Product Operation: The logic of MiDu APP creating a hit product!

Core ideas:

1. The users tend to be fully quantitative, not the "small town youth" you imagine:

The service provided by the product is "a form of entertainment". Anyone who has free time and an interest in reading novels may become a user of Midu. 95% of users open Midu when they are "bored".

2. The overlap between free and paid users is higher than expected:

More than 60% of the users in the survey sample have used paid novel reading software, so the free novel platforms are actually also trying to seize paid reading users, or screening and attracting those users with low paid loyalty.

3. Rely on advertising to attract new users and content to retain users. AI book recommendations are of great help in terms of duration:

External advertising is the main growth strategy. Currently, Qutoutiao imports relatively little traffic, and whether the content is popular with users is the key to retention. Midu's AI algorithm recommendations, which are rare in the novel industry, can still solve the problem of "book shortage" for many users.

4. Compared with advertisements, free users care more about whether there are garbled characters and product freezes when reading:

Users can distinguish the priorities of their own needs, and advertisements that do not affect their reading needs are acceptable. As long as there is no garbled code, no lag or crash when reading novels, and the content is acquired quickly, watching 200 ads a day is not a problem.

5. In the future, the paid model and the free model will coexist in a long-term competitive mode:

Paid online literature represented by Yuewen will gradually develop towards the IP boutique route, while free platforms represented by Midu will strengthen recreational and quick reading. They need to urgently solve the problem of insufficient content inventory, which is why Midu will take the lead in supporting original authors. However, in the long run, the two companies will definitely bring the war to each other's battlefields.

The text is as follows:

The year 2018 saw the online fiction market transform from being dominated by a paid model to a situation where both free and paid models coexist. The trend can be seen from the 2018 financial report of China Literature Group. The payment rate of the China Literature platform has dropped from 5.8% in 2017 to 5.1%, and the average monthly paying users have also dropped from 11.1 million in 2017 to 10.8 million. Affected by the free novel model, the number of paying users has shown negative growth. Subsequently, China Literature Group also launched free novel products for strategic defense.

In the past year, Midu was the first to launch the free novel reading model, and it has maintained a high growth trend to date.

According to the data disclosed in Qutoutiao's 2018 annual report, from its launch in May to December 2018, MAU increased by 41% month-on-month to 27.19 million. According to the relevant data of Midu from the third-party agency QuestMobile, Midu's daily active users (DAU) increased by 25% to 6.22 million in the first quarter. The growth rate of Midu has surpassed that of its parent platform Qutoutiao.

Although the data shows that Midu's free model has disrupted the paid model of the online literature market, I still have a question: Is the overlap between Midu's users and paid novel users high enough? What is the user profile of the Midu product? Can Midu’s advertising model really be accepted by users? What is the real living situation of MiDu?

With these questions in mind, I joined the Midu user group and selected nearly a hundred Midu users for one-on-one communication. I discovered some cognitions that were not consistent with what I had imagined. Next, I will try to use Midu as a representative product to record and discuss with everyone the real survival status of free novel products.

Before I had in-depth conversations with Midu users, I tended to believe that Midu users tended to be younger. I also idealistically believed that Midu was Qutoutiao’s second venture in the sinking market. Users in first- and second-tier cities would not be loyal fans of Midu. I imagined that most of the people who read Midu novels on their mobile phones were "small town youth."

Later, I obtained enough survey data and found that Midu users tend to be fully quantitative, and their common characteristic is that they love entertainment products.

I found the official QQ group from the Midu app and tried both online questionnaires and private interviews to obtain user opinions. The core data came from one-on-one interviews. I have organized and visualized the data, and from a statistical perspective, if the data follows a normal distribution, a sample size greater than 30 is considered a “large sample.”

The user research part of this article is analyzed only according to the sample data obtained. If the data is found to have large errors compared with the actual data after being cited, the author will not be responsible. When citing the data, please indicate the link of this article as the source.

1. Who are the users of Midu? Where are you from?

1.1 Users prefer to use entertainment software

Every user has his or her own frequently used software. Of course, all of Midu’s core users frequently use Midu, so the overlap rate of Midu’s frequently used software is 100%. Taking Midu as a reference, I found that the overlap between Douyin, Kuaishou, and Honor of Kings, which are applications that make users happy, is very high.

