FOUR MYTHS OF BUNDLING
Background: Isn't bundling a bad thing?
Over the past decade, my opinions on paid subscriptions and bundling have changed 180 degrees. And I’ve come to realize that some of my previous misconceptions are fairly commonplace. This doc is a discussion of 4 myths that I’ve heard regularly... and the 4 theses I would replace them with.
But first, a bit of background on my journey. Before founding Coda, I spent a number of years as a Google executive responsible for the YouTube products. When I joined YouTube in 2008, it was fairly clear that our primary monetization model would be advertising ー but even still, there was always an item on our backlog to try different forms of user-paid offerings. We tried many experiments, but in those first few years, most were not very successful. As we reflected on why, I noticed a common pattern. Every idea we tried started with a similar premise ー we wanted paid offerings, but we didn't want to repeat what we saw as a "mistake" in the industry. Often it wasn't even stated, but every discussion started with an implicit view that "Bundling is Bad". And to be very clear, I was one of the most avid proponents of this view.
Recognizing this pattern, I became a student of bundling. I read everything I could on the topic. Chris Dixon has an that sparked the initial ideas. There's of course the , "Gentlemen, there’s only two ways I know of to make money: bundling and unbundling." I also reached out to many smart people to learn more ー starting with strategists and executives at media companies but gradually broadening. Eventually, I arrived at the conclusion that I had it backwards, and that many of my previous conclusions were incorrect. Per the title of this doc, I started developing a set of "Myths of Bundling".
When I left YouTube in 2014 to start Coda, this topic continued as a bit of a secondary hobby for me and my thoughts on the "myths of bundling" continued to expand. I started investing and advising a few companies in related spaces, including joining the board of Spotify (after realizing that Daniel Ek shared a lot of my views). Over the years, my framework for bundling has developed into a useful set of new principles. I've found these principles to have a profound effect on many business situations, and have shaped my views on broader topics as well.
Introducing the Four Myths
This doc represents a new framework for thinking about bundling. It is presented as a series of four "myths", each one followed by a new "thesis" statement. I have a background in mathematics and so tend towards understanding concepts with mathematical language ー but each one is also paired with a narrative that explains the myth and the new thesis.
The narrative is told as a discussion with a fictitious "Myth Maker". As you read it, you can picture many people you may know who share some of these views (perhaps yourself), but as I wrote it, I was mostly using it as a label for "old me" ー i.e. my own personal views from a decade ago.
Here’s the high level summary of the 4 Myths. We’ll work through these one-by-one in a moment.
Thesis 1: When done well, bundling produces value for both consumers and providers by giving access for (and revenue from) CasualFans.
Thesis 2: The most fair way to distribute revenue to providers in a bundle is by Marginal Churn Contribution, not Usage.
Thesis 3: For a Consumer to properly value a bundle, there must be a transparent (and reasonable) a-la-carte price for each of the products in the bundle
Thesis 4: The best bundle is one that minimizes SuperFan overlap and maximizes CasualFan overlap
Why does this matter?
For a while, my thinking on bundling was just a fun hobby for me. Over time, I recognized that this set of principles was somewhat fundamental and has reshaped my views in a number of ways.
I've included a set of discussions on predictions and implications in the section of this doc. But here's a bit of a teaser of where this discussion may lead you:
But before we get to those conjectures, let's establish a common framework through the 4 myths.
Prefer to listen or watch instead? Here’s a few interviews I’ve done on this topic
Patrick leads a great end-to-end discussion on bundling.
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Ben’s super thoughtful take. Subscribers only ...I highly recommend subscribing!
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Good video walk through in presentation form.
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A few other extras before you start
I've given a number talks on this topic, and have developed a slide deck that I use regularly. For faster reading, feel free to start with this:
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Chris Dixon’s helpful primer
) that also has a lot of the early comments / conversations. Feel free to read those to learn more history. A huge round of thanks to the following folks for reviewing and contributing to this doc. Their comments have made it immensely better (and any remaining shortfall is entirely my fault!): Trip Adler, Gene Alston, Sean Atkins, Prabhu Balasubramanian, Nikhil Chandhok, Rachel Colson, Ben Davis, John Donham, Shreyas Doshi, Daniel Ek, Phil Farhi, Wade Foster, Julius Genachowski, Kristin George, Daniel Graf, Manik Gupta, Jeff Holden, Brad Hoover, Matt Hudson, Sujay Jaswa, Sethu Kalavakur, Sriram Krishnan, Zachary Lloyd, Mike Mignano, Kavin Mittal, Sreejit Mohan, Alex Norström, Will Page, Tom Pickett, Rich Pierson, Shiva Rajaraman, Vishwa Ranjan, Peeyush Ranjan, Jay Richman, Jonathan Rochelle, Sam Rogoway, Richard Sarnoff, Aaron Schildkrout, Lane Shackleton, Hiten Shah, Ben Silbermann, Tom Staggs, Kevin Thompson, Eugene Wei, Ev Williams, Larry Zhong
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