While many institutions and individuals are willing to fund their sites for nor return, other sites need to make money to survive.

by Joel Snyder

What sites succeed and what sites don't--it's one big crapshoot.
--Danny Vinik

Wil Gerken runs an Internet publishing company. He recently berated me because magazines like Internet World focus on Internet content so heavily when they talk about the World Wide Web. When I say "content" in this context, I'm talking about substantive information. Regardless of whether it's about research, marketing, or entertainment, a site has to continually supply a certain quantity of useful information or it's not worth revisiting.

Now, Gerken has nothing against content. In fact, he's compiled a year's worth of several newspapers, with more coming online, at his DesertNet site (http://desert.net). He has art, music, and film reviews, plus news, fiction, features, and even comics. This is not The New York Times, mind you, but it's interesting, informational, and serves as good reference material. And if you live in the Southwest (which is where his content is focused), it's extremely topical. But even if you live outside the region, you can still find value in almost everything he provides.

So what's the problem? "Content may be king," Gerken says, "but it doesn't pay the bills." He's discontented because he's got plenty of content but hasn't found a good way to turn the information into revenue.

Model Making

What he needs is a good model on which to pattern his fledgling business. Unfortunately, he's had a hard time finding one. One of the first goals of the original Internet was to help people share resources. The huge growth in Web sites has been fueled mainly by people putting their information resources online and making them freely available. This is a pretty simple model, which I call the "research" model.

The model is based on someone, usually an educational institution or research organization, paying for machines to be on the Internet. The folks who own the information--faculty members or a research group--put the content up and anyone who wants it can come and get it for free. The cost of doing this is absorbed, more or less, by the institution. Either the institution pays directly by running the systems and hiring people who manage them, or it pays indirectly by letting the research group take time off of their normal workdays to make a community contribution.

In the academic and research community, this kind of contribution is considered part of the cost and ethics of doing business. You contribute what you know, while others add what they know. Together, you make a better tomorrow. No one expects to be paid directly.

Vanity, Money, Marketing

But what about people outside the academic or research world? There are lots of folks out there who run wonderfully informative or entertaining Web sites that have no funding. I call this the "vanity press" model. People create these sites just because they want to. They volunteer their time and money, usually paying someone to host the site.

Some vanity press sites are there because the author simply wants feedback from visitors. Others are making a contribution in the altruistic spirit of the Net: As you sow, so shall you reap. Put something out there useful to others, and you may inspire someone else to put out information useful to you. For example, if you want to know about ISDN, the first page to visit isn't someone who has something to sell you; it's Dan Kegel's ISDN Page (http://www.alumni.caltech.edu/~dank/isdn), something he does just because he finds sharing information rewarding. Many writers are using this model, putting their first novel or first chapter out for public consumption.

Well, Gerken doesn't work for a university and DesertNet is not a vanity press. There's no financial backer who wants to pay him to put these newspapers on the Web, and this isn't the kind of project for which you'd get government or charity funding. His information is interesting and valuable, but it's not going to get published online by itself.

This brings us to a new set of Internet business models: Those in which money changes hands. At this point, the Internet diverges into two different paths. There are people who want to sell a product over the Internet, where the Internet is just another venue for their sales, and there are others who want to deliver information and need a way to fund the delivery. That's where companies like DesertNet come in.

Let's look at commercial sites first. Sites that are designed to sell products are here to stay, but most businesses who think of their Web site as a storefront in an electronic shopping center will fail. In fact, I suspect that most cybermalls will disappear fairly quickly because they have little to offer. Can you imagine buying office supplies over the Internet? I can't conceive of why this seems like a good idea to someone, but if you cruise by http://www.easynett.com/landmark, you can get a box of a hundred Smooth No. 1 paper clips for $0.13.

