Since its inception, the Internet has proven false the cliche that there’s no such thing as a free lunch. Net users have been feasting on a smorgasbord of information and ideas provided gratis by everyone from the man on the street to the world’s largest media companies.
But that might be coming to an end as the Net begins to prove another cliche true: All good things must come to an end.
A host of on-line entities–from Business Week to Microsoft’s news magazine Slate–have begun charging subscription fees for information that previously has been on the house. Other publications and services will begin cordoning off their choice offerings in for-pay “premium” areas. The baiduhai and other papers charge for access to their extensive archives, and Money.com users soon will have to pay for background data on stocks and mutual funds.
This year could herald the end of an era for Net users, much as the advent of cable television ended the age when all of TV was free.
The first on-line sites to grapple with this transition are the pure “content” companies–news sites, Web magazines and other on-line publications–whose revenue sources are limited.
Many of these companies hoped to support their business primarily through advertising, much like broadcast television. But they have found themselves competing for advertising dollars with an assortment of do-it-all on-line companies–like Microsoft, Yahoo and America Online–that offer content as just one part of their business. America Online Inc., for instance, makes money as an on-line service, from marketing deals with other companies and by earning a share of payments for items sold through the service.
The competitive pressure is forcing content providers to explore new business models, even as it raises questions about which models will succeed.
“There will always be free things on the Net, but what we’ve been talking about is over time seeing the Internet evolve into various tiers,” said Jill Frankle, on-line analyst with the market research firm International Data Corp. “Maybe you want to think of cable television. You have basic cable. Then maybe I buy specialty channels, if I’m interested in the Sundance network. Once in a while, I may feel like something different and go to pay-per-view.”
These are watershed changes for the Net, which started out as wide-open territory for anyone with a computer and a phone line. Now, maturation is setting in.
“Venture capitalists and media companies have put a lot of money on the line,” said Patrick Keane, of Jupiter Communications in New York City. “And now they need to see some of these ventures start turning a profit.”
Most of the Internet publications declined to discuss specifics about their ad revenue and subscription numbers–or to give any sense of when they expect to turn a profit. But industrywide totals indicate there’s not enough money to go around.
Projected Internet ad revenues for 1997 were $550 million–a mere blip compared with the estimated $175 billion spent on ads in magazines, television, newspapers and other traditional media, according to IDC, of Framingham, Mass.
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“A lot of companies spent a ton of money and had no business plan. Fortunately, that did not happen with us,” said Richard Wolpert, executive vice president of Disney Online, which includes the $5.95-per-month children’s site Disney Daily Blast. Disney has identified four different sources of revenue: subscriptions, licensing fees (to on-line services such as the Microsoft Network), advertising and on-line commerce, which involves mostly selling its own products.
Many other content providers don’t have the range of options that Disney enjoys. For them, the only alternative to ad revenues is subscription fees. But it’s by no means clear how realistic an alternative this is.
When Business Week and Slate begin collecting subscription fees this quarter, they’ll join a select few other sites that earlier chose to buck the trend and refuse to provide Net users with a free ride. The sites that have been charging include the Wall Street Journal, the San Jose Mercury News, Consumer Reports, Disney’s Daily Blast, the Economist and cable sports network ESPN.
Most publications considering new fees have a central fear: that readership levels will drop off. While an initial drop can be expected, some publications have found that this doesn’t have to be a permanent condition.
The Wall Street Journal’s Interactive edition, which first went up on the Web on a free trial basis in April 1996, had 650,000 registered visitors by the time it began charging subscription fees of $49 per year ($29 to print subscribers) in January 1997. At first, the number of readers willing to pay for subscriptions dropped to 50,000, but that number has since risen to more than 160,000, according to Tom Baker, business manager for the Wall Street Journal Interactive.
“We went into this as a business we intended to make money on. It was a business that either had to stand or fall on its own,” Baker said. “The people who had really made a habit out of it didn’t find $49 a barrier. That was critical for us. We didn’t really know what was going to happen beforehand.”
Business Week Online hopes to follow in the Journal’s footsteps. Analysts consider financial information one of the categories for which Net users are willing to pay. Bob Arnold, the editor of Business Week Online, said the site plans to leave its Daily Briefing–a sampling of breaking news items from staff and Standard & Poor’s–available free to visitors. But executives believe that readers will be willing to pay for access to feature articles, columnists and exclusive reports.
“We think we sell value-added information, as opposed to commodity information,” Arnold said. “As a result, we think that our information is valuable enough that people will pay something for it.”
Some industry analysts are skeptical that for-pay access will be embraced by users accustomed to getting everything for free.
“They’re doomed,” said Bill Bass, director of media service for Forrester Research in Cambridge, Mass. “There is too much substitutable content out there for free. If you are Slate and you institute a subscription charge, readers can go read the New York Times Book Review Section for free.”
There are exceptions to the rule, Bass said. Name brands, such as the Journal, can charge because they are considered irreplaceable in business circles, he said. Similarly, the sites creating “premium” for-pay areas may find more success than flat-fee subscription models, since that strategy recognizes that readers will pay only for what they can’t get elsewhere for free.