A common feature of these softwares with high overlap is "entertainment", which are all used to kill free time.

1.2 Midu users prefer full quantification

We obtained a macro data reference from a third-party platform and a QQ group of 2,000 people. The survey data was also randomly selected from 2,000 people. The survey data obtained micro-specific characteristic distribution, and combined with the macro data to make weight adjustments to obtain the following data.

There are still more males, and there is no obvious bias in the overall gender ratio; in terms of age, those born in the 1990s account for the largest proportion, followed by those born in the 1980s and 2000s, and those born in the 1970s, 1960s and before 1960s are not far behind, covering a wide age range; among the cities where people reside, the largest number of users are found in second- and third-tier cities, and there are also many users in first- and new first-tier cities, and the distribution of urban clusters is relatively even.

Judging from the distribution of gender, age and city, Midu's users tend to be comprehensive. It seems that this type of recreational application product is not picky about people. Anyone who has leisure time and is interested in reading novels may become a Midu user.

1.3 Users come from both paid competitors and industry growth

After having a clear understanding of the user profile of Midu, I would like to know whether most of the users come from competitors and where the future growth space for Midu lies.

Then I surveyed users to see if they had used paid novel products. The results showed that more than 60% of users had used them, 35% had not, and a certain number of users were unaware of the existence of paid novel products.

Judging from the data, Midu not only attracts those people who used to look for pirated novels everywhere, but also "plunders" a large number of people who originally read paid novels but want to try the free model. At the same time, Midu can also attract users who originally had the need to read novels but were unwilling to pay and had no channels.

Reading novels for free is a cost-free way of leisure, and it can also inspire some people who have a lot of free time but have never read novels to try them out for free.

The Midu model can not only compete for industry stock and "snatch" users from competitors with paid models; it can also tap into industry growth, break through the bottleneck of the paid model, and significantly raise the growth ceiling of the online novel industry.

2. Why do users come? Why stay?

2.1 The user stay time is amazing, which is consistent with the characteristics of immersive reading

The best user activity status for reading products is to be online for a long time continuously, which is essentially competing for user time with daily Douyin, Kuaishou, and Honor of Kings.

Among the surveyed users, reading for 1-2 hours a day is basically the standard, which is also in line with the immersive reading scenario; during the special leisure time such as weekends, the longest daily stay time of users can reach more than 6 hours, which also reflects the strong appeal of Midu novel content and the willingness of users to stay on the platform for a long time.

2.2 Free is the biggest weapon to attract users

When investigating how users were impressed by Midu, users said:

"Their service is free, and reading novels is free. Novels are also quite attractive to me, so I was attracted to them." - From user: Little Fairy

"The main thing is the wonderful content. Some of the novels are original and exclusive. Secondly, they are free." - From user: Xue Manman's Blue Friend

The vast majority of users are attracted by the free and authentic innovation, and become interested in Midu products out of curiosity. The content of Midu suits the users' tastes. Users do not have to pay out of their own pockets for their favorite content, which makes Midu a natural choice for users to kill time. Playing games is also playing, reading novels is also playing, and the most important thing is to have fun.

Compared with paid novel products, being free is the biggest advantage of Midu that attracts users and the most direct reason for users to choose to try it.

2.3 Content that makes users feel refreshed is the biggest reason for them to stay

There are many free products, but products with large traffic are rare; the fundamental reason is that users are not sensitive to them. A product that cannot make users feel anything is soulless. If users can’t remember you, they won’t open your app, and may even uninstall it. If you want to retain users, you must rely on some kind of service to make them feel good.

According to feedback from surveyed users, users can always find a novel they like on Midu, and the works recommended by the system suit their tastes. Just like Toutiao distributes information content, Midu distributes novels through algorithms, so that the platform's novels are activated to the maximum extent, and there is no longer a gap like paid novel platforms where "80% of traffic is attracted by 20% of top works."

The overall quality of novel content on free novel platforms is definitely lower than that on paid platforms, but this does not greatly affect user retention. The rise of information products such as Toutiao has verified a truth: "The judgment of content quality is stereotyped, but user tastes are varied. Content of different qualities is pushed to users with different preferences through algorithms, which will ultimately satisfy users with various reading preferences."

