Choice of Business Model and Pricing Strategy with Ad-Sponsor and Subscription Fee

Abstract

This paper studies the strategy and best pricing tactics of two-sided platforms, and analyzes how the platforms will perform when facing both ad-sponsors and subscription fee. Researchers Researchers focus on the video websites as the research object, due to the peculiarity and negative cross-group network externalities of video websites. Based on the revenue structure and operation model, this paper considers 3 business models, including pure ad-sponsored model, pure subscription model, and a mixed model. With the help of modeling and game theory, researchers get the equilibriums of these three models. The result shows that, the pure model will incur a fixed portion of audience, if the platform wants to expand its customer, it needs the mixed model. Meanwhile, success of the mixed model depends on the add-on utility gained by VIP users compared with the free uses. The findings of this paper could contribute to development of video websites during the early and mid in their lifecycle.