Also, very meaningful shift in the free/ad supported internet biz model:
nytimes.com
<<A New Model for the Internet: Fees for
Services
By DENISE CARUSO
o their great shared financial benefit, Internet investors and
entrepreneurs and the market analysts who serve them have
convinced one another and most of the rest of the world that the
only truly Internet-centered business model is one in which online users
pay nothing for content.
But the facade of this piece of Internet mythology is sprouting cracks.
Advertising underwrites virtually all commercial Web sites and serves as
the multibillion-dollar foundation for the entire Internet economy. But the
number of people who click on banner advertisements has dropped
precipitously over the past year. And a new genre of software has
emerged to block ads entirely. Add to this mix a growing consumer
perception that "you get what you pay for," and the free-content argument
looks increasingly threadbare.
"Everybody in this medium is moving away from the ad-supported model
and toward the transaction model," says Mark Anderson, the president and
editor of the Strategic News Service Online newsletter, which forecasts
trends in technology and business. "People are using the Internet for
transactions -- all kinds of transactions -- and things that are not
transaction-related are not very interesting to them."
In March, for example, Sony Online Entertainment offered an online
role-playing game, Everquest, that requires both a $25 CD-ROM and a
$10-a-month subscription -- not exactly an easy sell. But in a response that
surprised even Sony, after only four months more than 120,000 gamers are
paying to play.
"Our ramp-up rate has been enormous," says Steven Yee, the vice
president of marketing for Sony Online Entertainment. This kind of success
"validates the subscription model for online games," he said.
Many Internet watchers believe that stories like Everquest's signal a
fundamental shift away from what old-guard media executives thought the
Internet would be: an advertising-supported, mass-market medium like their
own businesses.
"Interactivity," such as it was, mostly involved surfing aimlessly from site to
site. But as people became familiar with the Web, that became much less
thrilling.
"We're moving away from the passive model," Anderson says. "We're now
saying, 'I'll only take your media if it's connected to a transaction that's
meaningful to me."'
By now we all know what those meaningful transactions are: finding a sex
partner, trading stocks and buying or selling various stuff, either through
retail or auction.
"Those are all transactions," Anderson said, "and that's why we're moving
from ad support to subscriptions for what I'm personally interested in."
Not surprisingly, Tom Baker, the general manager for The Wall Street
Journal Interactive Edition, agrees. The Interactive Journal and Consumer
Reports, each claiming about 300,000 subscribers, paying $59 and $24 a
year, respectively, are the largest pay sites on the Web.
"The free-content model is conventional wisdom, and it leads to a failure of
imagination," says Baker. "Everyone has ceased even trying to invent a
service valuable enough to charge for. Even in the pawed-over area of
personal finance, when you think of the services that haven't been done --
alerts and various other uses for the data they have about you in a way
that's not just annoying -- I'm amazed that people aren't pursuing more."
And why are they not? "Because they would never be able to get funding,"
says Baker.
Indeed, when a company has what appears to be a viable pay service,
potential investors often have an antibody reaction that expels it from the
system.
Last week, a San Francisco-based company called Inquisit was forced to
shut down its service to a subscriber base that once reached 5,000 with
virtually no marketing. Inquisit indexed more than 400 sources of content,
from news services to local newspapers around the world, and, for $12.95
a month, compared the index with detailed personal profiles and delivered a
personalized selection of stories or headlines immediately to e-mail, pager
or cell phone. When the company shut its doors, many of the subscribers
said they would have paid several times the price for the service.
James Opfer, Inquisit's president, says the closest thing available now is
Yahoo Alerts, which searches far fewer sources.
"Two years ago, I told investors two things," Opfer said. "One, e-mail's
where it's at, not push technology. And two, they could use our technology
for other things -- to deliver changes in airline schedules and good shopping
deals, for example. They told me that e-mail was passe and that
e-commerce was at least a decade away. And they passed and they
passed and they passed. It's the herd mentality."
The reason for the industry's narrow view on payment for Internet
services, according to the Journal's Baker, probably has as much to do with
the supercharged atmosphere on Wall Street for no-product, no-profit,
Internet plays as anything else.
"They figure they'll go public and figure it out later," he says.
But it is really not so difficult to figure it out now.
If advertising is the driving revenue generator for the Internet economy,
then most of the online market's "revenue" is derived from companies'
simple swapping of ad budgets back and forth in a zero sum game.
So what happens if a company is spending more Internet funny money
than it can ever hope to regain in sales of goods or services? What
happens when the stock market regains its sanity and insists on profits?
The model will almost certainly collapse.
"And when it happens," said Anderson, "it will be like a supernova -- it
won't take these companies a year to go out of business; it will take a
month or a day.">>
|
