Here's another interesting article about the 'charging for content' issue:

http://news.bbc.co.uk/hi/english/business/newsid_1447000/1447145.stm

One of the points it raises is micropayment. Personally, I see the introduction of a workable micropayment system as essential in the familiarisation of the public with paying for online content. But why does it still seem so far away?

Surely it cannot be such an enormous technical obstacle to overcome? When the likes of MS, AOL, Vodafone, etc are building up dense relationships with consumers across many different channels, why is it so difficult to introduce a system that allows people to purchase small 'parcels' of content on an ad hoc basis and be charged for it - perhaps at the end of the month, phone bill-style?

What do you know about the development of micropayment systems? Are they in the pipeline? Do you think they will work?

Sam

I think there are 3 key areas which are fundamental to whether and when charging for online content will become commonplace:

1. “Cultural” perception

By this I really mean the perception that content and information on the web should be free. Until this changes it will be hard going charging end users for online content.

The internet has been a major force in the swing of the balance of power from seller to buyer (company to customer) over the last 5 years or so. A large part of this swing in power has been due to the fact that customers now have access to so many other options and so much more information. Competition is only ‘one click away’, prices can be compared across multiple vendors etc. Customers can demand a lot more and they can find out if they’re getting a good deal or not.

Unfortunately for content providers this has also meant that web users can’t see why they should pay for content. If one provider charges they can just move to another provider who doesn’t. Whilst we’re happy to pay a cover price for a newspaper and know that money is also being made from the advertising inside, this doesn’t seem to apply on the web.

I think this perception is changing. But it will take quite a while to change. And a lot of those trying to charge for content in the early days (which we are still in) will have a tough time. Very few content providers have dared to break ranks and charge for their content so far. In a strange way the bursting of the tech bubble looks set to help content providers charge for content sooner than might otherwise have been possible. This is because content providers have increasingly little option not to charge for their content. It is that or go bust. So, hey, they’re having a go. In doing so, they are paving the way for others and they are beginning to seed the thought in users’ minds that paying for online content isn’t actually so bad.

Who are those trying to lead the way (or being forced to do so)? Among others: Big Brother (for footage not shown on TV), Elton John (his recent concert in Turkey was web cast to broadband users paying up to £10 a go), The Times (a £10 annual subscription for access to their crossword website), Freeserve (£1 a day to watch Lennox Lewis in training), Cricinfo.com (a £14.99 premium content service for the First Ashes), The Economist etc.

Recent examples of sites going to subscription model show the going is very tough. As we have seen with the tech bubble saga, in the world of technology the penalty for being too early is often greater than the penalty for being too late and it looks like there are yet to be many content provider causalities fall victim to having invested too much too early.

The US site Salon.com has around 3.5m readers but has only managed to convert between 10,000-30,000 (depending on what you read) of those into paying subscribers in a recent effort to build revenue. Either way, at $30 per person that’s still only $900,000 and a conversion rate of not even 1%. Netimperative here in the UK recently launched a ‘save our service’ subscription drive charging £50 for 6 months access to archived content. I was one of those that paid for a subscription. If the length of the e-mail list for e-mails sent out to paid-up members is anything to go by then Netimperative have less than 200 paid members out of a registered user base of more than 8,000. Whilst this is a much more respectable conversion rate than Salon.com at over 2% that’s still only £10,000 of revenue. Not enough to save their service I fear?

That said, there’s absolutely no doubt in my mind that paid for access to premium content is the way all these sites must go in order to generate adequate return on investment. I use Statmarket.com (for web stats) and Mad.co.uk (for access to many of Centaur’s publications’ archives) as professional tools and I pay for them. They used to be free and now they’re not. I think I’m more open to paying than most but slowly others are grudgingly coming around to paying.

2. Billing and Payment

I think people often underestimate how important it is to get the payment mechanism right when trying to persuade people to pay for content online.

For example, if I want to pay to access a content service for professional purposes, then I expect my employer to pay for that – assuming they are happy to pay of course. Not that many people have company credit cards and I do not want to give my credit card details online and then have to go through some torturous expense reclaim process afterwards. Equally, I’m not sure I can be bothered to go through the internal processes of getting purchase order numbers etc. if they are required up front. If the payment mechanism puts me off for even a moment too long then I’m gone and probably won’t come back. I don’t think I’m unusual in this way either.

