Pay Per View Internet

by James R. Stoup Jul 17, 2006

I have noticed a disturbing trend that has slowly gained momentum as the internet continues to become more and more pervasive in our everyday lives. It is a shift in the attitude consumers have towards certain services. What we once would have (rightly) expected to pay for we now immediately assume (if true), or loudly demand (if not), that it be free. And this insane shift in thought is most clearly seen in today’s internet-using youth.

Consider the following, as of this moment you have access to the most powerful tool, in the history of mankind, for finding information. It’s a website called Google. You can find facts, dates, people, photos, videos, music and pretty much anything else you can think of, all with a few clicks of the mouse. And how much does this amazing service cost? Nothing. And both Microsoft and Yahoo are desperately trying to beat Google at the game of giving consumers high quality search technology, for free.

Right now, visiting the right sites, you can get all of the following free:

  1. High quality maps (both political and geographical) of the entire earth
  2. Music
  3. Video
  4. Video hosting
  5. Website creation software
  6. Website hosting
  7. Encyclopedias
  8. Email

All of these extremely useful services (we won’t even get into software, yet) are offered to you, for free all because you decided to grace that particular website with your presence. You didn’t buy anything, you didn’t sign up for a plan, at most you gave away your email address, and that was probably fake. Yet, in spite of contributing nothing but “eyeballs” to a site, most consumers expect (as if it is their right) that whatever service they are using will be free of charge.

How we arrived at this state amazes me.

Now, before the torrent of hate mail starts, I should explain that I am fully aware of the business of advertising. I am also aware that an increase in web traffic translates into higher revenue for a website. Furthermore, I am also aware of a small fact that most web denizens are willfully ignorant of. Websites cost money.

There are servers to buy (and maintain), sites to develop, bandwidth to purchase, and many other expenses that must be paid in order for your favorite “free” website to exists. And guess what, last time I checked, none of those bills can be paid in “eyeballs”. This was a fact that many companies forgot when the first internet bubble burst. (can you believe that companies actually have to make money to stay in business?)

But wait! I hear the chorus of angry voices already telling me that these bills get paid by ad revenue. Which, in turn, comes from advertisers. Well you know what? That system sucks. And the time will come when it will be replaced with something more sustainable.

Because the simple fact is that as much money as advertising brings in, that figure is dwarfed by the amount of money generated by actually selling something. Don’t believe me? Check out the difference between Google’s net profit and Microsoft’s.

We are faced with the problem that things cost money. And high quality things cost more money that low quality things. This revelation shouldn’t surprise anyone. And yet, when you replace the generic term “things” with online services (like email or searching) people are shocked. PAY FOR EMAIL? That is so . . .90’s. No one actually pays for email anymore, its like air, its free. How did we arrive at this point? And am I the only one who thinks its a bit strange?

Of course those of you still reading must think that I am quit insane because, I am, in essence, requesting to pay for services that are currently free. And when put in those terms it does sound a bit ridiculous. Let me explain.

Right now the vast majority of the web is paid by someone else. It is paid by advertisers and large corporations and governments, but it is not paid for by the people who actually use it. And as a result we have two inescapable effects of such a system. One, we are not in control of what is offered for us to use. And two, those responsible for the sites we visit will try every way (legal or not) possible to recoup their losses via their users.

Imagine if buying a car worked like using a free email service. Ford, GM, Honda and the rest would all give away free cars. However, in order to get a free car you had to agree to hand over all of your personal information. (the dealerships promise to treat this information with the utmost respect and security) Of course, eventually you will need gas and when you do you will have to drive back to the dealership and listen as random representatives from various companies tried to talk you into buying various products. And your car would be covered in more product names than a NASCAR. Does that seem like a good way to do business?

Seems kind of crazy to me. But, of course, I paid for my car.

