Perhaps it was a mix of sincere optimism and wishful thinking, but in a poll last week, nearly 60 percent of Internet Evolution readers voted that the free Web 2.0 model is here to stay.
Don't believe me? Check out our homemade pie below:
This "free" Web 2.0 model and its potentially imminent death has been a hotlycontestedissue on Internet Evolution recently.
Those who believe we're headed for "pay-for-play" argue that with the current economic crisis, slumping online ad revenues, the outrage on the part of large organizations like the AP over "stolen" content, and the tough time social media is having making a profit -- among other things -- it's only a matter of time before we'll pay for content with more than eyeballs.
On the other side of the proverbial fence, where 57 percent of our poll takers reside, readers argue that people will not pay for something that's been free, either because they don't want to, because they can easily steal it, or because they can't afford it. Free is here to stay; the business model will eventually follow. Good things come to those who wait. Rome wasn't built in a day. The more you bend over the more you show your...
Anyway.
The sites we obsessively talk about today (Facebook, YouTube, Twitter...) abide by this time-worn wisdom that you worry about hoarding users first and deal with revenue later. But evidence is growing stronger that this model is not really working, particularly when considering the costs: bandwidth, storage, overhead, acquisitions, etc. Big costs plus small revenues do not a viable Web company make.
"There is sort of one school of thought that you get users and then money is going to come. In many cases that doesn't pan out," says Todor Tashev, senior director of investments at Omidyar Network. "You can have a wonderful user experience and money doesn't come in at the end."
As discouraging ad revenues roll in and the idea of an ROI becomes laughable, industry ideals are shifting, with investors looking past the glamor of a large userbase and toward dollars.
"One of the things we really encourage of companies is to find a way to charge as soon as possible," says Tashev, emphasizing a new shift in the VC community. "We're interested in companies that rely on revenue models that go beyond advertising. Whether it's micropayments, whether it's subscriptions... it's a very quick market verification and validation that says, hey, this is valuable and people are willing to part with some amount of money."
Abiding by this theory, then, a willingness to pay for content means that content has value to you and, therefore, should be valuable to investors.
On the flip side, though, our good friend Darwin might take this opportunity to fluff his "survival of the fittest" thesis (self-promoter that he is), suggesting that if and when we start to pay for content, the less valuable content will die out, leaving behind a stronger Web.
While no one likes to part with money -- particularly during a downturn -- with a Web stocked to the brim with half-witted rants (excluding this one) and videos of babies and cats, maybe it isn't such a bad trade-off.
Hi Carol. That's true, but that doesn't really solve the problem. Something's got to give somewhere, right? Web users may be used to getting everything for free, but there won't be any free content for them to enjoy if online business and Websites are unsustainable. If your favorite Website started charging a subscription fee or asking for micropayments, would you be willing to pay if the alternative was to be cut off from the content? In an era when people were downloading free music like crazy, the iTunes model worked. So, in your view, what does it take to get users to pay for content?
"Paid content" model might even introduce a new kind of market (maybe not a new concept) where user-generated content that's got a lot of views can be traded or auctioned between sites and the content creators get compensation."
Whoa!!! now that is a paradigm dimensional SHIFT!
"Also, with all the competition out there, moving from free content model to totally paid content would change the landscape of the competitive market."
Two old names that predate the grand WWW. Usenet: a worldwide system of bulletin boards and forums, not all that unlike our fave Internet Evolution here. OK, we don't get to have a pretty profile picture.
But there's a vibrancy and an interaction available via a free Internet that a paid model will not match. And if that vibrancy, that interaction, that *community* is lost, then I'm not so sure that there is a pay-to-view model that can work. After all, look down at the TechWeb magazines at the mottom of Internet Evolution's Web pages. Several of them are keen to remind me that a paid subscription can cost upwards of US$200/year. And yet I get several every month, or week, and have never paid a dime. Information Security magazine recently ceased providing a print version of their publication. That says something, too, about the complexity of this issue. Everyone is trying to find a business model that can succeed.
Is it possible the Internet itself just isn't an architecture that permits a large flow of commercial profit? I don't believe that's so, but I can see the possibility.
As others have noted I think the pay to get access model is going to be a very tough sell. iTunes has set the bar very low. The kids of today are the ones that are going to be growing up with this and they will balk and having to pay I'm afraid. Heck look what's happening with newspapers' online sites trying to charge...
Hey Jwallace. I find myself asking similar questions. It really depends.
Content may need to be better arranged into classes, such as free user-generated, free with ad-support, free to watch & pay to keep, pay to play, or even free sample (low quality) & pay for full HD version, etc.
Also, with all the competition out there, moving from free content model to totally paid content would change the landscape of the competitive market. Say, if Hulu wants to give up the free ad-support content but Youtube, which now provide similar services to that of Hulu such as full series episodes etc, still wants to keep free content going (cos Google has money power), then it'd be very hard for Hulu to compete with Youtube. Unless they all decide to get rid of the free content model together, paid sites will have a hard time competing with sites that provide free content (and yes, it depends on what services they provide).
"Paid content" model might even introduce a new kind of market (maybe not a new concept) where user-generated content that's got a lot of views can be traded or auctioned between sites and the content creators get compensation.
In the meantime, there's still plenty of free content out there to enjoy during the recession.
Paying for something that we need, want or enjoy is not that bad. I'd surely try earning additional dollars just to be able to enjoy a properly maintained high-quality website than a poor virus-prone one which in the long run could mean greater costs due to malfunctions and malware.
It is so sad that many people would only want to enjoy the blessings of the Internet without being concerned about the possibility of doing or contributing their share in keeping it running well.
Yup, we survived paid TV and radio too. We've even pay for e-books, scientific papers, search engine optimization info (seomoz.com), and even some premium blog content. Perhaps we'll not complain too much and all the freebies will have pro version that make money for someone...eventually.
"One of the things we really encourage of companies is to find a way to charge as soon as possible,"
Obviously that really depends on what services the Company provides. Is linkedin happy with their userbase? How about classmates.com? how soon is soon as possible? Is facebook dragging their feet? I don't think it could be done any better than facebook, providing that you can float until the optimum stage.
For the VCs, I guess it depends on how fast they want the ROI, and HOW MUCH!! If facebook has investors, I'm sure they will be very VERY happy that they waited.
Omidyar Networks...have they put out another eBay? <-- a litttle jest.
I think that while readers are clinging to free content, companies are seeing reality.
Last.fm is a great example as they have just implemented, overlooking the yelping and moaning of some users, a subscription model in most of the world. Only in the US, UK and Germany have they stuck with the ad driven model. Last.fm is owned by CBS and I suspect the corporate accountants had a hand in this call!
Free to the consumer really means no money - you are paying with your eyeballs and hopefully your clicks on some ads. Without enough eyeballs or clicks - free content does not work.
The ThinkerNet does not reflect the views of TechWeb. The ThinkerNet is an informal means of communication to members and visitors of the Internet Evolution site. Individual authors are chosen by Internet Evolution to blog. Neither Internet Evolution nor TechWeb assume responsibility for comments, claims, or opinions made by authors and ThinkerNet bloggers. They are no substitute for your own research and should not be relied upon for trading or any other purpose.
We're live on IE Radio with Naomi Baron, author of Always On: Language in an Online and Mobile World, and professor of linguistics and language at American University.
Hey, IE Radio fans! We hope you're ready for another exciting interview. Today we're welcoming Naomi Baron, author of Always On: Language in an Online and Mobile World, and professor of linguistics and language at American University. Baron is joining us at 2:00 p.m. ET.
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