A service I use quite often is Reuters Business Briefing online – now part of the Factiva (a Dow Jones, Reuters joint venture) stable of products. Quite apart from the fact that is a service quite clearly suited to internet delivery (essentially a vast searchable database of content from almost any publication you care to think of) it is also paid for direct by my company. The billing relationship is an account based one and we have an Account Manager at Reuters who manages our account. It works on a pay-per-view basis. You buy so many hours of access to content in chunks of time. Each user has a log in so usage can be tracked. But the point is I don’t have to worry about the payment part, I can just merrily use the service whilst my company foots the bill behind the scenes.

It seems to me that B2B is the best place to start if you’re trying to charge for content. The cultural perception I talked about in point 1 is less the case for B2B. If the content is of business value then it is easy enough to justify paying for it. If the billing and payments mechanisms fit in with the way that businesses are used to paying for things (accounts, invoices etc.) and the actual end users have as little to do with this as possible then all the better.

B2C is somewhat trickier in terms of payment. Micropayments or other mechanisms such as paying through your phone bill (for pay-per-view type models) would certainly make the payment process less of a hurdle. This is absolutely key in making large volume, low value B2C content charging work – if there is the least barrier to spending your money (including psychological ones such as security concerns) then can you really be bothered…?

3. Value Proposition

I guess this is pretty obvious but content providers need to be clear what their content value proposition is, and correspondingly, their business model. For example, you might be going for scale. If you have a content product that is, or can be, commoditised then to defend your position you will need scale in your distribution and, ideally, protected distribution channels (e.g. long term content supply contracts). To deliver scale you will no doubt require robust and powerful content management and delivery systems. Your fixed costs are quite high, your variable costs (if it is a fairly commodity content product) are low and your margins quite low: your business model requires large volumes to be successful. Some news providers or content syndicators and aggregators might fall into this category.

On the other hand, you might be going for a more niche content value proposition. You need to understand how you are adding value to your content proposition. Is it the way you index the content with meta data to allow for complex personalisation and dynamic, customised delivery? Is it targeted at a niche audience? Do you provide the content in a way to allow for easy cross-channel delivery e.g. using XML you could define versions of a restaurant review suited to print, web, iTV or mobile? Do you have a strong brand you can leverage (think BBC)? Do you have a particularly differentiating style?

By adding layers of different value to your content in these kinds of ways you will clearly be upping your own variable costs for creating and delivering the content product. However, your fixed costs can be kept lower and if your content is of unique value then your margins can be that much higher: you are no longer playing the scale game. If you cannot create a defensible value proposition with your content then you will quickly come under pricing pressure which will erode margins and profits.

If users are to pay for content, be they business users or consumers, then clearly they must believe in the value of your content. There is much that can be done to try and enhance the perceived value of your content (e.g. brand building, customer testimonials, free trials etc.) but one area that I feel content providers are currently missing a trick in many cases is in measuring the value of their content. By this, I mean measuring what users are looking what content, how often, what they come back for, what they download, what they forward to friends etc. The measurement can be both quantitative (largely usage data analysis) and qualitative (focus groups etc.) but it is very important in actually showing and proving the value of your content. If you can prove to me that I, or my customers, will derive value from your content based on measurable feedback and analysis from previous customers, then surely not only am I more likely to buy into your content but I’ll also pay a premium?

CONCLUSION

Before I carry on too much further, here are some of the key points I believe to be true:

- Charging for online content will happen. It has to for commercial reasons. Consumers will grudgingly come round to it in time. How much time? Who knows… Depends on how quickly the wave of sites charging picks up. Maybe in a year B2B content will really pick up and B2C content will follow a year after that?

- Payment and billing mechanisms are key to success in charging for online content. I’d expect to see more account/invoice B2B arrangements in the near term and hopefully we’ll see micropayments becoming more of a reality over the coming years for B2C applications.

- Be clear on how your content is delivering value and how you can defend your value. Know your business model, know your market and measure the value that your content is delivering.

