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Monday, December 23, 2002

Paid Content in the Internet?

As one year draws to a close, and we all start to ask ourselves what the next one may have in store for us, the big temptation is to look around and start speculating. And that, of course, is just what the Economist does this week. Topic of the day: the future of internet content.

Of course this one has been around since the early days of dial-up, but it has reached new highs in the aftermath of the advertising slump. Since the big dot-com bust it seems to me that there has been relatively little serious analysis of where things stand, and where they are likely to go. The most rational assumption would seem to be that while initial expectations were horrendously exaggerated, current pessimism is simply the reverse side of the same coin. If we have an economic system that is prone to give itself over to crazy speculation from time to time, and if the aftermath to the crazy speculation is a credit drag which produces either low growth or outright slump, then the blame is hard to lay at the door of the internet itself. The internet was merely a vehicle for something else. And now that the dust is settling we can see more reasonably were the real trend line is. Thanksgiving weekend, for example, Amazon posted a year-on-year 60%+ growth in sales, not bad in a low growth environment. And as for broadband access, well only 15 million US households have it, but it is spreading at a rate of 50% per annum, so do the math and you'll see that before long that number is going to be a lot bigger. The advertising slump cannot be expected to last forever, and as more broadband users spend less time playing at coach potatoe, then the advertisers will have to follow the eyeballs. Paid content? Well there is space for it, and it will undoubtedly grow. But there is an important rider, it will have to justify itself. (Blogger pro is, for example, something which it goes without saying is worth paying for).

From the individual perspective there is virtually infinite content available, so any paid content will have to justify itself according to a quite strong test. I remember when Brad de Long sent out a cheer on behalf of all of us when the encyclopaedia Britannica went free on-line. Well I have a confesion to make, it's been longer than I can remember since I last consulted the BE. This is because the internet itself is an encyclopaedia, the biggest that has ever been built. (And if the internet is an encyclopaedia then Google has to be the index page). So selling knowledge-based content is going to be hard.

Over here in Europe I have noticed that some newspapers - El Pais in Spain, Franfurter Allgemein in Germany for example - are now trying to charge for access to the majority of articles. This policy seems doomed right now. Faced with phenomena like Google News and the plethora of compare-and-contrast information that is so readily available it is hard to see who is going to pay for the same information as is on offer free elswhere, and if it's opinion you're after, well you need look no farther than the web log world. What seems to be happening is that too many of these decisions are being taken by people with too little knowledge and understanding of what is actually happening in the internet. And there is an additional danger, the habitual use of the internet in non English-speaking countries is already below that in the English-speaking world, and the evidence seems to suggest that in the non English-speaking world the policies of restrictive access are only likely to get worse. Put another way, if this continues instead of seeing the benefits of positive feedback many of these commercial initiiatives are only like to generate a lot of the negative variety.

The internet then is not the South Sea bubble, and it is not a bunch of Dutch tulips. It is real, it is here and it is growing. Which brings us back to the first problem. How to make money out of it?

This being the Internet, things are now poised to change again, with the spread of high-speed, always-on, broadband connections. Broadband boosts all business models, as users “do more of everything”, according to eMarketer. It may even revive growth in online advertising sales. “Rich media” adverts, which contain fancy graphics and sound, tend to be more interesting to consumers than plain banner advertising. More importantly, broadband may capture more broadcast-television ad revenues than dial-up modems have done, says Jeffrey Cole of the University of California in Los Angeles. People seem to like nipping away from the television set to use their always-on broadband connections during commercial breaks, says Mr Cole. Advertisers may cotton on and start exploring ways of advertising to this fast-growing lost audience again.

None of this is likely to mean that Internet firms will deliver on the absurd claims of the late 1990s. But it does suggest that there are profits to be made by selling consumers content and services—as well as physical goods—online. A year ago, even this modest claim would have sounded as implausible as a visit down the chimney from Santa Claus.
Source: The Economist

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