Among the popular novel genres, urban series are the most popular, followed closely by fantasy, supernatural, science fiction and suspense. I remember when I was in junior high and high school, people still preferred to read romance novels. Now, people’s tastes tend to be more stimulating, imaginative and virtual reality works. As for why they like it, Midu users said:

"Supernatural suspense novels are more exciting, and give you a feeling of both love and fear." - From user: Su Ranran

"Urban novels generally write about the heroism of the protagonist, as if one's dreams in real life have been realized by others." - From user: Wumingxiaoxiannan

"I didn't have much preference at first, but the system recommended an urban novel with tens of millions of words, which I haven't finished yet." - From user: When the Wind Rises Again

From the comments of the surveyed users, we can see that everyone is very satisfied with the content of Midu Novels. Because even if you don't know what to read, you can find works that are highly readable and can stimulate your visual sense based on system recommendations. I think when it comes to reading novels, the reason why users choose Midu is because its content can bring them a stimulating feeling, making reading novels a good choice to kill time.

3. In what scenarios should MiDu be used? Do ads make the reading experience bad?

Although the content of MiDu is good, it also has a lot of advertisements. I roughly estimate that one advertisement will appear for every nearly 600 words of content. For example, "Super Soldier King", which ranks first on the Midu Popularity List, has been serialized for 22.72 million words. Currently, more than 30,000 advertisements will be displayed during the entire process of reading this novel. The current popularity value of the novel is 31.35 million. I can't help but wonder, do so many users really not dislike ads?

3.1 Killing time is the main purpose, and leisure is a necessary condition in the scene

The main purpose of users reading novels is to kill time. There are also many novel fans who, when they encounter a novel they like, will read the novel alone and ignore other recreational activities.

When talking about the circumstances under which users use Midu, I found that a common feature is "leisure time". The word most often used by users is "when bored". Reading novels is essentially a leisure activity. You can open it and read it anytime and anywhere to relax yourself. However, if you read too hastily, the experience will actually be unpleasant, and you will always feel like you haven't read enough. User feedback has also further verified that novel reading requires a certain amount of free time.

In terms of time, it is before going to bed at night, commuting to work, and staying at home on weekends, which are all relatively complete leisure time; in terms of space, subways and buses, campus dormitory study rooms, home living rooms and bedrooms, as well as offices, dormitories, factories and other places. At these times and in the corresponding spaces, users need a kind of stimulation to make themselves less bored, that is, to kill time; or to relax themselves when they are busy and tired, or it can be a kind of companionship when they are lonely.

To use the user's words to describe the usage scenario:

"Most of the time when I'm alone, I need something to consume my attention. Now that thing is a mobile phone. Playing something on the phone is another choice. Reading novels is a prominent choice among many. Immersing myself in the novel can help me forget my worries. Sometimes I wonder if the characters in the novel will appear in reality. In short, it has a kind of attraction that is hard to describe." - From user: Seven seconds of memory is not enough

3.2 The free + advertising reading model is not as bad as imagined

I always thought that everyone couldn't stand the frequent appearance of advertisements, but it turned out that I was wrong.

Among the users I surveyed, the vast majority said that they came to read novels, and advertisements would not prevent them from reading novels; at the same time, they also understood that the platform needs to make money, and since novels are already free, it is normal to earn advertising fees. ”

Without affecting the common understanding of reading needs, there are also different voices. Some users feel that the way Midu ads are displayed is more user-friendly. It is in the form of "one ad occupying one page" and you can just scroll past it. It has little impact on the reading experience.

Some users explicitly stated that of course there is an impact, but it is generally acceptable; some users are particularly rational and think that "they are here to read novels, and nothing else matters"; a small number of users who are sensitive to ads complain that "the ad display area is too large, which makes it easy to miss clicks, and we hope for improvements."

In further discussions with users about whether they can adapt to the reading format of free novels + advertisements in the long run, most users said that "the product is good overall and I can adapt to it. Don't be too greedy." There are also quite a number of users who said that they are able and willing to pay to remove advertisements, and there are also demanding users who hope to have no advertisements.

When talking about what users care about most when reading novels, everyone emphasized that the product functions must be stable and not crash easily.

