What is an ethical pricing structure for a marketplace, app, or service?
What is an ethical pricing structure for a marketplace, app, or service?
Can we create services with more transparent pricing?
How much do services take from creators? How do services determine this number?
Youtube charges a 30% fee on all contributions made to its super chat service.
OnlyFans takes 20% of the subscription
Twitch earns 50% of the subscription
Patreon charges anywhere between 5%-12% on top of a payment processing fee which could be anywhere between 5%+0.10USD to 2.9%+0.30USD.
Shopify charges $29 per month, with 2.9% + 30¢ per transaction.
Obviously, it's best for creators to receive the highest possible compensation for their work. Similarly, I believe that engineers should be paid for their work, and the application needs to thrive as a business. The go-to payment processing platform is Stripe, which charges a fee of 2.9% + 30¢ per credit card charge. This fee is unavoidable for credit card processing. It's always going to be there as the starting point. Perhaps sometime in the future, the crypto dream will pay off, and we will do away with credit cards, but as of the time of writing this, credit cards are still the dominant method of online payment.
How can you create a service with more transparent and ethical pricing? I believe this is necessary internally as a company for the employees. I also think that this is beneficial publicly for the users.
Employee Owned Software
I am interested in software companies that are employee-owned. Employee-owned companies are, by nature, more transparent with finances, revenue, profit, and salaries. People need to agree on the finances in a way that benefits everyone. For instance, a vote could be made to decide what to do with monthly or yearly profits. People can vote on what their salary should be, and they can also vote on what price to charge the customer.
Types of Pricing Models
Pricing structures depend greatly on what the service does. Blogs, ecommerce, and video hosting all have different rationales when it comes to pricing. The biggest difference is if the platform makes transactions on behalf of its users, like Shopify and all of the companies mentioned above.
Price Model: Monthly Platform Fee
Shopify, Twitter, Calendly
One type of app could just charge the user a blanket monthly fee for using the platform.
Price Model: Per Usage / Transaction
Twitch, OnlyFans, Youtube Super Chats, Patreon, Twitch
Another type could charge you per transaction made on the platform.
Sharing your operating cost with your users
I am envisioning a service that directly connects with a cloud service provider like AWS or GCP and taps into a "billing" API. The service would then have a page like /transparency, where the site would publicly lay out its operating costs.
Domain Name …$60/y
Database Provider …$800/m
Server Cost …$13,000/m
Employees …$500,000/y
Monthly Operating Cost → $55,472
Current Number of Daily Active Users …$9340
Cost Per user …$6/m (no margin)
The cost per user changes dramatically with the number of users. if you only had 1 user it would cost $55,472 to run the site for that user, 100 users would be $555. With the influx of new users you’ll have more server cost, so there’s a relationship there as well. This poses the question can apps or services be sold at or near cost?
Hosting your own solution
Ultimately, I think that the pricing structure for most of these businesses involves a price analysis between the off-the-shelf solution with a monthly fee or a transaction-based fee, versus "rolling your own" solution. For example, think of WordPress for a blog or Magento for e-commerce. Hosting your own solution is not cheap and can also be difficult to maintain over time. If something goes wrong, you have to fix it yourself.
The Future of Pricing Models
I believe we need a fundamental shift in how new software, apps, services, companies are created. I think they need to be employee-owned and operated. They need to have transparent pricing structures internally and outwardly to their customers. We need to create a new wave of tools and services to support this solidarity economy.