The changing shape of the web

Recently, two British newspapers announced their plans to start charging for access to their online content. According to their estimates, over 95% of their current on-line readers were essentially economically useless or worse, in the sense that these generated no ad revenues, while pumping up the traffic towards the sites. Their calculations forecast that they will loose over 90% of their visitors, but revenues from paying customers should surpass current advertisement based revenues.

Whether they will succeed or not, remains to be seen. However, their choice of starting  to charge for on-line content underlines three fundamental issues: information and quality analysis did not become free just because of internet; pure advertisement based models may not always work; it’s getting harder and harder (read: costlier) to cater for an avalanche of visitors, in the absence of a reliable revenue stream.

I’ll skip the first item for now and focus on the second two. Obviously, advertisement based models worked out nicely for some of the companies – like Google – but it has a fundamental, subtle characteristic to it that makes deployment in many contexts tricky. When you visit Google, you are likely searching for something, so Google can offer you sponsored answers that you are likely to choose; if you visit a page to flip through information, the site owner may only know your location – so it’s like searching for a nail in a haystack: the probability of hitting the visitor’s pain point is significantly lower. It’s all about knowing your customer: Google, through the search you are entering, knows much more about you then, say, the web server of a newspaper. In many ways, Apple does the same thing with their new advertising platform than Google: through the walled garden of iTunes and AppStore, they know their customers pretty well and hence can deliver much more targeted ads – increasing the probability of a hit. Remains to be seen, but I believe it will be a successful model.

So, what’s the alternative for the rest? Obviously, to survive, they’ll have to find new revenue streams, they need to charge for content. Apple’s model, again,  has shown how: set the price right, and they will come. Since I bought my iPad, I became the happy subscriber of a service that, for 29,99USD/month delivers, legally, every morning, digitally, the full latest edition of about 10 daily newspapers. If I would have subscribed separately to all of these, I would have easily exceeded 100 or even 200 USD and the delivery would have likely been less reliable (there are newspapers published in the UK, US, Hungary and Romania – I challenge the postal service to deliver all those every morning at 7am for less).  The point is: charge for your content, but at a level that makes it worth it; use the benefits of digital, over the internet delivery for cutting your operational expenses and make up for the lower income / user figure (having more paying users also helps).

Which brings me to the third issue – the cost of running a server and related communication infrastructure. It’s an unchallenged truth that the traffic over the internet is exploding, which is good news for equipment vendors, but bad for service and content providers. Granted, most of this traffic is made up by largely illegal file-sharing, but the rest of it will likely move towards a model of paid content (at reasonable pricing level), coupled with a targeted, ad-supported free service (the Google model). This makes for a more sustainable, more fair and economically viable model, without sacrificing the fundamentals of fair and easy access to information.

As for illegal traffic – there are already signs that ISPs will move to block access for the worst offenders. While I have my doubts about it, I think they have little choice – after all, stealing used to land you in prison with constrained rights, wasn’t it so? 😉

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