Comments

  • a) how desperate can one be to get a rise and thus comments out of people.

    b) isn’t this called applematters?

    c) we wouldn’t be in any more control over the content than we are now.
    or are you in control over what runs at your multiplex or what you can rent at your video store.

    d) did you vote howard or bush? that “there is and there shouldn’t be any free lunch -it’s gods and natures will” rhetoric smacks of it.

    hardboiledwonderland had this to say on Jul 17, 2006 Posts: 6
  • It’s going to be interesting watching people try to charge for something that was always free. And free because that’s the way the chose to do business.

    The Wall Street Journal from day one on the web was a subscription fee. And they were one of the first to make a profit at it.

    But to put the cat bag in the bag so to speak, will not work. Because someone, advertisiers or Microsoft or others will subsidize the site to keep it “free”.

    As to your car analogy. There has been talk of the car model could be like cell phones. Oil companies either buy a car company(s). Give away a car with the contract. Holding the customer to buy only gas and service from Mobil as an example.

    But websites dug thier own grave so to speak. Once free and then going to charge, the site needs to offer something so compelling that the user will cough up money. Won’t happen. There will always be a free alternative that offers 90% or the pay site, but free.

    mozart11 had this to say on Jul 17, 2006 Posts: 35
  • Hardboiled:

    a) No that desperate….I think James brings up some interesting points. After all how long can place like YouTube survive?

    b) It is called Apple Matters, however, in the past, and in the future, we will look at issues beyond Apple directly. This is one of four stories today, all the others relating to Apple directly. That said in many ways this issue does relate to apple. .Mac is a paid for service that many Web 2.0 sites are destroying because they offer similar, and often superior services for free.

    Hadley Stern had this to say on Jul 17, 2006 Posts: 114
  • Hardboiledwonderland, although this article isn’t aimed directly at Apple users and Apple Computers as such, it does include those of us with Macintosh computers (as much as it includes anyone else with a computer accessing the internet), thus, seems fair to a fit a place on this site.

    I think for the time being there is always going to be competition between companies such as Microsoft, Yahoo, Google etc. for the price to remain either cheap or free. I mean, look at the e-mail services. Gone are the days where we have 2MB of space to play with. Now, for free, companies are offering us between 250MB to 1GB+ of space to play with, all to attract new users. The internet will probably end up splitting into two categories

    You’ve got Product A with a few features that will allow most users enough freedom to get by.

    Then you’ve got Product A again, but this time with added features that are well worth paying the money for - something users will want to pay money for as well, provided they have the intention of using them, of course.

    Aaron Wright had this to say on Jul 17, 2006 Posts: 104
  • I pay for my email wink

    I prefer things to be free, but I am willing to pay if I want the product/service enough.

    The internet is about freedom of information and what not… if it all cost money, millions of people would be turned off, resulting in what? A ghost web? If Apple Matters cost money to read, I wouldn’t pay. I would miss out, and so would you.


    Free has translated into the barrier-less global community never seen before. Long may it last.

    bonniejonnie had this to say on Jul 17, 2006 Posts: 6
  • When it comes to products and services, nothing is free. Someone pays, somewhere. Don’t get all lefty on me and proclaim that because the government pays for it or a business pays for it that it’s free to you and me. That’s simply ignorant, as the business deluges us with ads to recoup costs, or the government increases taxes to recoup costs.

    Don’t believe me? What if everyone started using ad-blocker software tomorrow? Just how long would Google stay in business? As for Applematters, don’t you think that they pay for storage and bandwidth every month? What about the domain name registration fees? It ain’t free, child. 

    I pay for my email, too. Granted it’s part of my overall DSL service, but I still pay for it.

    Aurora77 had this to say on Jul 17, 2006 Posts: 35
  • The Internet isn’t the only thing we get for “free.” You can read books in the library for free. You can also watch TV for free if you don’t get cable. If all these things cost money, I think the gap between the haves and the have-nots would get a lot more severe, and that’s dangerous when it comes to information.

    Bart had this to say on Jul 17, 2006 Posts: 23
  • Hear, hear, bart.

