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Net Prophet - by Dylan Tweney

March 16, 1998

How to lose millions of dollars on the Web


Information wants to be free -- that was the mantra of the digerati just a few short years ago. Funny how you don't hear that line much anymore. Now that hundreds of companies have invested millions of dollars putting their information on the Web, the focus is on the bottom line instead.

But how do you actually make money from information in the digital age? That's the puzzle that few Web entrepreneurs have figured out yet. What's clearer is how you don't make money. Witness last week's collapse of New Century Networks, a grand experiment in which many major American newspapers invested millions of dollars to stake their claim on the Internet -- only to watch those dollars disappear into cyberspace.

One way you don't make money online is by following business models that have worked for information publishers in the print world. There are basically two business models that work for making a business out of print information: advertising-supported content, and for-fee content. Magazines and newspapers fall into the former category, while books, newsletters, and periodic reference guides (such as legal and medical journals) fall into the latter.

Welcome to my world

It's instructive to watch print publishers try to make these business models work on the Internet. Two years ago, the buzz was about making millions through advertising-supported content on the Web. Publishers had figured out that no one was willing to pay for content on the Web, and that -- despite earlier outcries against advertising on Usenet and Prodigy -- no one really minded online advertising, after all.

But the costs of producing content-rich, interactive Web sites escalated, while advertising revenues stayed low for all but the biggest Web destinations, such as Yahoo or Netscape's home page. So now the buzz is all about how content publishers are turning back to a subscription-based revenue model. Encouraged, perhaps, by the success of The Wall Street Journal (150,000 paying online subscribers), publishers such as Microsoft's literary e-zine Slate have recently begun charging for access.

The outcome is clear: Most publishers will lose money charging for content just as quickly as they did selling ads. Slate, for example, recently crowed about its success in signing up 10,000 paying subscribers. Excuse me? At $19.95 apiece, these 10,000 subscribers' annual subscription fees probably don't even pay the salary of editor Michael Kinsley, let alone support his staff, advertising, and IT infrastructure budgets.

The information publishers that are able to make money charging for content now fall into two categories: pornographers and investment advisors. In other words, people are willing to pay only for money or sex.

For everything else, the opportunities to make money by charging for content online are limited. Why should folks pay for access to something they can get for free? If I launch a for-fee site that provides Brand X content, someone else is likely to put up a competing, advertising-supported Brand Y content site. Where do you think the customers will go?

If you want to charge for information, it has to meet two criteria. It can't be available anywhere else, and it must be something that your customers need or can profit from.

Mixing it up

But I'm not in publishing, you cry -- none of this applies to me!

Think again. Regardless of your business, when you move onto the Web you're going, however tangentially, into the content business.

There are several strategies to make your content profitable. First, if the information is your primary business, don't rely on advertising or subscription revenue alone to support it. Mix it up.

If all your content is available only by subscription, how will prospective customers know what you've got? You need to provide plenty of high-quality, free content to draw people in. On the other hand, if you give away everything for free, you're undervaluing your best content. By charging for access to premium content, you can make it generate more revenue that it can through ad sales.

Also, give customers the option to purchase for-fee content "a la carte" rather than forcing them to take out lengthy subscriptions they may not want.

However, most sites will not be able to make significant revenues from information alone. That doesn't mean that information isn't an important part of their online revenue strategy, though.

The most important function of content on most Web sites is to draw customers in, as bees are drawn to the nectar in a flower. A flower is not in the nectar business -- it's in the pollen business, and it gives away its nectar because that's what bees like.

Similarly, you can draw customers in by offering them information they want or need. What you do with those customers once they're in your store depends on your business. And hey, once you've got them coming in, maybe you can make a little extra money by selling ads or subscriptions, after all.


Dylan Tweney edits InfoWorld's I-commerce section online and in print.
He welcomes your comments at dylan@infoworld.com.


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