Generally speaking, advertising has not become a reason for users to give up Midu. Midu users pay more attention to content and product experience. As long as there is no garbled code, no lag or crash when reading novels, the content is acquired faster, and the overall stability of the product is good, users are actually satisfied.

4. What is the logic behind Midu’s creation of popular products?

4.1 Create original content to continue to attract novel fans

Midu is constantly exploring incentives to support original authors. For the author group, income is the most important thing. They will choose the platform that has more revenue, more imaginative revenue potential, and a user group that is more suitable for their works.

Before the emergence of genuine free novels, authors could only post their works on products such as Yuewen and let users pay to read them. Except for the top authors, the paid subscriptions of most other authors are pitifully small. It is rare to earn hundreds of thousands or millions of dollars at a time by operating copyrights and adapting works.

In addition, pirated websites provide free reading access to "hand-typed" plagiarized works, making it difficult for authors and reading platforms to protect their rights. For example, a work by a top author may have 1,000 chapters, but when searching for reading links, you may find millions of them. The number of pirated copies is unimaginably large, and any work with a little bit of fame has been pirated repeatedly.

The cost of defending rights far exceeds the benefits, and it is a thankless task for authors. Many authors simply allow piracy to occur, and can only hope that fans of pirated websites will be moved after reading their works and return to the paid platform to subscribe. Over time, long-tail authors will lose their creative motivation and will not regard writing novels as their main job. The fundamental reason for this is the absolute bias of traffic and revenue on paid platforms.

Free platforms are more open and provide more balanced opportunities. I also found a group of novel authors in the user group of Midu. When they recommended their novels in the group, I recognized their identities.

Several authors’ feedback on the income of the Midu platform is that “the platform currently has three ways to obtain income, including attendance awards, guaranteed income, and advertising revenue sharing. The attendance award means maintaining a stable chapter update every day, and just keep updating. The most distinctive part of Midu’s income source is advertising income, and it is also the most worth looking forward to.”

Compared with the revenue from user paid subscription purchases on paid platforms, the advertising revenue from free platforms is more imaginative. The traffic of paid platforms is mostly concentrated on top authors. For most other authors, having 100 paid subscribers is considered a place on the platform. If they have more than 1,000 paid subscribers, they will be able to create a gap with tens of millions of writers.

However, free platforms do not advocate the head effect. Free platforms break the payment threshold and have a large enough user base. Just like Toutiao, Douyin and Kuaishou, novice writers can also get high exposure, rely on the platform's algorithm to match precise groups of people, and then obtain advertising revenue.

Especially for platforms like Midu with insufficient content stock, due to the influence of paid platforms exclusively purchasing copyrights, the content that Midu can purchase copyrights for a second time is limited. It must take the path of self-produced content, support original authors, become the publisher of works itself, obtain exclusive copyright authorization for original works, expand the stock of works, and rely on AI algorithms to satisfy users' various reading tastes.

Therefore, it has been observed that on the occasion of its first anniversary, Midu launched a comprehensive original support plan, spending huge amounts of money to expand the platform's content stock, giving original authors higher signing fees and appropriate traffic inclinations, allowing authors the opportunity to earn millions or even tens of millions of dollars in revenue, thereby attracting more authors with sustained original abilities to contribute their works, gain income on the platform and the satisfaction of having their works recognized.

4.2 Continue to grow user base

According to Qimai data query, Midu's ranking trend in the App Store in the past year: it was launched in May 2018, entered the top 100 free book list in August, and entered the top 30 free book list in October, and its ranking rose rapidly.

In the past month, Midu ranked as high as second on the free app list and hovered around 10th on the overall free list. Presumably, on its first anniversary, Midu did something that could stimulate growth.

According to the screenshot feedback provided by the surveyed users, Midu is running an event to reward new users. The theme of the event is "Earn 20 yuan by inviting friends". Friends will be rewarded 6 yuan for reading novels for 3 days, and cumulative rewards will be given to the inviter. Users who provided screenshots earned relatively good income. However, this type of subsidized customer acquisition method is unsustainable. It can only assist in increasing traffic and creating a brand effect. Long-term growth still depends on a sustainable customer acquisition method.

4.3 Customer acquisition is mainly based on advertising strategies, and technology reduces costs

For Midu, the way to acquire a large number of users in the short term is to place advertisements, and social communication is only used as an auxiliary means.

