March 22, 2009

Making the web pay | The end of the free lunch—again | The Economist

Making the web pay | The end of the free lunch—again | The Economist:

The long-standing internet notion that "information wants to be free" has beguiled users for a couple of decades now. It is the entry point, if unspoken, mantra for new companies seeking their fortunes by attracting millions of users, then expecting a revenue payoff later through advertising or selling to a larger company that does make money.

As the economy languishes, many Web 2.0 startup companies will not be able to sustain themselves without revenue, as The Economist opines. The lesson is also not lost on the newspaper business which, with the notable exception of the Wall Street Journal, finds that advertising cannot adequately sustain their costly business model. Most made the error of giving away their content free online.

"The bill, sir."

"The idea that you can give things away online, and hope that advertising revenue will somehow materialise later on, undoubtedly appeals to users, who enjoy free services as a result. There is business logic to it, too. The nature of the internet means that the barrier to entry for new companies is very low—indeed, thanks to technological improvements, it is even lower in the Web 2.0 era than it was in the dotcom era. The internet also allows companies to exploit network effects to attract and retain users very quickly and cheaply. So it is not surprising that rival search engines, social networks or video-sharing sites give their services away in order to attract users, and put the difficult question of how to make money to one side. If you worry too much about a revenue model early on, you risk being left behind.

Ultimately, though, every business needs revenues—and advertising, it transpires, is not going to provide enough. Free content and services were a beguiling idea. But the lesson of two internet bubbles is that somebody somewhere is going to have to pick up the tab for lunch."
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