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From free to fee

Simply attracting a lot of "eyeballs'' hasn't translated into advertising profits. So some Web sites are turning to subscriptions to pay the bills. But will people pay for what they used to get for free?

By DAVE GUSSOW

© St. Petersburg Times, published April 9, 2001


Web sitesTollbooths are going up on the information superhighway. Web sites again are trying to get consumers to pay for content and services that had been free.

Salon (salon.com) urged readers to shell out $30 a year to keep the online magazine afloat. Mailstart.com limited users to one free check of their e-mail a week to try to get them to cough a $6 annual fee through its partner, WebBox. Yahoo added a listing fee for its auctions.

Consumer reaction to some of the newer fees has been swift and negative: Yahoo's auction listings plunged 90 percent after it started charging in January. Only 5 percent of Free Edgar's 35,000 users said they would pay $29.85 a quarter for e-mail alerts on regulatory filings by more than 10 companies of their choice, according to USA Today.

The response shouldn't have been a surprise. A survey by Jupiter Research found that 70 percent of consumers are reluctant to pay for online content, though 40 percent acknowledge that it can't be free forever.

"Consumers in general have been tremendously unwilling to pay for available content for the Web," said Daniel O'Brien, a senior analyst with Forrester Research. "When things are broadcast on TV, radio and the Internet, it's very hard for them to capture a direct consumer fee."

But some sites are willing to take what they think will be short-term losses for long-term financial gain. Faced with increasing pressure from investors to produce profits, sites hope consumers will change their minds, open their wallets and help them survive the dot-com meltdown of recent months.

Simply attracting a lot of "eyeballs" has not translated into profits, and the always-fragile hope that advertising would pay the bills has faded along with the broader economy. Ads have become bigger and bolder to attract the attention of jaded surfers, but it's too soon to say whether ever more intrusive ads will make a difference.

Some sites are taking a pay more/get more approach. For example, Eudora e-mail gives users a choice: free software with limited functions; free with ads and somewhat more functions; or paid with no ads, all functions and free upgrades for the duration of the subscription.

Now charging...
Here are some of the Web sites and services that have added fees in recent months.
Even those that have tried and failed to impose fees in the past are dreaming up variations on the theme. Microsoft, which dropped an early plan to make its Slate Webzine (slate.com) a subscription site, is looking at unspecified new premium services that consumers might be willing to buy, MSN product manager Sarah Lefko says.

Microsoft will continue to offer free content, she says, but "Internet time is constantly moving and we're continuing to evaluate" the company's business model and what consumers want. Lefko said users might be more willing to pay for services if they perceive them as adding value to their online experience.

But just adding fees won't work for all, says Forrester Research's O'Brien. Some sites need to cut their expenses, "and they seem less willing to cut costs."

For example, Salon has a staff of almost 300, O'Brien says, and "I'm not sure that's a sustainable level."

Salon has made some cuts: It let go 25 employees in December as part of a 40 percent reduction in expenses, and some employees took a 15 percent pay reduction. But its stock is down about 96 percent from its June 1999 initial public offering, and it had $5.6-million in cash at the end of December, enough to carry it through June.

Salon hopes to persuade as many as 54,000 customers to subscribe, raising $1.6-million during the first year of the service, according to documents filed with the Securities and Exchange Commission. Salon projects that it will lose $16.6-million on revenues of $7.5-million in its fiscal year ending March 31.

The site claims 2.7-million visitors a month, and Salon, which was started by a former editor at the San Francisco Examiner, has won critical acclaim for its news coverage and commentary on politics and pop culture.

But do the site's users love Salon enough to voluntarily pay $30 a year for it, even though it is not threatening to limit access for those who won't pay?

Its pitch for cash received support and some skepticism among Web users at Plastic.com, an online discussion board. "So who in their right mind would want to buy advertisements on the "free' Salon?" one person wrote. "Hey, Mr. Advertiser, we have a bunch of people who have demonstrated that they don't like to pay for things . . . Would you like to attempt to sell things to them?"

Wrote another: "Salon is firmly filed within the "somewhat nifty, but by no means indispensable' category."

Not counting porn sites, which have been profitable since the early days of the Web, the few successful subscription Web sites are those able to make the case that they have exclusive information or a depth of content that can't be found on a run-of-the-mill free site.

Among the success stories: the Wall Street Journal (www.wsj.com), which charges $59 a year or a discounted $29 a year to the financial newspaper's subscribers; and Consumer Reports (www.consumerreports.org). Each claims more than 500,000 subscribers.

"We have unique need-to-know content," said Joel Gurin, executive vice president of Consumers Union. "It's a very good fit for the Web. The Web is "search' and we have very searchable information."

That translates into value when consumers want to buy a car, appliance or other products, Gurin said. The magazine went online in 1997, offering Web subscriptions for $24 a year to match the price of a magazine subscription. It has remained at that level, while the magazine has increased to $26 a year with more than 4-million subscribers.

The online magazine is gaining 2,500 subscribers a week, Gurin said, and it is expanding its online presence by tying in with other sites such as the shopping comparison site MySimon.com. Those sites have a summary of product reports available for shoppers, with a link so a user can purchase articles from Consumer Reports for $2.95 apiece.

O'Brien, the Forrester analyst, says the only other category that seems to get people to pay is online interactive games, which indicates a willingness among "those who have a real passion or addiction."

Setting fees for content is difficult because unless all sites have subscriptions, people can go elsewhere for free information, he says. And if a free site starts getting a lot of visitors, it has a better chance to be profitable.

"All it takes is a little crack in that dike that gets all the traffic and they can then turn it into advertising dollars," said O'Brien, who thinks advertising eventually will carry a substantial part of the load.

In a relatively few years, Web advertising is matching what is spent in magazines, he says, and traditional big-spending advertisers such as automakers and drug companies plan to spend an increasing portion of their budgets online.

"If content sites can trim costs and hang on for another 18 months or so, advertising will come back," O'Brien said. "I don't think it's time to give up" on advertising.

- Information from Times wires was included in this report. Dave Gussow can be reached at gussow@sptimes.com or (727) 445-4228.

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