Can we unwind the free business model? – Devices as a de-facto micropayment system ..

David Evans asks: Can we unwind the free business model?

He says in an insightful blog post:

We’re currently moving through a period of disequilibrium. The prevailing price structures and ways of doing things are unlikely to be viable in the long term. As more eyeballs move to internet connected devices, the supply of advertising inventory is going to grow explosively and it is going to become cheaper and cheaper for advertisers to reach massive audiences or just the right audiences. But as advertising fees decline, web publishers are going to have to find other revenue streams to survive. When we come out of this period of disequilibrium, my guess is we’ll end up in a mixed world where there is still free content supported by advertising, there’s much paid content, but the content creates enough value that people are willing to pay for it. Content will evolve and improve. Face it, a lot of free content is crap because it doesn’t have to be very good to get people to consume it just for enduring some advertising.

Pricing and business models can and do change with the times. The commercial web is only about 14 years old and advertising-supported web content really only took off, along with what we now call Web 2.0, five years ago. We’ll see lots of adjustments in the coming years as all this gets sorted out.

I agree to the overall principle but think that the advertising alone is not enough. People are paying for the same content when it is consumed on devices or in another format

Example: Books are the fastest growing category on the iPhone

The Expresso book machine is revolutionary

Nokia Comes with music is becoming a success

The Amazon kindle is already making traction and we see that the traditional media will lose out unless it evolves ITV misses out on Susan Boyle fame

The caveat is: prices may be lower in the digital world – and that means the traditional media will suffer due to it’s large overheads i.e. content will be paid for but at a lower pricepoint . That’s partly why ebooks never took off since many tried to charge the same cost for the ebook as they do for the print version(which is silly) but only now is the ebook market taking off driven by Kindle and Sony book readers(devices) but at lower pricepoints

Thus, in my view, in the Recession devices may be an avenue chosen by content creators since devices (when they sell content at lower pricepoints) will act as a de-facto micropayment system.

Comments

  1. What this doesn’t take into account is that currently digital advertising spend is considerably less than it should be. In other words (and in round figures) people are spending about 20% of their time in the digital world and yet digital accounts for only about 10% of ad spend.
    The recession will accelerate the trend towards digital ad spend because it’s the most accountable medium. Thus, as more ad inventory is available, more ad dollars will be available to support it – roughly $250 Billion more dollars to bring it up to parity with time spent online.
    The challenge for the industry is to find better ways of engaging the audience, which in turn can support higher revenues driving towards the media owners.
    I do agree that ads aren’t the only answer in every case. But for many media owners this will continue to be a vital part of their revenue mix – exactly as it is for most media owners in the traditional business model.
    Having said that, the old straight paid-for content (via subscription or micro-payments) are not likely to be the answer, with very, very few exceptions. Instead, the industry needs to develop new models for revenue generation in return for providing content, in addition to advertising.
    As an example, the Kindle, which you cite above currently has an interesting core business model with Sprint, whereby Sprint provide free downloads via their network and in return share revenues generated by the Kindle from book revenues. Perhaps, newspapers could negotiate free content for the Kindle (added value) in return for a slice of eCommerce revenues too. I realise that some newspapers are available via the Kindle already, but in reality, paid subscriptions via this channel are never going to scale in my opinion.
    Russell