Web 2.0 party is over — you’re going to pay for the news again, and hopefully more

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Recently at my personal blog I’ve been focusing on the idiocy of Web 2.0′s central strategy for growth, namely creating online networks or communities where costly participation is given away for free. (The profitable online papers charge, YouTube and Facebook still not profitable, and a more general round-up of the second dot-com bust.) The hope was that hosting a free party with an open bar would attract a large crowd, and that this in turn would lead to ever-increasing ad revenues. That business model was doomed to failure during the first dot-com boom, and it is just as doomed during the second one (Web 2.0). In the meantime, following this strategy leads to cultural output typical of attention whores rather than the output of inventors and creators with secure patronage.

I was delighted today to discover that all of this is about to change. It’s still pretty hush-hush — no “buzz in the blogosphere” — as I’ve read a fair number of articles on the topic, yet none has mentioned the coming change, even if they’ve mentioned the change earlier in the year. Starting sometime this fall, online newspapers will finally start to charge for access to their sites, although who they charge, how much, and in what manner (yearly, per article, etc.), is entirely up to the individual papers, and we don’t know what shape that will take just yet. The business model of Journalism Online, the group that’s spearheading the change, says they’re aiming to get revenues from the top 10% of readers by visit frequency. In any case, the point is that the era of unlimited free access to online journalism is dead.

Journalism Online seems to be a central hub that readers will go through to get to the various member organizations’ publications, perhaps the way college students go through their university library’s website to get access to various journals. According to co-founder Leo Hindery (as I heard on Bloomberg TV today), there are over 600 papers on board, and you can bet that includes most or all of the big ones, as they provide the best quality and yet receive no money from users (other than the FT and WSJ). All of the customer’s payments will be kept track of through this one site. I don’t have much more detail to give, since the Journalism Online website lays it out succinctly. Go read through the business model section and the press section (the 31-page PDF listed under “Industry Reports” is the most detailed).

This is the first nail in the coffin of Web 2.0, and once the other give-it-away internet companies see how profitable it is to actually — gasp! — charge for your product, they will wake up from their pipe dream of growing by attracting a big crowd and pushing ads. YouTube, Facebook, MySpace, perhaps other components of Google, Wikipedia — they can either charge and profit or get shoved out of the market by those who are growing by charging. The winners will have more to invest in improving their products and maybe even funding their industry’s equivalent of basic R&D, we’ll see a cultural output that won’t pander quite so much to the lowest common denominator to chase ad revenue, and best of all — the quality newspapers, social networking sites, and so on, will continue to exist and grow rather than be claimed as further casualties of the moronic dot-com boom mentality. At last the internet is sobering up from its 15-year Bender of Free.

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  1. @agnostic, you said… 
    This is the first nail in the coffin of Web 2.0, and once the other give-it-away internet companies see how profitable it is to actually — gasp! — charge for your product, they will wake up from their pipe dream of growing by attracting a big crowd and pushing ads. YouTube, Facebook, MySpace, perhaps other components of Google, Wikipedia — they can either charge and profit or get shoved out of the market by those who are growing by charging. 
    I’ll give you a bit of insider knowledge (although a few years old). The problems with MySpace and Facebook is the people who go there just go there to have fun. And in doing that, people aren’t interested in ads. They’ll sometimes click on “flashy” or “shinny” ads that catch their eyes. But even click those “flashy” or “shinny” ads… they still don’t seem to be interested, since they’re in the mood for having fun. (And this is even if they normally would be interested in the ad, when they’re on sites like MySpace and Facebook, that potential interest is “put on hold”.) 
    YouTube has other problems. The cost of hosting is huge. Also, finding an ad creative that works well in video on the web is still being worked out. 
    The business model of “pushing ads” does have a product. The product is the users! I.e., you are the product. The business model works. But it doesn’t work for everyone. (I.e., it works for some but not all.) 
    I’m skeptical if the newspapers can keep the audiences they have if they become pay-per-access. If I remember correctly, before the newspapers came online, blogs were much more important. When the newspapers put websites online, many people gravitated to these newspaper websites. If the newspapers turn into pay-per-access, blogs may become more important again. 
    One thing though… when the advertising industry came online, it shrunk. The reason is that advertisers were finally able to measure if their ads were effective or not! This is a HUGE thing, because before advertisers would put ads in magazines or newspapers and most would not have a clue if the ad was effective or not. These advertisers were wasting their money. The magazines knew it. The newspapers knew it. (In fact they depended on it.) But the advertiser really didn’t know. With online advertising, advertisers can measure all sorts of things… and because of that can see what’s junk and what isn’t. 
    So… point being with that last paragraph… online, the newspapers can’t sell their junk inventory like they could in their paper versions.