On the other hand, the site that offers a product that's hard to find or otherwise fits in a niche market can do well. Imagine that you're looking for Louis XVI furniture (try http://www.delelie.be) or first editions of James Thurber books (try http://www.antiquarian.com). As a seller, you suddenly change your tiny storefront into a worldwide market. This model will work, and it will work over the long term.

A variation on the sales model is the marketing model. In this case, the site isn't dedicated to direct sales, but to providing sales and marketing support. The theory is that these sites will pay for themselves by lowering the cost of sales and support and increasing customer satisfaction.

Pick almost any computer or software manufacturer, and you can see an example of this at work. My favorite is Digital Equipment Corp. at http://www.digital.com, but many companies are doing an excellent job of helping people before and after a sale. On the other hand, there are bloated offerings like the Guess Jeans site (http://www.guess.com), which provides megabytes of information such as how many pairs of jeans Guess sold its first day out ("some two dozen," in case you were curious). Despite such wasteful trivia, sites like DEC's (and even Guess's) will work.

But the same is not true for Gerken's DesertNet because his product is pure information. He can't afford to give the information away because he'll be out of business. Someone, somewhere, needs to pay for the information to be put on the Web. And this brings us to the final three models for Internet Web sites: subscription, micropayment, and advertising. All three of these mimic things we do in real life.

Pay Per View

The subscription model works like a magazine: You subscribe for a period of time and you get access to information with your subscription. Sometimes companies bundle a subscription to an informative Web site with a complimentary print publication. Others simply sell information on a per-day basis. Zedcor (http://www.zedcor.com) is a good example. It sells clip art and offers a half-million images to which you gain access by paying a fee--for a day, a month, a year, or whatever you need. It's cheaper than having CD-ROMs mailed to you, and the company promises to add 20,000 images a month to its online library. Now that's a good model, and it looks like it's working for Zedcor.

One of the nice things about the subscription model is that the site can be tailored for the individual user. Because the information provider and information consumer have a continuing relationship, the provider can learn from the reading habits of the consumer and tailor the product to meet the consumer's needs. Imagine having a newspaper mailed to you each day with the stories you never read moved to the back and the ones you always read at the front. There's a lot of potential in this model.

The micropayment model is more like your corner newsstand. You find a magazine or newspaper you want, and you can have it for a small fee--a quarter to a few dollars. Micropayments don't work very well on the Internet yet because it's difficult to transfer such tiny sums of money in a cost-effective way. Companies like CyberCash, DigiCash, First Virtual Holdings, and Mondex have started to work on this problem, but until there are more people with micropayment accounts, it's not likely to work. There's an additional stumbling block that the micropayment model has to overcome: People are not used to paying for information they receive over the Internet.

Banner Days

And this brings us to the final model, advertising, which is the dominant mode for commercial sites. We see the advertising model everywhere in the form of those ubiquitous banners. I don't have anything against advertising--if an information provider decides to use advertising as the model to run its business, that's fine with me.

In theory, the best sites should thrive by attracting the most advertising. My main concern is that advertising will become so successful and all-pervasive that it will take critical revenue away from, and eventually squeeze out, the other Web business models. That puts an awful lot of power in the hands of a select group of people who have little or no incentive to use it wisely. We already know that junk e-mailers would rather abuse and destroy the Internet than own up to the cost of their nonsense. Will banner advertisers be any more ethical? Or will their influence push out all but the sites deemed worthy of their attention? I can't predict the future, but it could be grim if the advertising model comes to dominate.

Since Gerken decided to adopt this model, DesertNet is at the mercy of banner advertisers. But after watching other subscription-based publishers close their doors, he's playing it safe. His job is to bring the inflated expectations of the content owners into line with the demanding flightiness of the advertisers. Only time will tell what model his brand of site needs to survive--if it can.

Joel Snyder is a senior partner at Opus One in Tucson, Ariz.
Reprinted from Internet World magazine Vol. 8 No. 3 (c) 1997 Mecklermedia Corporation. All rights reserved.


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