    Benji had this to say on Jul 17, 2006 Posts: 927
  • Bart, in England T.V isn’t free. We’ve got Cable and the more powerful Sky Satellite which we pay a premium for, but where others get terrestrial free, we have to pay a license to the BBC every year just for the privilege of owning a television.

    Aaron Wright had this to say on Jul 17, 2006 Posts: 104
  • ...the time will come when it will be replaced with something more sustainable. -James

    Sustainable as in what way? Metric?

    Something you forgot to mention, though, is an internet company’s critical mass or equilibrium. Look at Google, for example, they can [in the foreseeable future] sustain their massive growth rate and keeps on adding thousands of massively-parallel server systems connected directly to the backbone of the net. Googleplex being built at the Oregon/Washington border (Oregon side of Columbia River) is a massive proof of that critical mass requirement.

    Now, pick any web wannabe past or present. Do they have this critical mass? If yes, they will keep on giving us “free” lunches with sprinkles of upper-tiered services - a la Google Earth or even unlimited storage & email, etc [Aaron Wright]. If not, forget it they will eventually give in to giving the “free” stuff, wilt and die, or both.

    As to the question you raised. “How did we come to have this expectation?” Simple - radio and broadcast T.V.

    Since the early days of AM radio, advertising revenue has been the fuel for the “free” stuff and has sustained radio very well to the present. TV is another matter - and you have to refer to Aaron’s input here. Broadcast TV is “free” but not CATV nor satellite broadcast. Why? First of, you have to pay for the access to these “free” content. Your $45 monthly access is not “paying” for the content per se - the embedded ads do that. 

    So, advertisement for the foreseeable future will be the only medium to sustain the content. Getting that content to “eyeballs” is another matter.

    And yes, web sites cost $$$ so I would suggest not to complain about the embedded ads or skip altogether. Read one now and then for they don’t hurt anyone. It is all for the sake of having “free” content for everyone.

    Robomac had this to say on Jul 17, 2006 Posts: 846
  • The “free” model which relies on advertising revenue is just one model that can be deployed by a supplier of a service or product.  And, as has been pointed out already, this is nothing new.  Free to air television has supported itself, very profitably, by advertising revenue for more than 50 years.  Where I live there are countless “free” newspapers, supported by advertising revenue.  Even the newspapers that one buys are hugely subsidised by advertising.

    I worked for a pharmaceutical company in the late 70’s.  Before the internet, doing a search on medical research papers involved a telex-like interface to an expensive database service which offered a 24-48 hour turnaround.  Today, you and I can research a medical issue in no time at all, at no cost.

    There is no reason why a charge cannot be levied on content.  If you subscribe to the online version of the New York Times or New Scientist as I do, much of the content is free but in order to access certain content you need to be a paying subscriber.

    The “free” model allows small businesses and individuals to attract an audience and generate revenue.  Anyone can set up a site and provide content.  If enough people visit the site, the site owner can sell advertising revenue.  It is hard to imagine how a site such as this one (AppleMatters) could be established and find an audience if a subscription model were followed.

    Many banks offer “free” cheque accounts.  The cost of providing the cheque facility is borne by the bank who make a profit on lending the money you entrust to them.

    James states that it is an “inescapable fact” that as a result of the free model we (consumers) are not in control of what is offered to us to use.  I am trying to imagine how buying a bottle of shampoo gives me control over what shampoo I am offered.  Consumers can influence what products and services are offered, but we have never been in control.

    His second “inescapable fact” is that those who offer these free services will “try every way (legal or not) possible to recoup their losses via their users.”  I am trying to think of a site which offers a free service and then gouges their consumers.  Certainly Google does not - in fact the only inescapable fact here is that the free model, as implemented by google, has placed unparallelled resources in the hands of ordinary people.  And last time I looked Google didnt have any losses to recoup…

    The car analogy is a poor one - though I have to say that there was a company in Sydney offering free cars to people in the “right” demographic.  The cars bear very obvious advertising and the model relies on the cars being “seen” in all the right places at a high frequency.  I have no idea whether the model proved successful.