  2. I think you’re being a little too hard on the likes of facebook. Sites like that would have zero users if they had charged from the outset. The reason is simple: nobody knows they like facebook until they have a dozen or more friends. Nobody realizes it’s useful based on its description. Usefulness sneaks up on them. 
    So, back in 2004, had facebook launched as a site where you pay a small fee to join, nobody would have joined and facebook would have died in obscurity. The only possible workable business model is to give it away for free and attract a crowd – the very model that you say is doomed to failure.

  3. I suggest googling “New Century Network”.

  4. zoho dot com is ad free and completely self sustaining, churns out features/products at a breathtaking rate. It is a web 2 service that avoided this doomed business model. Yet it remains free for personal use, only charging for group (business) use.

  5. I read online newspapers, I don’t like paying for adds I neither want or need. Addblock is awesome in that when I am not shopping, the internet is faster and more responsive. Micro charges or even a flat rate are a useless expense for something of no utility. Newspapers are entertainment pure and simple, its not like you can actually find out how the health care plan is going in Congress. This new model is full of fail. People really really hate being ripped off and paying for the privilege is a non-starter. Try again please.

  6. The business model [of 100% ad revenue] works.  
    No it doesn’t. It works for TV and Google’s search engine. Facebook and YouTube have had years to turn a profit and have not, despite having a massive installed user base and a reputation as worthwhile things. 
    Sites like that would have zero users if they had charged from the outset. The reason is simple: nobody knows they like facebook until they have a dozen or more friends.  
    Nah, there are a zillion ways around that. Free trial memberships, initial discounts, coupons, rebates, etc. These methods have been around forever for “start-up” businesses. Who would go to a new night club or bar, which is a brick-and-mortar social network / hang-out place? Who would buy a telephone when they first hit the market? 
    Aside from offering “free samples” of some sort, to entice customers in at first and then start charging for real, people must have thought, “Well, no one may be here now, but this is obviously a cool thing and is bound to catch on.” Sometimes they’re wrong and the nightclub shuts down. But other times they’re right and telephones start to spread. 
    Facebook never had this business model, though. They should’ve offered, say, a 3-month free membership (4 months if you got a friend to join), and then started charging. Or let you join for free but have limited capabilities — say, just the ability to receive and give Wall posts. Everything else you’d have to pay for. Instead, they were just clueless, largely because the CEO was an early 20-something internet guy. No business sense. 
    Yet it remains free for personal use, only charging for group (business) use. 
    Ah, that’s very different from the give-it-away model. It’s no different from the public radio model, or indeed many public goods models (like museums), that have been around forever. 
    Newspapers are entertainment pure and simple 
    That’s probably because you read newspapers written for retards. 
    This new model is full of fail.  
    Try again please — the WSJ and FT are profitable, and not just due to slashing costs (which can only go so low). They have been ever since they started charging for online access. Everyone else is on their last legs, at least until the new paid content model kicks into effect this fall.

  7. @agnostic, you said… 
    The business model [of 100% ad revenue] works.No it doesn’t. It works for TV and Google’s search engine. Facebook and YouTube have had years to turn a profit and have not, despite having a massive installed user base and a reputation as worthwhile things. 
    I think perhaps I communicated what I was trying to communicate poorly, because I don’t think you understood me. 
    I was NOT trying to say a business model of 100% ad revenue worked for everyone. I was trying to say it worked for SOME people (but not all people). That’s what I meant when I said… 
    The business model works. But it doesn’t work for everyone. (I.e., it works for some but not all.)

