The Information’s Pricing Totally Makes Sense – You’re Dumb If You Think It Doesn’t

I’ve been thinking a whole lot lately about the pricing model Jessica Lessin and her team decided to go with for their latest premium tech site, The Information. And here’s what I’ve concluded: if you mind the price, or even think that it’s remotely expensive, then they don’t want you. They don’t want you to subscribe to them, or you to even read their stuff. Because it’s not meant for you.

When Lessin released the pricing structure for The Information ($399 p/year and $39 p/month), outrage filled the Internet.

How dare those people release something that exorbitantly expensive when everything is free now? (A personal favorite of mine is one by Business Insider’s Nicholas Carlson on Twitter – “CYBER WEDNESDAY DEAL: Pay me $199 per year and I will tell you what they’re writing about on @theinformation.”)

But here’s the thing: at the end of the day, what The Information will be is a profitable site that pays its writers a very decent amount of money for the work they do without ever having to resort to things like 109 Cats In Sweaters. Or click-bait headlines. Or stories about sex, drug or alcohol. In other words, the folks at The Information will be doing what everyone who works in the tech news industry would love to do, ideally: breaking actual news that’s helpful to the people working in the same industry. And they can do so at a profit!

Think about their pricing structure – it’s really basic math! One subscriber = $399. So that means, suppose as many people sign up for The Information as they have for Business Insider’s pro-subscription service, Intelligence (number is “up to thousands”, according to one editor) – let’s just assume it’s 5000 (although I’d bet it’s over 5000 rather than under) – The Information would be raking in close to $2 million every year. That’s not counting the number of subscribers who are using the monthly-paid plan. And The Information is only staffed by eight people.

Eight.

Once again, basic math: suppose they get another 5000 people to subscribe monthly, but they only subscribe for six months for whatever reason. That means they’ll earn roughly another $1.2 million in revenue. So total revenue for one year: $2 million (year-long subscribers) + $1.2 million (monthly-subscribers) = $3.6 million. Okay, let’s suppose they used superior infrastructure and send their reporters all around the world to discover potential news stories, and their overhead monthly sets them back at $75,000 (just a hypothetical number – fairly sure actual numbers are way lower). $75,000 X 12 months = ~$1 million. So with everything accounted for, they would be earning approximately to $2.6 million.

Let me repeat that.

Every year, the team of eight at The Information will earn $2.6 million. If they split the revenues up evenly, each person on the team will be earning up to $325,000.

All of that, without having to be held accountable to investors/VCs (PandoDaily), super-sized media organizations (Engadget/TechCrunch with AOL) or anyone else other than their subscribers, who they’re interacting with directly. As long as they can prove that they’re worth (so far they have, as far as I know) the subscription price, they’re in the clear. They don’t really have much else to worry about. On the other hand, sites like Engadget is beholden on three fronts: to their parent companies (to make sure none of the execs/products are defamed in the stuff they write), readers and advertisers (can’t write anything that pisses them off!).

The Information’s pricing model frees themselves from such restrains. And maybe that’s smarter than what you might have thought before.

UPDATE:

Commenter Craig Silverman makes a great point over at GigaOM: a subscription to The Information – because of its premium content –  can be justified as a business expense. In this case, most of their readers won’t even have to pay that high $399 p/year price themselves – their companies will do it for them. That alone should make the subscription model way more attractive to the many folks out there for whom the site is targeted towards.