Midu’s chosen delivery channels include both online and offline. Online channels include time-killing apps such as Kuaishou and Douyin, while offline channels include going to train stations, bus stations, and other places with large crowds, including trains.

When investigating how users obtained the product Midu, the vast majority of users saw it from mobile phone advertisements, with a small number coming from friend recommendations and app store rankings. Judging from user feedback, Midu’s ads are very attractive.

Users attracted by the ads said: "TikTok is too powerful, and Midu's ads on TikTok are so popular."

Users who were recommended by friends said: "My friends around me are using it, and my friends recommended it to me."

In addition to external advertising, many competing products have novel reading functions in their parent company's products. For example, there is a novel channel directly in the express version of Toutiao, while Midu only has an account in Qutoutiao and a relatively hidden promotion entrance. One detail is that due to relevant policies, the iOS side does not have a Midu entrance and no promotion rewards.

It can be seen that the growth of Midu at the current stage does not rely heavily on the traffic of Qutoutiao, but mainly relies on its own advertising strategy to acquire customers. This means that Midu has done a good job in reducing customer acquisition costs through technical means. Otherwise, no matter how much money is invested, it may not necessarily generate great returns.

In terms of brand building, I saw through Midu’s Douyin account that they have invited a number of celebrities including Yang Youning, Chen Baoguo, Yu Qian, Chen Xingxu, etc. to recommend videos.

At the same time, the Douyin account also arranges reasoning questions based on the content of Midu novels for fans to guess, and then announces the answers in the next issue. I think the content is quite interesting, but as of now, Midu Douyin has only 27,000 fans, which further verifies that short videos placed in advertisements are the main source of customer acquisition.

The growth logic of Midu’s customer acquisition strategy is probably the same as that of Qutoutiao. First of all, we need to open up the dimensions of obtaining various data from the distribution channels to the users coming to the platform, so as to effectively measure the effect of each step.

For example, which material is better for short video ads? Which landing page of each advertisement is more suitable? Is the interface for jump download stable? Are the app store descriptions and screenshots attractive and are the descriptions clear?

Although you can use it without registering after downloading, you need to register and log in to complete tasks and sign in to get points. Users who can reach this step of registration are already quite valuable, and the optimization of the registration process is also very important. These data monitoring and subsequent technology-driven optimization are what Qutoutiao excels at, and are also an important guarantee for Midu to reduce customer acquisition costs.

4.4 Content is the foundation of retention and activity, and task gameplay is an active tool

The novel industry is currently basically exclusive content. The novels in each reading product may not be found anywhere else, and the same is true for the novels in Midu.

When users were asked when they would migrate to other platforms, they all said that they would finish reading the novel they were currently following, and that they also had other novels they were following on other platforms.

So when asked how many novel readers they are currently using, the vast majority of users said they are using 2-3 products at the same time, and they mainly choose products based on the content of the novel.

Therefore, the content stock and attractiveness are the fundamental reasons why novel users stay, followed by the cost of acquiring content. Midu is free to read and the reading cost is 0, which is the core of its user retention.

A good Internet product not only has content that attracts users, but also has to create interesting or beneficial gameplay. For example, the most typical way to play Qutoutiao is to earn coins by reading, which can be redeemed and withdrawn, and rewards can also be obtained by inviting people. However, Midu did not take the path of continuous money-burning gameplay.

The main focus of Midu is task rewards, and the most important reward is “no ads”. Advertising is the main source of revenue for Midu, so why do we need to complete tasks to avoid advertising? I think that "completing tasks to get ad-free and the income from advertising itself are not mutually exclusive". Users need to log in, sign in and read tasks continuously to get the right to get ad-free. How much time does it take to get ad-free?

I calculated that it would take 258 Mi Beans to get rid of ads for one hour, and 1288 Mi Beans to get rid of ads for one day. I completed all the tasks obtained by Mi Beans by default.

For example, if you sign in for 7 consecutive days, watch an ad for 7 consecutive days, answer questions for 7 consecutive days, or read for 2 hours for 7 consecutive days, the maximum number of Mi Beans you can get after 7 days is 1,000 Mi Beans, which can only be exchanged for 3 hours of ad-free time.

