Internet Outlook with Richard Wiggins | 14

All Those Wonderful Web Sites: Will They Last?

So Much Great Stuff … But Will It Last?

So the proliferation of useful services on the Net is very real. And folks like me have been pleasantly surprised to find things for free that we thought for sure would cost money. But this raises the question: can it all last?

We've cataloged a number of different kinds of information and service providers here. Let's try to analyze the motivations of these different kinds of services.

Companies offering customer support via the Web actually may benefit from effective use of the Web as much as consumers do. Customer support calls are expensive. If I'd called for that floppy starter disk for my US Robotics modem, the cost of taking the phone call and mailing the floppy might've been $20. They could either try to recover that cost by charging me (resulting in a less happy customer) or they could eat most of the profit in selling the modem. Thanks to the Web, their marginal cost of satisfying me is virtually nil.

Companies offering something to sell over the Web probably are clear winners as well. Amazon presumably prices its books and shipping so as to make money on each sale. Hello Direct is merely extending its catalog to the online realm, and, to the extent people order online, probably lowering the costs of maintaining a phone bank. ("Operators are standing by" means "We are spending money whether you call or not.")

The case for auction houses is a little murkier. They'll need to get enough people participating in every auction in order to bid up prices to a level where they make money. Over time these issues will be sorted out, as the houses figure out how long an auction should last, what times of day to run auctions, and what sorts of minimum bids are best. In the short run, look for a lot a auction houses to go belly up, and expect to hear anecdotes from friends about the amazing buys they got by doing their bidding at just the right time.

Travel agencies don't sell physical goods at all, but rather broker travel services. Preview Travel and its competitors get a cut of each reservation booked through them, and again, their costs are much lower than those of a face-to-face travel agency. Indeed, direct sales from airlines have already lowered commissions paid to traditional agencies; in this case, I'd worry more about the old-fashioned firms than the Web-based ones.

So this leaves us with folks who provide information for free on the Net. In many cases, these are traditional publishers that have re-deployed their content to the Net. Magazine publishers such as Ziff-Davis probably realize that even if every word of every article of every issue of a magazine is placed online, at least in the short run, there will be no impact on subscriptions. People still want to read articles on paper. So there's no loss in revenue from print sales, and the possibility of revenue from banner ads.

Firms like Edmund's are no doubt evaluating their Web edition with their eyes wide open. Personally, I see no reason to ever buy the printed Edmund's guide again with the data available online for free. However, there may be other ways that Edmund's can make money online, such as offering a convenient classified ads service to go along with the pricing information. Indeed, that's just what they're doing.

Even Switchboard is an example of re-purposed content: they licensed CD-ROM databases of telephone directories, which in turn were re-purposed by companies that license (or scan or re-key) local phone books. The folks that sell those CD-ROMs make money on each sale to individuals or libraries. Switchboard makes money by selling banner ads on each Web page.

Similarly, sites that exclusively offer original content on the Web, such as Webreference.com, use banner ads as their source of revenue. Advertisers pay for banner ads based on a number of "page impressions," meaning the number of times the ad is painted on a user's computer screen. Advertisers can measure the effectiveness of Web advertising by noting the "clickthrough rate," or what percent of the time the ads translate into visits to their web site. By tracking users as they come into the site, and by measuring how many sales result, advertisers have a pretty good understanding as to which of their ads are the most effective, and which sites on the Web are the best places to advertise.

Although some skeptics proclaim that banner ads aren't effective, a number of major advertisers are betting that they do lead directly to sales, and the industry trend seems to be upward. In fact, it may be that information on the Web may follow a model similar to television in North America, where the vast majority of programming is sold interspersed with advertising (a la banner ads). Specialized content, such as boxing and premium movie channels, is available sans advertising on a pay-per-view basis. The Web may follow a similar model, where most content is paid for by ads, and only specialized content commands subscription fees or pay-per-view dollars.

Some freely-available sites, like the Wall Street Journal, have finally made the transition from free to paid-subscriber only. The Journal noted a 50% drop in readership, but that means that 50% were willing to pay for content. Assuming that group of readers doesn't overlap much with those who pay for print subscriptions, the Journal may conclude it's best to charge.

Most other content providers will probably move much more cautiously, using banner ads and no up-front fees, and following more of a broadcast TV model. The bottom line: content and service providers have a mix of motivations and payment models to support their activities on the Web. While individual players may fail, it seems likely that others will prosper, and we can look forward to an ever-increasing variety of useful content -- and services -- available at the click of a mouse.