    Free email is offered because those that offer it gain some value (and make their profit) because the free service will be widely used.  Hotmail is a good example.  Undoubtedly, Microsoft incur huge costs in infrastructure.  Hotmail is pretty awful, but it provides an acceptable level of mail and it meets my personal mail needs.  But I use Exchange Server/Entourage for my business and pay for my own infrastructure because I can justify the expense.

    HP, Lexmark, Canon, Brother and others offer “free” printers which are paid for by the ink cartridges you are forced to buy (the ink in some HP cartridges costs more by the millilitre than Joy perfume…) and it is sometimes cheaper to throw your printer away and replace it with a new one rather than buy a refill cartridge.

    Open Source software, shareware & freeware compete with commercial products.  The net effect of this is to drive up the quality and functionality of commercial offerings - to the benefit of all of us.

    On balance, I would say that this is a poorly conceived and poorly reasoned article.  There is no doubt that the widespread adoption of the “free” model makes it difficult, if not impossible, to make money by selling email or other applications and services.  But the consumer benefits - and hugely.

    Do consumers really expect everything to be free?  I think we would LIKE everything to be free - and we are happy to “pay” for the free services by allowing ourselves (and our wallets) to be exposed to advertising.  Where our interests or needs are so specialised that a “free” model is unsustainable, we seem to be quite happy to pay.  Certainly Apple seem to be doing okay with the iTunes store.  Proof that the young internet users of today are still happy to pull out their wallets and pay for things they really want or need.

    So next time you sit down with a newspaper, turn on your free to air TV to watch a costly-to-produce international news report, take a subsidised subway or accept an inducement to participate in a marketing study, you might reflect on the wondrous concept that your eyeballs actually DO have a value - and the market has found a clever way to extract that value at minimal cost to you.

    If there is a value equation here, it seems to me that it is heavily loaded in favour of the consumer.

    What’s there not to like about that?

    sydneystephen had this to say on Jul 17, 2006 Posts: 124
  • Good points all the way S^2. Same sentiments from Robo’s side.

    So, people listen, it is “free” only if we participate fully in that time-honored system called advertising whatever the medium - print, broadcast radio or TV, CATV, DBS, IPTV, and last but not least, the internet.

    Robomac had this to say on Jul 17, 2006 Posts: 846
  • Ar, me too, very good post there sydneystephen.

    Services are free because in a marketplace where they can be, it’s the most profitable way they can run.

    I suggest you try setting up a search engine we have to pay to use, and then compare your balance sheet with the Great Goog’s.

    Benji had this to say on Jul 17, 2006 Posts: 927
  • Furthermore, I am also aware of a small fact that most web denizens are willfully ignorant of. Websites cost money.

    Firstly, I would seriously question your assertions about the intelligence of most of humanity. Even the slightest appreciation that websites are built, come into existence and change over time shows there must be expenditure involved. Indeed, our experience of the internet is that we have to pay for access to it. What are we paying for? In technical terms? Sure, that question beats most “web denizens” but they still know that there is some system for The Getting Of Stuff From The Internet which must be required in some sense by the companies that provide the service.

    There are servers to buy (and maintain), sites to develop, bandwidth to purchase, and many other expenses that must be paid in order for your favorite “free” website to exists. And guess what, last time I checked, none of those bills can be paid in “eyeballs”.

    I’m sorry to say it, but this seems far better an example of wilful ignorance than the original. You well know that eyeballs are exactly what pays for websites, in terms of advertising, and with great success. Then you say:
    This was a fact that many companies forgot when the first internet bubble burst. (can you believe that companies actually have to make money to stay in business?)
    You very well know that the reason for the internet bubble’s collapse was not that they were trying to pay for things “in eyeballs”. It was instead that the myriad business ventures were based on poor strategy, and executives were shrewdly cashing in on the stock market’s optimism and ignorance. Being generous, we could say that the problem was they didn’t have enough eyeballs to foot the bandwidth bills. However this would be untrue, because during the internet bubble’s collapse, it was as inevitable for a majority of online sales-driven businesses to go bust as it was for a majority of advertising-driven businesses to do so. To make out that the problem was reliance on eyeballs (aka advertising) is, simply, wrong. The real problem was widespread foolishness and false hope.