  8. News International are going to charge soon. That will end the free part of web 2.0

  9. OK, back again with more comments and less snark. 
    First, whether Facebook et.al. are or can be profitable providing a free service is beside the point. The fact that the “free to readers” business model for online news may not work does not in any way imply that the “charge readers” business model is a viable alternative. It could simply be the case that no business model for online news (or at least, none as now conceived) is viable, and thus the market for online news will be go unserved or be under-served. 
    I’d also add that the Journalism Online page Why Readers Will Pay For Online News doesn’t offer any actual reasons why readers will pay for online news. It’s basically a bunch of quotes about why papers should charge for news, which doesn’t answer the question.

  10. I read the “Newspaper Economic Action Plan” you referenced, and was struck by this quote: “While a few publications have had success with paid subscriptions, none has tried to charge for its articles in a competitive environment through an industry aggregator. Success would require a critical mass of publishers to agree to collaborate openly and broadly.” 
    So, in other words, newspapers have to solve a collective action problem in which there are potential rewards for defectors, i.e., those online news outlets who think they could increase readership by offering news at no cost while everyone else can charge for it, and whose cost structures are low enough to make them hopeful they could be profitable doing it.

  11. Yea good luck with that. If you think a couple of sites charging for content will suddenly mean all the ‘free’ (ad supported) ones will just disappear, you’re sorely mistaken. All that will happen is that your readers will move on to an ad-supported site instead. 
    This idea has no way of getting traction. Don’t get your hopes up.

  12. Yes, the 31 page report is the most detailed. Here are all its details: 
    “To preserve traffic from search engines, make the headline and the first paragraph of  
    every story free.  
    Charge a micropayment of 10 cents to read a full article.  
    Charge 40 cents for a daily pass and $7.50 for a monthly pass.  
    Establish an annual pass for $55 with print subscribers getting the first year of full  
    online access free, but possibly moving to 50 percent of the online price.  
    Establish a 5-cent charge, also known as a pass-along fee, to forward an article unless  
    the recipient already has a subscription.” 
    It also talks about things other than Jornalism Online, like the idea that newspapers are better lobbyists than Google and should extort money through threat of anti-trust litigation.

  13. if the bbc stays free it will get big. this seems a collective action problem.

  14. Agnostic, is there a wager that you’d be willing to make on this prediction? Not on the attempt by a large number of newspapers and news media to raise their subscription walls (which seems to widely known, but may not come together: I’ve watched the music industry unsuccessfully attempt to create such initiatives, and that’s a far tighter cartel), but on the “access to unlimited free access to online journalism is dead” idea.  
    I mean, in trivial terms, this is already true — I already can’t access the WSJ, for instance. And if they did raise the sub walls, I can imagine not paying it for myself, but that may be down to my convictions. 
    What we need is some way to differentiate what you’re saying, and what a reasonable opposite viewpoint (cough cough my good self, cough cough) might take. My feeling that this will be a largely irrelevant move to the nature of Internet news is probably based around the idea that by locking themselves out of linking online, we’ll see online journalism growing separate from the newspapers, with perhaps other organizations taking on the model of a long form article online. Also, of course, widespread casual piracy outside of the firewalls. 
    How can we concretely differ. I ask because I think you’re profoundly wrong — I just don’t see any great change in the nature or quality of online news from this action — and I really want to put a bet on this.

  15. There are very few English-language newspapers that could survive by charging for content. The WSJ and FT are two. The Times might be another. The Post is borderline by now. The LA and Chicago Times are borderline. 
    That only applies to news, too. Almost nobody would pay for the editorial pages of any of those but the FT. You can get your opinions free elsewhere. Pay-for-content might be the end of newspapers as opinion makers, especially since circulation would be lower.  
    This will be an opening for politicized co-ops like the Guardian, as well as volunteer ideological journalism. That’s already starting to happen. Probably local newspapers will become even more shopper-like than they are already, and the split between real newspapers and local newspapers even more dramatic.  
    Portland OR and Minneapolis MN are fair-sized, middle-class, well-educated cities, but their local newspapers originate almost no national or international news. (I’d like to see a study, but my guess is that 90-95% of English-language international news comes from 10-15 sources.)

