Sunday, February 26, 2006

Making It Pay

Post summary: No one has yet figured out how to "monetize" the provision of content on the internet; bloggers and even large publications are struggling to make any money. Reliance on advertising or clunky schemes like "premium content" are not the answer. However, I believe people would be prepared to pay in small increments of a few cents at a time for online content if it were made easy and simple enough.

This could be done through a "broker" with whom users would have an account, and who would deduct the appropriate amount when a user accessed a participating content provider's site. Content aggregators such as Google, Yahoo or MSN would be obvious candidates to become such brokers, but it could easily be somebody else.

Such a system could support the viability of more small and medium-sized publications and higher-quality blogs; it could even help breathe new life into those venerable media insititutions that are currently failing financially.


In response to Trevor Butterworth's Financial Times article on blogging, many people (myself included) posted comments defending the potential of blogs. In particular, it was felt he had underestimated the possibilities for comment by niche experts, or for a fresher, less constrained journalism.

But there was one point that couldn't be denied: right now, nobody is making much money. Butterworth quoted two women who run a hugely popular gossip site which receives up to 100,000 hits a day as saying that they make "more than a case of beer, but not enough to quit our day jobs".

What he didn't acknowledge was that the puzzle of how to turn traffic into cash is just as tricky for established media and prominent print publications as it is for amateur bloggers. It's become clear that people love sifting through the great shifting sands of information and opinion on the internet. It's just that no one has quite figured out how to appropriately reward those who generate it.

Traditional print media has varied in how it has embraced the internet - ranging from the simplicity, verve and openness of the Observer / Guardian to the tardy, somewhat clunky approach of the likes of the New York Times.

But no one is that far ahead in a business sense. The differences seem to come down to philosophy; the Guardian sees being read as a good thing in itself, a chance to spread and promote their brand. Others have viewed the internet as a threat and have somewhat resentfully posted a minimum number of articles, with the rest protected as "premium content", for which you must pay a fee.

The owners of the New Zealand Herald fall into the latter category. That paper's experiment with "premium content" has been rightly lampooned in the New Zealand blogosphere. I mean, when you can buy the print edition of the Herald for $1.50, and read a huge array of erudite comment from throughout the world for free, are you really going to go to the trouble of getting out your credit card and coughing up $2.99, or whatever, to access the Herald's op-ed writers?

Most magazines and niche publications have gone for a mixed model: they provide a third to a half of their content free online, usually with the requirement of free registration; the rest is available to subscribers only.

Meanwhile, most bloggers continue rely on "pay-per-click" advertising to earn revenue. Overwhelmingly, this is through Google's AdSense scheme. Google makes code available for content providers, such as bloggers, to post on their web sites. Google's robots then automatically check out the content on the web site, and, in theory at least, assign it appropriate ads. Advertisers pay Google for each click on an ad, a portion of which is passed on to the content provider.

There are problems with this model. First, it is open to abuse, both through "click fraud" (people generating artificially large numbers of clicks on their website ads) and by sites set up to be "ad farms". Usually with minimal or no content, these sites simply have large numbers of ads, and often use a misspelling of a popular site (e.g or as a domain name, in order to attract traffic.

Secondly, Google has been less than fully transparent both about what percentage of advertising revenue goes to the content provider, and their process for assigning ads to pages. Sometimes they just seem to be running a big experiment, and I'm not the only one to wonder in frustration how ads are selected for my pages.

In any case, traditional, static ads don't seem to provide a decent revenue stream for anyone. Otherwise there wouldn't be the fuss about "premium content", and respectable sites wouldn't keep throwing up ever more intrusive dynamic ads which crawl across your screen and hover for about 10 seconds before you can close them down. These are infuriating; I don't think they're going to be the answer either.

So, if you count time as money, at the moment pretty much everyone is making a loss. Yet in theory the internet should provide an ideal medium for a great range of publications to be viable. Print publishing has traditionally involved sinking a large amount of money into machinery, paper and distribution, quite apart from assembling the content. And mostly, the audience has been limited by geography. These days, most surviving publications are either very big and corporate, or very small and niche-oriented.