The logic of the task system is basically the same as that of the regular points system, which is to reward super users. For financial products, super users are those big financial customers, and super users of e-commerce are high-frequency and large-amount shopping users. This strategy can be implemented, but it will not become the core driving force for retention. It is only a tool for active users.

In addition to completing tasks without ads, you can also purchase membership to be ad-free. The membership fee is equal to the advertising revenue contributed by users on the platform, so the membership fee will not be too cheap. This is also the fundamental reason why Midu users think the membership fee is high.

In addition to systematic retention strategies, there are many retention details. For example, it provides guidance for new users, whether they are registered or not, recommends works based on their interests, has clear Q&A and feedback portals, establishes an official feedback QQ group, and expands the content gameplay from reading novels to playing mini-games.

The product has free novels and free web games, and users can independently upgrade their novel and game experience. Users can sign in and complete tasks to obtain multiple privileges and multi-platform coupons. These multiple "benefits" are helpful for user retention.

4.5 The product structure is reasonable and the core demands are met

I tried using Midu Novels and disassembled its functional structure, and I found that "even when not logged in, Midu Novels can still meet the needs of reading novels, the necessary advertisements are still there, and the games in the game center can still be played."

At first, I thought that the product logic of Midu was "generating traffic and collecting advertising fees". The account system of traffic products does not have much effect on commercialization, and advertisers are not interested in Midu's account system. What is important is that someone has seen the advertisement, downloaded the product, and has an account when registering the advertiser's product.

But then I found out that "you don't need to log in to use the main functions, but if you want to have further interaction with Midu, you have to register and log in." Users need to register and log in to complete tasks, become members and enjoy ad-free services, or participate in short-term promotional activities, because these processes require the use of accounts to confirm participating users as a unique identifier to identify users. It can be seen that Midu is also vigorously promoting the account system.

I think the core logic behind this is to promote and improve the "AI book recommendation" function. In fact, most novel users have "difficulty in choosing books" or will fall into "book famine" after reading a book. If Midu wants to introduce an artificial intelligence calculation system, it must understand user behavior, and must allow users to have an account to represent their reading preferences.

In addition to promoting the "AI book recommendation" system to effectively solve the pain point of users' difficulty in choosing books, the value of the account system also lies in encouraging users to upgrade their reading experience, and being used for membership management so that members can continue to renew their memberships.

Overall, Midu has a reasonable functional structure, and has extended many functions to attract users and satisfy advertisers around the core demand of retaining traffic and displaying advertisements.

For example, for advertisers, how can we make them feel that the new channels are effective in acquiring customers?

After my test of advertising display, I found that Midu has diverse advertisers, including well-known companies such as Ctrip, Douyin, MissFresh, Pinduoduo, etc., as well as unknown advertisers of casual games, social e-commerce, and rebate e-commerce. I personally think that such new channels are still very popular among advertisers.

The way advertisements are displayed is to display an advertisement in the center of a screen. Novels are usually read in full screen, so when an advertisement is displayed, there is only one advertisement in the entire screen. In addition, the repetition rate of advertisements is very high, which is in line with the delivery characteristics of "repetition is easy to remember and easy to adopt". After all, many users only scroll past the page in one second and may just glance at it. Only repetition can form a deep impression.

In addition to the regular advertisements within novels, Midu’s advertising space can be described as “exquisitely crafted”. When signing in to complete tasks, and at the last position of the bookshelf, there is a hanging page entrance. Many processes and entrances are placed by advertisers. They look like benefits on the outside, but they are actually advertisements on the inside. For ordinary users, they may not be able to tell the difference, so it gives advertisers the opportunity to obtain customer leads.

For Midu, there is no advertising value without users, and there is no motivation to serve users without advertisers. Balancing the respective needs of the two and making reasonable choices is the key.

At present, Midu uses algorithmic recommendation and matching to identify existing works, and the tailor-made distribution can satisfy users' different reading tastes. In addition, users' aversion to advertisements is relatively low, so advertisers can expect high returns on their advertising on the platform. The demands of both parties can still be met, but with the changes in time and the growth of the market, the future is uncertain.

5. Analyzing Midu’s business model from Qutoutiao’s financial report

5.1 Business feasibility

Is it really possible to read novels for free?

