willingness or unwillingness to subscribe to these services1. followed by those in the 25-29 group (24. One hundred and sixty-five valid responses were collected. Page 307 . Liao and Cheung 2001]. most of them were in the 20-24 group (53.2%). In terms of age.208 2.

Table 2 shows that the discriminant function correctly classified 72.57 (1. To distinguish those who were willing and unwilling to pay for online services and to identify which predictor variables are relatively more useful in differentiating the two groups. added-value.01. which are considered relatively more valid than discriminant function coefficients as a means of Page 308 .07) 2. The relative importance of the predictors was assessed by discriminant loadings. they were excluded in the following discriminant analysis. were entered with a simultaneous estimation approach to form the discriminant function. As shown in Table 3.53 2. compared to respondents who were not willing to subscribe to fee-based online services.3 64.91) 7.05).79 (1.01.: Subscribe to Fee-Based Web Services variables were statistically significant (p < 0. essentiality.21) 4.68* Perceived Fairness .30) 19. gender and security concerns were found to be insignificant between the two groups. essentiality.45) 1.12) 3.55 21.80 (1.3 69. those willing rated significantly higher on convenience. added-value.55 (1. The other six variables. In particular.9 0.40 3. usage rate and perceived fairness.17 (1. age and the security concern of using credit cards did not significantly differentiate the two groups. Tests for the equality of the group means: * p < . To assess the predictive accuracy of the discriminant function.75 (1. the discriminant function is statistically significant (canonical correlation = 0.3 72. respectively.01).01.39** securityc ---3.66 (willing to pay) and -. p<. Categorical variables.86) 3.94 (1. convenience.32) 7.77.59** Added Value .34 4. usage frequency. As shown in Table 2. Table 2: Summary of Interpretative Measures for MANOVA and Discriminant Analysis Discriminant Loadings Mean (Standard Deviation) F Valueb Variablea Willing Non-Willing Convenience . discriminant analysis was used for such a purpose.66 -. Wilks's Lambda = 0.45 (1.31) 14.01).05. Variables ordered by discriminant loadings or the absolute size of correlation between discriminating variables and standardized canonical discriminant functions.3 percent of the analysis sample and 69 percent of the holdout sample. perceived quality and perceived fairness. p < 0. Table 3: Results of Discriminant Function and Classification Results for Each Group Discriminant Function Overall Results Willing to Pay Non-Willing to Pay Group Centroid Canonical Correlation Chi-square % Correctly Classified Analysis sample Hold-out sample ** p< .Wang et al.41) 3. as shown in Table 2.09 (. age. The group centroids are .37 3. c.66 (1.66 4.64 (unwilling to pay).09 Agec Genderc.13 ---------.24** Essentiality . Press’s Q = 18.01. perceived quality.48 (.77.0 Further differentiation of the willing-to-pay and unwilling-to-pay groups was made by examining the differences between group means on each discriminant variable. the sample was divided at random into an analysis sample (60%) for estimating the function and a holdout (40%) sample for validating purpose.56 3. indicated that the hit ratio of the classification matrix is significantly higher than chance.45 (1.0) 20.70. Since gender.78 a. .64) 4. as measure by the Press’s Q (= 18. namely. all of the discriminating variables were found to differ significantly.64 72. p<.16) 2.d ---------.57** Perceived Quality .01** 72.55. Chi-square [df=6] = 21. ** p < .21** Usage Frequency .07 (. b. However.26 (1. Test for the discriminant power. d.55) . Variables not used in Discriminant Analysis.3 75.

Differences in perceptions and attitudes among consumers can lead to a differentiation of market segments that are either willing or unwilling to subscribe to fee-based online content and services.. J. and usage frequency are the top three factors that differentiate willing-to-pay from unwilling-to-pay groups. a more flexible fee structure. 2002. Smith. D. “Investigating the relationship between Internet privacy concerns and online purchase behavior. 1998]. “Paid content.” The Journal of Strategic Information Systems. 2001. Page 309 . F. S. 11: 245-270 . 2004. Managerial Implications Recently.acten.com. J.net/cgi-bin/WebGUI/www/index. Belanger. the six variables used in the discriminant analysis appear to be good predictors of willingness to pay for online services. a well-designed marketing execution. “Free Web access business model is unsustainable in the long term. with the exception of security concern.. professional knowledge and technical assistance could bring added value and enhance perceived quality.” Journal of Electronic Commerce Research. security. 9-10.Journal of Electronic Commerce Research. essentiality and usage frequency.” http://www.” International Review of Economics & Finance. “Trustworthiness in electronic commerce: the role of privacy. it seems unlikely that the trend will translate to a significant source of revenues for Internet companies anytime soon [Bowman 2004]. Understanding consumers’ perceptions and attitudes toward subscription-based online content or services and related determinant factors is critical for managers to assess and predict the behaviors of their online customers. “Analysis of price competition and strategic implications for heterogeneous market structure. Our findings thus largely provided support for our propositions. As the finding of this study suggest.4.” Doctoral dissertation. 1998. and encouraging the usage frequency of a service will contribute to consumer willingness to pay for that service. and J. Boumans. For example. only when a revenue-generation method is accepted by the majority of potential customers can this method be sustainable [Coupey 2001].” Marketing. In summary. NO.com/2100-1025-993832. VOL 6. Hiller and W. 4. MIT Sloan School of Management. As Internet commerce matures. will be willing to pay for various reasons. Bailey. Table 2 shows variables that are significant predictors in the order of the magnitude of discriminant loadings and the significance level of group differences in each discriminant variable measured by F-ratios. the methods of payment could influence consumers’ perceived fairness and eventually the willingness to access paid content or services.. 1:62-70. Other areas that are worth marketers’ attention are added value and perceived quality of online services. J. In addition. the primary needs for consumers to subscribe to fee-based online services are convenience. as shown in Table 2. M and Muchira. Chun. As all variables were entered in the simultaneous discriminant analysis.. colors and wordings on a web site might affect the willingness of browsers to start paying for content [Knowledge@Whaton 2003]. 5. Naturally. Sometimes. While subscriptions continue to be the dominant price model. 1998]. CNET News. Therefore. Vol. such as constantly revised headlines. while more people are becoming familiar and comfortable with paying for content.pl/paid_content.. there is also a market that. Brown. in Press.com. “Intermediation and electronic markets: aggregation and pricing in Internet commerce. 2005 interpreting the discriminating power of predictor variables [Hair et al.. may be perceived fairer to those consumers who will only use the service infrequently for access to particular information.S.html.net. increasing the ease of access to needed information. followed by added value. REFERENCE Addison. acten. which was not found to be significantly related to respondents’ willingness to pay for online services. While there will always be consumers who only surf for free. Of all the discriminant variables.P. a subscription-based online service must enhance the perceived value of the content through differentiation and segmentation. Web operators should communicate the added-value of the service to potential consumers and increase the perceived fairness of the service. enhancing the richness and speciality in the content. No. such as a metered or pay-per-view service instead of a flat annual membership fee. August. “Paid content slowly winning converts. Bowman. R. M.. one way to increase subscription is to add values to online content that distinguish the service from those of free Web sites. 2004. Even for mundane information that lacks essentiality. convenience. Vol. L. Indeed. more e-commerce experts and online information service providers are seeing the turning point where online information and content will start to carry a price tag. any variables exhibiting a discriminant loading of +/. if targeted appropriately.” http:// news. Kim. essentiality.30 or higher magnitude are generally considered substantive [Hair et al. 2004.J. perceived quality and perceived fairness. 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