Paid vs. Free

Bambi Francisco reports that the web will continue to be advertising-based rather than subscription-based. She concludes this in spite of optimistic numbers for paid-sites, which is fairly new compared to almost a decade of online advertising. And she completely ignored the fact that online advertising is a tiny tiny tiny fraction of what it was in 1999 ($30/CPMs versus $1/CPMs today) — that’s not growth, it’s a slight bounce back from a number approaching zero.

And she incorrectly assumed that because total online advertising is increasing, that all sites supported by advertising are increasing their revenue. That would only be true if the size of the web, e.g., the number of web sites in existence, grew slower than advertising revenue. But that’s not true — the web is growing at exponential rates. If she asked a site that isn’t in the top 3 sites on the web, she would have heard a very different story: that advertising is decreasing in revenue and if a site is earning more revenue, it’s only because the traffic has grown at a higher rate than the advertising revenue per CPM has declined.

But although she tried to extrapolate it to all sites, her main point is about news sites. I agree that for news sites, advertising is the only way to go because news is fleeting; the masses don’t care about old news so old news is worthless. So charging for archives is hopeless. If a news site wants to charge for content, they’d better have exclusive content. But that’s news sites’ fatal flaw: news cannot be exclusive. For example, no news site could have kept the results of the 2004 Presidential election a secret for paid subscribers only.

But that’s not true for sites that provide a useful service that goes beyond the content itself. Recipezaar recently launched a pay version of the site that gives members additional features that free members don’t get. If we continue at our current rate for the rest of the 12 months, our first year will account for 30-40% of our advertising revenue. Not bad for the first year! And I expect that to only increase while advertising revenue continues to decrease. This works because Recipezaar is a web application, i.e., it’s software.

A web site is either a printing press or it’s an application. The economic future of the web is clear: advertising will (barely) support printing press web sites and fees will support advertising-free application sites.

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