Free vs. For a Fee: The Impact of Information Pricing Strategy on the Pattern and Effectiveness of Word-of-Mouth via Social Media

Given the new realities of the digital age, information goods providers like print newspapers are experimenting with different pricing models for their online content. However, it is not clear how information pricing strategy may influence word of mouth (WOM) via social media that has emerged as a dominant channel for raising awareness about a newspaper’s articles and acquiring new visitors to newspaper’s website. Using NYT’s paywall rollout as a natural experiment, our study examines how a firm’s information pricing policy (i.e., a shift from “free” to “for a fee”) influences the pattern and effectiveness of online word-of-mouth (WOM) in social media. Specifically, our results indicate that implementing a paywall (i.e., charging for the content which was earlier available for free) has a disproportionate impact on the WOM for popular and niche articles, creating a longer tail in the WOM (i.e., content sharing) distribution. Further, we find that the impact of WOM on NYT’s website traffic weakens significantly after the introduction of NYT’s paywall. These results show that information pricing strategy has implications for product and promotion strategies. These results show that information pricing strategy has implications for product and promotion strategies. The study offers novel and important implications for the theory and practice of strategic use of social media and information pricing strategy.