Recessionary nostalgia

This piece appeared in ADMAP in the UK in June 2002 in the chill wind of the dotcom bust. I reproduce it here for your amusement and also becuase the concept of users paying for content seems to be creeping into the news once more.

Among the more notable omissions in the piece were:

  • The resurrection of venture capital funding of content
  • The rise of social media with near zero marginal costs of creation
  • Paid search (!)

Forgive me those oversights!

The Best Things in Life Aren’t Free

Rob Norman,
Outrider

There are three ways that consumers pay for media consumption. They all involve a contract between user and publisher the only difference is the overt or covert nature of that contract.

State-funded television without advertising is the most covert you watch, we pay (by which we really mean that we spend your tax dollars to provide a service and, if we wish, control the content). The next stage is licence-fee funding, followed by advertiser funding you watch, but watch this other stuff too a model shared by most broadcast media and the web. The middle layer is the print model that combines cover price and advertising, which has parallels with subscription TV. And right at the top comes pay per view, the most overt contract of all, which demands a specific payment for a specific media event.

WEB MODELS

During its short, thrilling and turbulent life the web has seen experimentation with every one of these models, with the added layer of contract-free content distribution, to which there is no visible business model attached.

The premise that launched a million sites and a thousand IPOs (remember them?) was that content would generate traffic that would, in turn, generate ad revenue from a grateful throng of marketers who, sold on the dream of just one click from a sale, would shift their media mix away from other channels.

It turns out that this is not quite what happened. The web now has an unfortunate distinction. Never has a medium achieved such a high proportion of user eyeball time and been rewarded so meagrely by advertising. Outside the US, where 2001 spend topped $5.6 billion and a 3.1% share, only Scandinavia achieved share of greater than 2%. In the UK and Germany, the two biggest European markets, the totals were $255 million (1.4%) and $203 million (1.1%) respectively. This is despite an increasing body of evidence which suggests that many economically valuable consumers use the web as a primary means of research into any number of high-value product purchasing decisions, to say nothing of the consumption of services and general information.

SELF-INFLICTED WOUNDS

Sounds unfair? In a way it is. The web and its publishers have suffered from a conspiracy of fate and body blows, only some of which were self-inflicted. In this latter area we could include precise factors such as the widely held perception that online advertising serves no function if the user does not click. Add to that, satisfaction in some quarters has been achieved by simple schadenfreude whos a billionaire now?

Also, there has been continued conservatism among advertisers as to the real potential of the web for marketing. This splits into two camps: the non-believers and those who do believe in what, for many categories, is a misconception. That misconception is that consumers will spend their own time and money seeking out the websites of brand owners and engage with their content. For cars and travel this is legitimate, and the same is true for some other categories including IT and financial services; for food, beer, most apparel and many others it is often nonsense and sometimes hilarious.

As a result, the online advertising market is almost completely dominated by those categories where proven e-commerce business models exist and where transactions can be completed online; markets in which the one click from a sale model can still hold true.

There are painfully few examples of advertisers that look at highly engaged webusers and ask the question How can my brand or proposition leverage this obvious media/user engagement? There are fewer still that qualify the question by looking at the webs potential to drive sales through alternative channels such as call centres, sales forces and even retail; and relatively few that consider the webs value in enhancing brand experience and creating a set of engaged consumers. The problem is compounded by an excess of inventory that has led to sharply reduced yields and the fact that a tiny percentage of publishers dominate the revenue that does exist.

A reappraisal is required, but even a Damascan conversion will not resolve the funding gap that needs to be closed if content quality is to be maintained. In reality the real change needs to take place in the user/publisher contract.

THE BEST THINGS IN LIFE…

The notion of free means different things to different people. The heart of the matter is to define the functionality that is free because it is, as opposed to the functionality that is free because insufficient numbers of users would be able or willing to pay. Lets focus on the first group. Since 1840 and the advent of the Penny Black it has been proven that people are prepared to pay to communicate. Further, it has been proven that the combinations of speed, convenience and security manifested by telex, fax, couriers, mobile phones and even the ludicrously clumsy SMS, attract different premiums and usage volume. Yet, in the face of this history, email is to all intents and purposes free.

People have also shown an inclination to pay for information: calls to directory enquiries, premium-rate telephone-delivered weather, news, sport and even astrology (to say nothing of more prurient content) have long attracted the paying user. Yet, in the face of the evidence that people will pay for content, and the opportunity, the web now provides all of this and more for free. In fact almost the only financial beneficiaries with any certainties about revenue are ISPs and phone companies in those markets where calls are not free.

