Internet Honeymoon Is Over
Once upon a time content and
services were free. Now online-based companies must charge, or face extinction.
For the past six years, most companies
operating online provided free content and services to generate traffic. That
honeymoon is ending. It is too costly to provide free daily offerings
indefinitely, especially as advertising rates fall and Internet traffic slows.
Businesses have spent billions of dollars developing the Internet, yet
few have made a dime in return. If a company provides a valuable service,
it must begin to charge for it. That's Business 101.
to pay up?
Probably not me, and I've
used "Yahoo! Portfolios" to track investments since 1995. If Yahoo!
began to charge for this, though, I'd bypass it. I already have my portfolio
listed elsewhere, and I can get the news that Yahoo! offers through other means.
So, unless Yahoo! added great
new offerings and convinced me
of them (which will be its largest challenge -- to become a
"marketer"), I almost certainly will not pay for its services. So, for
what will I pay?
what will you pay? By asking yourself, "What will I pay for?" you can hope to
answer what many people will pay
for, and then you can apply that answer to your investment thinking as you
evaluate online companies.
Personally, I will not pay
for a "commodity" service that I can obtain elsewhere, such as news or
portfolio tracking. I will pay
for services that add value to my life that I can't obtain elsewhere. That's
partly why AOL (I want worldwide connectivity) and eBay (I want the ability
to sell anything) succeed at charging fees. while others struggles.
How powerful is an
online company's potential for charging? It depends on how much value it is
Think about this:
Imagine eBay began charging sellers an additional $2 per month to sell. That's
$24 per year to be an eBay seller. Would a majority of sellers pay? I believe
so, because most sellers derive much more annual value than $24 from eBay, and they'd
rather continue using eBay than use an auction site that is smaller by
is a company
that must add more revenue streams to its service to compensate for slow retail periods
and low margins coupled with high debt. Amazon recently
began advertising placement promotions. An author pays to have his book displayed
prominently on the site after a customer's search. That's fine, but it's
no home run.
So, what if Amazon adopted a
Costco business model
and began charging customers a few dollars per month -- a subscription --
to use the site? Would you pay $24 a year for Amazon's convenience of
1-click ordering, a promise of low prices, product recommendations reliable
service, and wide product choice?
If you would
pay Amazon $24 a year, you would probably use the site more often and buy more
from it, too -- to "get your money's worth."
What else might offer value
worth paying for: I would also likely pay for Google's search software because I
find it invaluable. Finally, I'd pay for one comprehensive online news
source if I had to, for
convenience and to complement the NY TIMES
that I have delivered. Other
than that, however, not much online content makes me want to pay for it.
What about you? I believe that online content companies have a tough road
The psychology of
The Internet was born
with free content. That was inevitable. However, providing content
and services freely is rarely a sustainable business model. So, laggards will
die, while the relatively few online companies that provide
meaningful value to customers will begin to strengthen as they begin to charge.
Capitalism means, as Dave Matthews sings, eventually you "pay for what you
"Let Jersey City Prosper Online"
Copyright © 2007 JCOL. All rights reserved.