  16. Well excuse me if the New York Times and Washington Post are for retards. I didn’t know. The main point is that newspapers exist as a medium to provide advertizers with customer eyeballs. It has been about 5-6 years since I have used a paper to buy or sell anything. Craigs List and other sites have even penetrated the often backwards town I live in. Phonebooks are failing and will soon disappear or morph. Charging money for something of limited utility makes me consider other more effective means or simply going where I am not charged. The newspaper industry has lost it’s cotton-picking mind if they think people will pay for something that is unnecessary. News is subjective and so is its value. Advertising is only important to the buyers and sellers at that moment. No one else cares to see adds that have no utility to themselves. Enter Google. These large news and entertainment companies need to innovate and get their hands out of my wallet before they draw back a bloody stump. What a happy conundrum.

  17. I can’t see how this plan can work. I think the main thing killing newspapers is loss of advertising revenue, which is driven by about four things: 
    a. A lot of advertising (want-ads, frex) has permanently moved online.  
    b. There are many alternative ways to reach customers, which seriously dilutes newspapers’ ability to get ads. 
    c. As people abandon newspapers for other news sources, the ads get even harder to sell. But reading news online is just *better* in most ways.  
    d. There are a great many online news sources. If even a few (say, BBC or NPR) don’t charge for access, then the newspapers who do charge for access will just lose the rest of their online readership.  
    Just because the current model is unsustainable, doesn’t mean the next model will be better.

  18. John Emerson: Probably local newspapers will become even more shopper-like than they are already 
    I don’t know what you mean, whether I’m agreeing or disagreeing, but that 31 page pdf, which was mainly not about this particular plan, says that there are several local newspapers that charge for access. One possibility is that they have a monopoly on local news, that lots of papers could charge for content. But national and international news may be more competitive and have to stay open. Still, if people start buying access to their local paper, that may bridge the penny gap.

  19. If there were less players, there might be enough advertising revenue to go around. A lot of players have to leave the market, that’s all.

  20. I think we cannot forget that papers like the NYT started out with subscription models that failed. I will click through to a NYT article if it is free and open, but I won’t pay for one until I don’t have to go through the sign-in process and can read the article for a couple cents or less. 
    Under “Why Readers Will Pay For Online News,” the most sensible quote is from Rob Grimshaw at FT.com, who recognizes that there are a lot of readers out there like myself. 
    The thing that concerns me about the pay movement is that, as with music file sharing, the only way to make it work will be for media conglomerates to enlist government help in monitoring and punishing content pirates. I don’t want that to happen. Bad enough to have NYT influencing people through their publications. 
    Interested readers should check out the Clay Shirkey article on this topic at Edge.org along with its responses. Two alternative models for media are: 
    (1) government subsidy 
    (2) no profit philanthropy 
    These are based on the notion that running a newspaper with professional reporters is relatively cheap in the Internet age. 
    Vimeo recently started deleting its raw files rather than paying for storage. I think Facebook and YouTube are doomed, which is fine. I wouldn’t mind paying YouTube as a producer rather than a viewer. I think that’s the way it will be headed. 
    As others have pointed out, the Internet could only kill advertising. Unless you have a captive audience like pre-tape TV, nobody will pay attention. I have never even once followed a web ad.

  21. Actually, I think Agnostic is mostly wrong, at least with respect to the news media. The U.K. media market is an example of a “mature” stagnant market. You have one good paper (Financial Times) and the rest are all tabloids. Looking at the U.S. media market, you will note that the WSJ has had a pay site from the beginning of the internet and it has been quite successful. The other media outlets have never been able to pull it off. I believe what we are seeing here is the internet version of how the U.S. media market will evolve into the mature market that exists in the U.K. One good paper (WSJ) and the rest as tabloids (including the NY Times). 
    The success of the WSJ’s pay site clearly demonstrates that people will pay good money for good news, but what constitutes good news is a very high standard. However, it is unlikely people will pay money for anything less than that. 
    I would say that the internet equivalent of U.K.’s two-tier media market is that there will be the WSJ and its equivalents, and there will be Web 2.0.