The novel industry initially rose with the user-pays model. Payment platforms spent huge amounts of money to exclusively sign top authors, forming a monopoly on novel content, and then launched a "paid reading" service. People who are willing to pay for novels are mostly first- and second-tier users. They pay in exchange for time. Such commercial services keep most people out of the industry.

Subsequently, pirated novel websites emerged. The business of relying on pirated novels to gather traffic and sell advertisements has been rampant despite repeated bans, and a large number of users are willing to spend their time to pay for it.

The essential difference between pirated websites and paid platforms lies in: who pays for the work? It is the users who pay the bill for platforms like Yuewen, and it is the advertisers who pay the bill for pirated websites. However, pirated websites do not have copyrights and have never been able to come to the fore until regular free players with copyrights enter the market and fully continue the traffic business that pirated websites cannot sustain.

The existence of pirated websites for many years has verified the demand of many novel fans for reading free novels. Midu Novels first attracted this type of users, and then gradually differentiated into people with reading experience in various industries. The business feasibility is obvious. The free novel business has no shortage of users. It just depends on whether the business operating costs can be controlled so that the revenue brought by users can cover the costs.

5.2 Commercial feasibility

It is obvious from Qutoutiao's financial report that high growth is used to cover losses, that is, strategic losses. The high growth of Midu also gives Qutoutiao another good story to tell, leaving a lot of room for growth in Qutoutiao's overall revenue.

Advertising revenue must be the main source of income for Midu. Membership fees and other income are simply income earned from meeting the special needs of users. Therefore, the key point of whether the business model is feasible lies in how much advertising value can be generated by users acquired through free novels?

If we ignore other income besides novel advertising, we can use the revenue from novel advertising to quantify the overall monetization value of Midu.

The overall monetization value of Midu = average advertising revenue per user A*user base N,

Similarly, Yuewen's overall monetization revenue = average daily payment cost of a single user a*number of paying users n,

The number of paying users of China Literature in 2018 was 10.8 million, and the user base of Midu has long exceeded this figure, with an average daily active user base of 6.22 million. Active users are the main force contributing to advertising revenue. According to preliminary estimates, as long as A reaches 60% of a, the commercial value of the free advertising platform will be comparable to that of a paid platform.

The average advertising revenue of a single user is closely related to the length of time the user is online. With the same user base, the longer the online time, the higher the advertising revenue will inevitably be. Currently, in terms of user time, free users may stay longer than paid users. After all, as time goes by, the user expenditure cost of paid reading increases significantly, while free reading does not have this problem. Excluding the time cost, free users are more likely to immerse themselves in reading for a long time.

Therefore, from the perspective of revenue from the business model, Midu's business model is relatively benign. The key point lies in how to solve the problem of content costs, and there is still a long way to go.

5.3 In the future, the paid model and the free model will be divided into two categories, and it is predicted that they will become more and more two-tiered.

In terms of future revenue, a recent mobile internet online reading insight report by QuestMobile predicts that in 2019, based on the current active data and revenue of free novels, advertising revenue will reach 3.09 billion; and last year, the paid reading revenue of Yuewen + Zhangyue was 5.484 billion, which is equivalent to rebuilding half of the reading industry, and the revenue prospects are considerable.

However, in terms of user growth, Midu is facing defensive resistance from the paid novel giant China Literature. The free products launched by China Literature can be considered as "blow the fire to the opponent's position" to some extent. In addition to Yuewen, there are many other free novel products that have emerged, and the external competition is fierce. Although users will choose 1-3 products to use at the same time, it is still uncertain whether Midu will be selected.

In addition to external competition affecting user scale, internal defects also have an impact. There are also many minor flaws in the MiDou product. Most users say that MiDou is good overall, but there are various minor problems, such as freezes when traffic is too heavy, excessive product cache, slow payment of membership recharges, and other usability issues that are discussed in the group every day around MiDou customer service.

Under the condition that the industry business is feasible and the business model is healthy, I hope Midu can pay attention to the stability of its own products. Facing future market changes, I wish Midu to continue to maintain high growth.

Paid novel giants have been around for many years, and we hope that free novels can also produce a new giant with good experience and service.

Author: Eric｜Wang Liang

Source: Operational Model