    Because the simple fact is that as much money as advertising brings in, that figure is dwarfed by the amount of money generated by actually selling something. Don’t believe me? Check out the difference between Google’s net profit and Microsoft’s.

    Yes, compare advertising companies with, like, the most profitable company ever that operates its sales in a totally different arena, yes, that shows there’s no money in advertising, yes. Yes indeed.

    Perhaps we could make a less deceitful comparison. The hypothesis is: “as much money as advertising brings in, that figure is dwarfed by the amount of money generated by actually selling something”.

    So if we compare a company that actually sell “things” exclusively over the internet with one whose revenue is eyeball based, we expect the company that sells “things” to be more successful, on average.

    Well, you chose google, unfortunately, because that’s like, the most successful advertising-driven net company of all. But hell, what’s the most successful sales-driven net company we can think of? Amazon?

    Did you know that Amazon has a quarterly income of around $50m, being generous? This is on sales revenues of about $1.2 billion. Did you know that Google’s net income in Q1 06 was almost $600m on revenues of $2.25 billion? Did you know that this represents a 79% increase in profit compared with Q1 05? Did you know that for much of its history, Amazon has made huge losses? I’m fairly confident it’s financial history actually sums in the red so far, on balance, though it has turned profitable in the last 5 years.

    There is money in eyeballs. Really, really big money. And the intelligent readership of Apple Matters is not going to be persuaded this is not the case, nor that eyeball-generated money is somehow systemically inferior to sales-generated money.

    So we come to the interesting bit of this article:
    Right now the vast majority of the web is paid by someone else. It is paid by advertisers and large corporations and governments, but it is not paid for by the people who actually use it. And as a result we have two inescapable effects of such a system. One, we are not in control of what is offered for us to use. And two, those responsible for the sites we visit will try every way (legal or not) possible to recoup their losses via their users.

    As I see it, this statement though interesting is flawed, because its premise is wrong. It is not paid for by the people who actually use it.

    James, it is paid for by the people who use it. That is, not directly, thank heck (otherwise I’d be needing a new addiction) but, and this matters, the revenue stream is dependent upon the people who use it, which amounts to the same thing.

    Therefore, the ideas that:
    1. we are not in control of what is offered for us to use;
    2. those responsible for the sites we visit will try every way (legal or not) possible to recoup their losses via their users

    have no different truth-value in eyeball business as in paid-directly businesses. The simple, honest fact of the matter is that there is no important difference between advertising and direct-payment revenue streams. Each has to attract customers, and each has to convince us to stick with their service in order to get their money. Each will try to recoup their losses - or rather, maximise their profitability - to the maximum extent permitted by the (im)morality of the executives.

    Congratulations everyone, we’ve discovered capitalism! (Though considering the nature of the thing discovered, commiserations are probably in order for the longer term.)

    Benji had this to say on Jul 17, 2006 Posts: 927
  • One, we are not in control of what is offered for us to use.

    Yes, because when I buy a Toyota, I have SOOO much control over the engine and all the parts that come with it.

    And the idea that it’s all free is misleading and really the wrong way of looking at the issue (if there is an issue at all).  I pay for my website and the e-mail service that comes with it.  I pay for internet service.  Google pays for bandwidth.  Youtube pays for bandwidth.  Advertisers pay for eyeballs to Google who uses it to pay their bills. 

    I don’t see very much difference, as others have already pointed out, between “free” content online and ad-supported broadcast television.  Even if you have cable, you are not paying for any specific content.  You are paying for the ability to retrieve that content.  And the only control you have over what is delivered to you is watching it or not watching it.

    But this model, as others have also pointed out, works when used in the right places.  It doesn’t work for everything, but then nothing does.

    Beeblebrox had this to say on Jul 17, 2006 Posts: 2220
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