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Both big and small online businesses have realized, some more painful
than others, that running a business by giving away free products is not
workable. There are overhead expenses to pay -- salaries, rents, marketing
costs, and others. Small online entrepreneurs, even the part-time hobbyists,
are not spared from expenses: they need to pay for server or hosting fees to
continue their operations.
As costs increase, advertising revenues have steeply declined making it
difficult for a business to survive by displaying banner ads alone. To cope
with the increasingly difficult market, dot-coms are cutting their budgets
by laying off or reducing salaries of their staffs. Many have already closed
their businesses altogether.
As a result, online businesses are taking a mad scramble to find other
means to increase revenues. Yahoo announced that it is going to expand its
porn offerings (only to retract it after a deluge of negative feedback).
NetZero, a free Internet provider, has reduced its free offering to 40 hours
and introduced paid subscriptions. Bizland now charges for Web hosting it
used to provide for free to small businesses. Salon.com, the online
magazine, will now carry fee-based premium content.
What used to be free is now slowly changing to fee-based.
The Dilemma of the Content Provider
Content sites, such as portals, news sites, community sites, and online
magazines, have been most affected by the market's downturn. Users visit
their site, read their content or participate in their community-building
activities, without paying a dime.
Unlike e-commerce sites that sell products online, content sites rely
mostly on advertising to support their businesses. Content sites are
designed to provide content, not to sell things: just like newspapers are
designed to present articles, radio is designed to showcase music, and TV is
designed to entertain.
As online content businesses struggle to stay alive, one trend is
emerging: the days of free content may be coming to an end.
The low ad rates and poor affiliate returns have forced many small
entrepreneurs to face two options: to charge or go under. The state of
running a free site only to earn $1 for every 1,000-banner impression per
month can only last so long. With the current slump in ad market rates, a
site generating 100,000 page views a month can only expect to earn $100 - an
amount that is not even enough to cover dedicated server fees.
Even small online entrepreneurs are finding it hard, if not impossible,
to maintain quality and quantity of information without any source of
income. Anything more comprehensive than the average home page requires a
huge amount of time and money to keep running.
The dilemma, however, lies in the fact that people are used to getting
everything for free on the Internet. To begin charging people for use of
content entails changing established consumer behavior. It will take time
for an average visitor to get used to the idea of paying for something that
was once delivered for free. Why will they pay for something that they can
get free elsewhere?
What Can a Small Online Entrepreneur Do?
While traffic of many small sites has increased five-fold or more, ad
revenues have steadily decreased. Hence, small publishers feel hard-pressed
to change the way they do business online.
To stay alive, they need to act fast. If the big boys feel compelled to
restructure their own operations, so do the small publishers. Below are some
options being explored by many small publishers, some of which have never
been tried before:
1. Shift to a subscription-based model.
Many small sites are seriously considering charging for access to their
content, either through a monthly subscription fee or a one-time access fee.
The success of WSJ.com in creating a subscription-based model has inspired
both small and big publishers to explore the same approach.
Some publishers are looking to combine free content with fee-based
content. A significant level of content will remain free, while paying
members can have access to their best content with no banner ads and other
"special" features. Using this strategy, the site can still
generate the same amount of traffic overall, while subscribers enjoy special
treatment and publishers earn revenue to pay for the bills and time spent
developing the site.
For this model to succeed, however, a small site with no strong brand
must cater to a niche market with information that nobody else has. Users
will not likely to pay the subscription fees if the site offers information
similar to a hundred other free sites.
The site has to be dynamic, comprehensive, and the data needs to be
accurate. It must provide users with a sense that they belong to something
special in order to increase the perceived value of the site.
The drawback, of course, is that the shift may turn-off a lot of people,
resulting in a significant drop in traffic. However, proponents of this
model believe that having 100 paying visitors per day is still much better
than 100,000 free ones.
2. Holdout a virtual "tip jar" to
satisfied readers. A number of smaller sites have thrown pride to
the dustbin and have started to beg for donations just to keep their sites
afloat. Visitors are requested to donate any amount - from $1 to $1,000 - if
they are satisfied with the site's offerings and content. This is a novel
and fun idea that might work for a small site, but it's unrealistic and
unreliable for big-budget companies.
Amazon.com, smelling a huge opportunity in this area, has offered to
collect donations in behalf of these small publishers. Called the Amazon
Honor System, Amazon lends its name, reputation and patented payment
technology to allow publishers to accept voluntary payments - for a fee, of
course. Amazon.com takes a 15% cut, plus $0.15. The program also assists
small sites needing help in charging for their content.
3. Cut down costs. Like any other
business facing tough times, small sites have looked to cutting down
expenses to survive. Some lowered their hosting costs by moving from
dedicated hosting to sharing a server space.
4. Widen revenue streams. Small
content sites are also looking to other sources of revenues to improve their
bottom lines. Some are adding a slew of affiliate programs that can both
compliment their site and increase revenues. Others are offering their
content for syndication to bigger sites. Still others are developing a CD
version of their sites for sale.
While every online business is thinking hard how to make money, change
may be inevitable on the Internet. Users may learn to start accepting that
the free days of the Internet may be over.