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When to switch between subscription-based and ad-sponsored business models: Strategic implications of decreasing content novelty

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  • Huotari, Pontus
  • Ritala, Paavo

Abstract

Business model change is typically seen as an adaptation to market contextual changes or as experimentation to find the optimal model for a given context. We highlight an alternative rationale for business model change by showing formally that switching from a subscription-based to an ad-sponsored business model over time can generate more life cycle revenue (LCR) than committing to either business model in specific contextual conditions. This is because business model change involves an abrupt change in content consumption costs (i.e., “from fee to free”), facilitating intertemporal discrimination between heterogeneous consumers of content with decreasing novelty, which shortens the content life cycle and so limits LCR potential. These results have important implications for managing ad-sponsored digital content platforms in particular and illustrate the strategic viability of business model change in general.

Suggested Citation

  • Huotari, Pontus & Ritala, Paavo, 2021. "When to switch between subscription-based and ad-sponsored business models: Strategic implications of decreasing content novelty," Journal of Business Research, Elsevier, vol. 129(C), pages 14-28.
    • Handle: RePEc:eee:jbrese:v:129:y:2021:i:c:p:14-28
    DOI: 10.1016/j.jbusres.2021.02.037
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    References listed on IDEAS

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    Cited by:

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    2. Jääskeläinen, Atte & Yanatma, Servet & Ritala, Paavo, 2021. "How does an incumbent news media organization become a platform? Employing intra-firm synergies to launch the platform business model in a news agency," LSE Research Online Documents on Economics 112560, London School of Economics and Political Science, LSE Library.
    3. Essen, Anna & Frishammar, Johan & Cenamor, Javier, 2023. "Entering non-platformized sectors: The Co-evolution of legitimacy debates and platform business models in digital health care," Technovation, Elsevier, vol. 121(C).
    4. Witold Torbacki, 2024. "A Framework for Assessing Innovations, Business Models and Sustainability for Software Companies Using Hybrid Multiple-Criteria Decision-Making," Sustainability, MDPI, vol. 16(14), pages 1-25, July.
    5. Yang, Zhi & Cao, Xia & Wang, Feng & Lu, Chongyu, 2022. "Fortune or Prestige? The effects of content price on sales and customer satisfaction," Journal of Business Research, Elsevier, vol. 146(C), pages 426-435.

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