The list goes on: classified advertising has, for generations, yielded revenue from both seller and (through cover price at least) prospective buyer. On the web, only the seller pays and pays less than through conventional channels.

The irony of all this is that in almost all the cases highlighted, the internet adds immense value to the process. It does it through accessibility, speed, searchability, and the addition of depth and texture to the experience and the content. When did you last attach a photograph or a video to a phone call? When and how were you able to see a five-day forecast for the weather in a specific zip code in Iowa or downtown Yogjakarta?

FRACTIONAL PAYMENTS?

The activities that are legitimately chargeable for, and for which consumers would pay, far exceed these examples. The massive use of search engines demonstrates obvious user utility. The consumer might happily pay at some point in the activity: for example, the search may be free, but the click to the destination site could easily attract a few cents. This would have the additional consumer benefit of demanding an improvement in search engine delivery and methodology to resolve much of the poor quality that currently prevails. Equally, a sports site may give scores and results for free but charge in fractions for access to match reports and pictures; while financial sites could give away stock indices but charge for specific quotes, portfolio management etc.

The challenge for the market is to establish a payment model that fits the fractional value of the required activity. The reason is that this is very different from a subscription model in which the consumer is asked to calculate suspected utility over time rather than the specific utility of an action. This may succeed in challenging the perversity of services such as pay-for-ranking search engines that seem to challenge some of the very freedoms that energise the internet.

The development of pay-as-you-go can co-exist with subscription models, as it does in mobile telephony. The consumer makes a choice there because s/he wants certainty and control without compromising the fundamental utility of the service. Here too, these dynamics will prevail and the choice will be easy to make.

So how do you do it? Two answers spring to mind in a world where the vast majority of transactions will occur below the level at which credit card usage works. The first is billing to telephones. This model simply requires that the user, with relevant security, enter a payment code that relates to his telephone number. On the other side of the transaction the vendor signs an agreement with the phone company or some other aggregator to receive his payments, less handling charge, in periods and amounts that make the process worthwhile. This would be amazingly cheap for Yahoo! and a little more expensive for lower-volume players.

The second model does involve a combination of standard credit/debit card use and aggregation. In this model the aggregator (Microsoft or Visa?) creates the user payment passport and becomes the partner of the card issuer, who bills the consumer for monthly usage. The aggregator pays the vendor, as in the first model.

Through either of these mechanisms the user can start to apply the same discretion to online usage as s/he currently does to a phone call, a text message or a newspaper purchase. It may depress total usage for a period, but do we seriously believe that Hotmail volumes would plummet if a charge of five cents per mail with attractive volume discounts were introduced? Or that search would fall away at one or two cents per result?

The key to success is to find price points at which revenue contribution is significant in aggregate, but which are trivial on an occasion-by-occasion basis.

RADICAL NEW ECONOMICS

The effect on the market and its economics would be radical. Publishers would be rewarded for quality, immediacy, service reliability and value. Users would discriminate on this basis. A model would be created instantly in which publishers of rich media, from music to video, could reduce the threat of piracy by offering good content at a fair price, and rights holders to events could unlock the webs potential for audiences and revenues.

For publishers, a mixed funding model would help clarify content development priorities and test price elasticity against user utility.

Even advertisers would benefit: at the macro level they can take their place alongside content that they know is actively valued. They could be optimistic that varied revenue streams would reduce clutter and they could actively subsidise specific content, thereby winning user favour. There is surely a correlation between willingness and ability to pay, and quality and value to the advertiser.

In summary then, we are looking at an overt contract between user and publisher but using a hybrid of traditional charging models that are for content, in the case of print and TV, and for transmission in the case of telephony. Ultimately this hybrid and the concept of aggregated charging is most likely to be the best insurance for the user who wants an internet that remains almost free.

The time for this to happen is very soon. There is sufficient dominance of ISPs and core content providers to create the required momentum and users are already seeing content sites falling away that many would have preferred to preserve.

2 Comments

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2 responses to “Recessionary nostalgia

  1. Pingback: Recessionary nostalgia | Search Engine Secrets

  2. In the middle searching old friends, found your website.Just passing by.By the way, your website have great content! 🙂

    _______________________________
    Don’t pay for your electricity any longer…
    Instead, the power company will pay YOU!

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