  22. If you think a couple of sites charging for content will suddenly mean all the ‘free’ (ad supported) ones will just disappear, you’re sorely mistaken. All that will happen is that your readers will move on to an ad-supported site instead. 
    And how long will that last? Remember, money (profit) keeps you in business long-term — not popularity (market share). If the ad-supported model doesn’t generate profit, they’ll go out of business before long. 
    Since the ad-only ones will be of substantially lower quality — because they cannot afford lavish things like lots of reporters, fact-checking, lengthy investigative research, top-level graphic designers, cartoonists, etc. — they will all be of equal quality. And they’ll have no distinguishing features because — again due to their lack of big bucks from profit — they’ll all be chasing the same cheap and easy-to-find-out news. So, readers who accept only free news will just choose one or two of those ad-supported sites, and all the others will disappear. 
    High-quality papers will be different — one will fund a costly investigative report on X, another on Y, etc. The chances of overlap are nil. One will focus more on economics, and another on the arts. And that’s even more true for local papers — Denver will not cover Boston or vice versa. 
    Of course, some papers that enter into the charging model may still fail — no one said that charging was sufficient for generating profit, just necessary. In this case, consumers will have voted that local papers X, Y, and Z are not worth paying for, while local paper A is. Weeding out the bad from the good is a triumph of the charging model, not a failure.  
    Put more simply: the death rate for the population of ad-only papers will be higher than for the population of papers that charge at all (remember, the details of who, how much, and how they’ll charge have yet to be released). And in the case of charging papers that fold, this will be due to the consumers’ judgment that they’re not quality papers — not due to their decision to charge per se.

  23. Remember, money (profit) keeps you in business long-term — not popularity (market share). 
    You are blinded by your “capitalist doctrine”, there are LOTS of activities which make no economic sense at all and which keep going. 
    Open source is a perfect example, rationally it should not even exist, yet it strives despite obvious shortcomings.

  24. A. Newspapers really don’t seem to have much valuable information. Public sources easily cover the daily news (BBC, CBC, Wikipedia etc). 
    B. Financial news and possibly entertainment (cable television packages through the net) are the only areas where I see possible growth via prescription fee model. Perhaps we’ll also get better television. 
    C. Wikipedia beat all the prescription models that were there before it, and the gap is only getting bigger. In mathematics, for the most part I find using wikipedia more helpful than Wolfram MathWorld. Encyclopedia Britannica has been bitchslapped in all other regards. Really the only way to compete with wikipedia is if you made the vast majority of journals available through a portal coupled with an encyclopedia for referencing. However, the cost for such thing would be astronomical.

  25. @agnostic 
    After posting my last comment, I went and checked that Journalism Online site in more detail. The first thing I noticed was that its big name seems to be Steven Brill. Obviously people can change, but the only name recognition value Brill has for me is being consistently wrong about the nature of media and technology in the 90s. And while they boasted about 160 dailies, they won’t name any of them, and are very vague about “micropayments” and other aspects of their business model. I’m much less confident than I was that this is a genuine business movement, and more some free-riding on the current paranoia of the newspaper market. 
    So I’m willing to put down a few bets here. One, that the Journalism Online space will represent a very small proportion of the total online news readership, and one that will decline over time. 
    Of course, that doesn’t necessarily matter in terms of profits (as you’ve said). But then, subscription-only periodicals have always existed and have been profitable. The question is: will be the media that you (and others) refer to as the mainstream media, and quote from, be free for consumers, or charge for their content? The New York Times or the Guardian have never been the most profitable ventures (nor the highest quality news) but they are general media with visibility and penetration among key political classes. Such media has *never* been successfully funded by reader payments; it has *always* been a rider on advertising or other revenues. I don’t see that changing. 
    So, my second bet. The majority of the “professionally produced” articles, which is to say text that the author was paid to write, referred to or quoted in depth by this blog (which I hope you’ll think is a quality information source) will still be to freely viewable public news sites (with the highest impediment being a user login) three years from now. 
    Would you agree to these bets? If not, what are you saying, exactly?