Web services – "for free" or "for fee"?

Web services – "for free" or "for fee"?

Changing attitudes

A number of factors, including the recent economic downturn in the United States and the collapse of technology and Internet stocks, have led many online publishers to reconsider their position on free Internet content. The continuing slowdown in the US economy has triggered a cutback in spending and investment, which in turn has led many dot.coms into financial difficulties.

Online publishers are under increasing pressure to yield profits following the decline in the online advertising market. Studies show a huge drop in prices for banner advertisements in the US. As advertising often represented more than half of site revenues, more online publishers may charge subscriptions. For example, Internet portal MSN is considering charging its UK customers ￡60 a year.

Early subscription-based services

In the early days of the Internet, subscription-based services were embraced by a handful of companies such as America Online and the Wall Street Journal. Their decision to charge for content was viewed as a mistake by most online publishers, who felt that a subscription-based service would find it difficult to acquire and retain customers. Skeptics argued that users were unlikely to pay for online news content that could be obtained free of charge elsewhere on the Web.

Napster and digital music

Over the past year, Internet startup Napster brought the issue of the "for free" Internet model to the forefront. Founded in 1999, Napster enabled users to download music from the Web free of charge. The site, with over 65 million users, is hugely popular with music fans. But Napster caused consternation throughout the record industry, which claims the Californian-based company infringed copyright law.

Following a lawsuit in February 2001, Napster agreed to pay $1 billion over five years to record labels. This money will pay for the licensing of songs downloaded from its web site. To overcome this financial setback and generate profits, Napster is developing a fee-based service. Subscription fees for its site will range from $2.95 to $9.95 a month. According to Hank Barry, CEO of Napster, the company would yield revenues of $267 million if 4.5 million customers paid a monthly fee of $4.95.

The digital music market

Other companies are taking advantage of the growing demand for digital music. In April, Warner Music Group, BMG Entertainment, and EMI Group entered a joint venture with Internet media software company RealNetworks to provide a subscription-based online music service. The new company – MusicNet – will provide online music companies with the technology and services they need to enable fee-paying customers to download music over the Web. MusicNet has already licensed their technology to America Online and RealNetworks.

Interactive, interoperative Microsoft .NET

Another subscription-based service is Microsoft's new Internet technology, Microsoft .NET. Microsoft .NET will allow different web sites to interact with each other and will enable messages to be sent between various devices. Essentially, Microsoft .NET will change the nature of online business. Instead of being standalone web sites, online businesses will belong to e-commerce networks. For example, regarding travel, customers could review and book flights online and then organize complementary services such as accommodation, transport, and restaurants. If a cancellation or delay occurs, Microsoft .NET automatically notifies the relevant web sites so that the necessary changes are made.

Microsoft wants its .NET service to be universally interoperative, so the technology will enable customers to access information from various devices, such as televisions, mobile phones, or PCs. Customers will pay a subscription fee for access to the services provided by Microsoft .NET and will have the option of paying more fees to avail of value-added or upgraded services.

Online revenue growth

The recent volatility of the Internet sector has taught online publishers some valuable lessons. Staff cutbacks in online divisions have become common events, with CNN, CBS, News Corporation, and the New York Times among newspapers forced to shed employees. Online magazines and newspapers are therefore exploring new avenues of revenue growth.

Other avenues of online revenue growth include the sale of content to Internet portals and corporate clients, joint ventures with other online publications, and WAP online services. For example, the international news agency, Reuters, has sold its newswire and information service to Yahoo!, while Moreover.com provides selected web content to business clients.

WAP online services

With the explosion in mobile phone usage, the amalgamation of WAP and online services will have great potential for increasing customer loyalty and generating revenue. By merging WAP and online services, companies will encourage customers to access their web sites over mobile phones. This is a less obvious method of charging customers for Internet access. Customers will pay for access to the site's content when paying the charge for the mobile phone call to the Internet. Some extra services that could be offered by companies include downloadable ring-tones, horoscopes, and sports results. Additionally, by tailoring WAP services to customer needs, customers will be more willing to pay for access to the Internet.