On the internet, however, production and distribution costs are practically zero, and the potential audience is almost unlimited. The maths suggest that with a large audience paying small, even tiny amounts, many different providers should be able to make at least a modest living. So what's going wrong? Why is everybody struggling?

You might answer that the internet is seen as one big freebie and people just aren't prepared to pay directly for the swathes of information they feel it is their right to access. I don't believe that's the case. People are prepared to fritter away their money on things they value less than their online reading. Look at texting, in particular at people's readiness to spend money on text-message voting on music shows such as C4. I myself end up losing about $20-25 per month through overuse of my eftpos card, because it's convenient and I don't notice that I'm paying.

The problem is that payment for internet content is being demanded in the wrong format. Take the online magazine subscription for example. Many of these are pretty cheap. But for not more much more you can get a print subscription. It does make sense to get a print subscription to your favourite couple of magazines. You get to read through all the articles and reviews, do the crosswords, take the magazine to bed and fall asleep with it. You can pile back copies on your bookshelf and let visitors know how erudite / left-wing / neoliberal / avant-garde you are.

But an online subscription? Do you really want to pore over the magazine's entire content hunched in front of your computer? And once you've subscribed to one, where do you stop? The whole point of the internet is that you jump from page to page, searching for content, digesting and comparing opinion. Will you now need to stump up for full access to the 10 or 12 other publications you regularly check? The most interesting premium content might be in The Nation one week, and Science the next.

The unit of payment needs to be much smaller and more flexible. The precedent is Apple's iTunes store, which lets users download songs for 99c a time. Now, a song is a more substantive piece of work than even the hardest-hitting article, so the equivalent would be 5c or even 2c at a time. Let's say you look at 20 news articles (1-2c) in a day, and 10 op-ed pieces (5c). For less than 1/3 of a coffee, you get full content, no scrolling ads, and no annoying need to register.

Even more importantly, it needs to be easy to pay. The reason premium content is doomed is that people just can't be bothered. I have to get out my credit card and enter all my details just to access one article in the Herald? Then I have to do it all over again to read an op-ed in the New York Times? No way. It has to be very straightforward, involving no more than a couple of clicks each time.

How could this happen? You would need somebody to act as a broker for a wide variety of content providers. The broker would set themselves up to accept payments and provide internet users with an account. They would then deduct your little 2c payments from your account each time you wanted to view a web page that carried a price tag. Content providers would sign up with a broker, set their prices, and have their share of the payments passed through to them.

Content aggregators such as Google, Yahoo and MSN could be candidates to act as such brokers. Most people already have a trusting relationship with at least two of these companies, and would be prepared to have them handle their transactions. Users could choose from a range of deals, just as you can pay x cents per text to your cellphone provider, or get unlimited for $10 per month as part of a different plan.

Of course, it could just as well be someone else, and in fact somebody new is perhaps more likely, since exisiting players often find it hard to see past their current paradigm.

In fact, a “brokering” system like I've described already exists in a sense. The comparison is with the major databases which compile medical literature, such as Ovid, or legal and journalistic material, such as LexisNexis. These database providers mainly interact with large institutions such as universities, and members of those insititutions can access the content as part of their study or employment.

The challenge is to adapt this to the democratic, freewheeling, piecemeal exchange of information and views on the wider internet.

If this is possible, everyone could benefit. With only a moderate amount of traffic, bloggers and small-scale magazines would be able to pay the bills and break their dependence on advertising. We should then see a lift in the quality of blogs, the evolution of new forms and styles, and something a bit closer to a democratic media revolution than what we have now.

This is something that serious writers and editors should care about as much as amateur, bedroom-bound bloggers. After years of bemoaning the lack of any consistently quality publication in New Zealand, I was chastened recently to find out that several of my most admired titles, including the New Yorker, make huge losses, and only survive through the patronage of billionaire philanthropists. And, as it was pointed in the comments thread on Trevor Butterworth's article, the Financial Times itself operates in the red.

So, are serious publications just vanity publishing then? Maybe some would be happy to smugly argue that indeed they are nothing more than the self-satisfied twitterings of a cultural elite. But most of us would like to believe this isn't so. Unleashing the economies of scale of the internet offers the chance to prove it, just as it offers the better bedroom op-ed writers fair reward for their labour. The future for blogs is the future for everyone.

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1 comment:

Anonymous said...

Some well thought out and considered comments., Simon.

This is one of those "the future is surely arriving but we don't know what it will look like" things. Often it is predictible like the ongoing general increase in average wealth or the invention of cellphones (though few predicited they would get so small).

More often the combination of human invention and the inventivness of how to use inventions leads to unpredicable changes, even the invention of new paradigms.

One of the most dramatic such changes continues to be the invention of science (i.e. if you do not understand something, work out a model for it and then try to prove/disprove it). This approach to understanding is so pervasive it is easy to forget this was one of the inventions of the "age of enlightenment & industrial age". Before this one consulted the gods, or wise men on top of mountains (or equivalent) who told you the answers.

Inventions in the last 100 years that have transformed our society in unforseen ways include the automobile, air travel, satallite then fibre optic telecommunications, the pill, radio then television and now the email & the world wide web on The Internet.

There has also revolution in Consumer finances. Once there was only cash (and vouchers) or "on account". Now there is credit unions (like building societies) bank cheques, personal cheques, credit cards, on-line debit cards and nore recently Ecash like What they all have in common is the need for TRUST. Being able to build "Trusted Relationships" between provider and consumer is what is missing from The Internet.

Simon, you are right that (yet another) middleman is probably needed. The cost of an Internet service to build individual trusted relationships directly with consumers defeats most of the cost advantages it has over other mediums. Equally, the individual cost to maintain more than a handful of trusted financial relationships is also too high. In steps the intermediate broker whose service is to "hub" large numbers of providers with large numbers of consumers on a financial basis.

All this seems obvious to me but why has it not happened ? IMO, it has yet to happen because trust relationships are expensive to build and maintain, especially with consumers. The normal Internet economies of scale do not work here. Equally, those organisations that already have an understand of this are (because this is very important to keep people trusting you) amoungst the most conservative and regulated businesses in existance. They are singularly unequipped to undertake the risky investment and invention required to become the brokers so desperately now needed.

These brokers will come. My prediction for who will do it first in NZ are:

1) Some small innovative Ebusiness doing it now, but yet to be noticed. Trademe is obvious - it already has Internet Trust relationships. Paypal is another example.

2) A current major consumer organisation that does packages of services to members (the Automobile Association springs to mind, as does Southern Cross).

3) Someone totally new, yes someone who is quite poor today will be richer than Bill Gates in 10 years time. Unencombered by current business and outside the watchful eyes of Microsoft et al, X will invent Y to solve the problem.

4) A major retailer with a good side business of financial services. The "Clicks & Mortar" model to provide trust is well proven. Here sit: Farmers, The Warehouse and NZ Post, but a smaller player (perhaps a petrol company) could crack it first.

5) Some current Internet electronic network provider, especially ISPs. They already sit between the consumer and the provider. We have seen in the past the ISPs have continued to add services on to the basic access package that is their core business. The thought that Xtra will be that broker does not fill me with joy, but stranger, more unfortunate, things have happened.

And why not some other obvious players being:

A) The international contant provider like Google, Yahoo & MSN


B) The banks

Well because they are so busy making sure one-one gets ahead in this they will both fight each other too much and be too late to change when someone "work it out" like Cable & Wireless (who is C & W ? Well they were the largest electonics company in the world, until the invention of the transister).

Then again we both could be wrong. After all prediciting the future is very difficult, especially in advance :)