- As and when charging for content accessed online becomes a big business reality then other opportunities will naturally follow. Much of the money in content comes from rights and formats (especially TV). It may be harder to enforce rights and format rights online but if there’s enough money involved they’ll work out a way. The big boys haven’t shed a tear for Napster…

- Of course, if all else fails, the sure fire way to make money out of charging for content online is still pornography: Playboy’s subscription service has around 90,000 members.

Any comments or feedback welcome.

Ashley

Folks
Despite the cultural issue, which is possibly far more prevalent in the US than in Europe where mobile users dominate and are far more used to paying for content.. the issues surrounding enabling infrastructures and creating viable business models that "persuade" the user to purchase are just as important. Consumers want freedom of choice, and will want to have the choice to purchase their headlines everyday (if necessary) from a variety of providers and pay for that fragment of content. They will not want to be "stuck" to a provider, paying a yearly subscription, flatfee based rate. Think of how you behave in a physical world, every morning you purchase a newspaper, more often than not you may choose the same one, but you have not entered into a contractual arrangement with the newspaper, you still have the freedom of choice to swap if you fancy reading something else.

Providers must "see the light" and work towards implementing innovative, flexible, personalised pricing structures and payment options, through enabling infrastructures, rating engines, EBPP etc..These naturally lend themselves to the Internet dynamic and will help to foster content purchase behaviour.

companies engaging in content commerce must also understand their customer base and provide inherent value in the content they provide by combining it with services that users cannot live without..

I would welcome any comments, opinions on this seriously hot topic..

sam B
On 11:22:09 7 November 2001 odaenathus wrote:
>Ashley,
>
>From discussion with a number of colleagues at my office,
>it seems clear that you were right to put
>"culture" as the number one problem. As you
>point out, the bursting of the bubble is highly likely to
>be a major factor in helping content chargers. It would be
>very interesting to see projections of revenue from
>adverising on content sites, because this will, going
>forward, remain as their main source of revenue. If the
>number of click-throughs remains at its current level, no
>serious advertiser is going to be spending the money
>needed to keep fre content sites up.
>
>The last edition of the McKinseyQuarterly (I think, I'll
>dig out the reference) included an analysis of companies
>with actual magazines, and with partner websites. The
>basic summary (not surprisingly) suggested that using the
>website to drive people to the magazine was a no-brainer:
>unless one can successfully charge for website content
>that also appears in the magazine (like the Economist),
>the economics of maintaining a full-content website are
>almost impossible.
>
>Tim Lennon.
>
>Unilog UK.
>
>
>On 18:39:13 22 July 2001 Ashley wrote:
>>I think there are 3 key areas which are fundamental to
>>whether and when charging for online content will
>become
>>commonplace:
>>
>>1. “Cultural” perception
>>
>>By this I really mean the perception that content and
>>information on the web should be free. Until this
>changes
>>it will be hard going charging end users for online
>>content.
>>....

Speaking as an online publisher having looked into micropayments, the three big problems are as follows:

1. Who owns the customer data?
If you use an third party to take the payments then you don't get the valuable customer data which you can use to build an ongoing relationship e.g. for personalisation, targeting, e-mail etc.

2. People are actually quite happy paying by credit card
All our research and experience showed that actually people are now so used to paying online with their credit card that you get better conversion rates using this than trying to get them to use some third party wallet system (PayPal being a possible exception).

3. The payment providers take too high a commission.
The likes of BT Click&Buy, when we talked to them, wanted to take 40% of the transaction value as their fee. I don't think so. It's the same problem for payments via mobile.

Ashley Friedlein
CEO, E-consultancy.com

Fair points. In reply:

- Amazon's "1 Click" payment is as close as it comes to micropayment via credit card. The main issue for this (from a site owner's point of view) is a security one. You've got to store all credit card data on your servers. Imagine if that got hacked... Quite a responsibility.

- PayPal / Google / other solutions. Not all solutions charge a % commission. Our current payment provider (Datacash) charges us a fixed, flat fee per month for up to 10,000 transactions. Also I doubt PayPal charge 40% any more (if they ever did). PayPal also offer corporate payment solutions where the fees are quite reasonable. As for Google - watch this space. Word is they are developing "Google Money" a real/virtual currrency.... Of course, they already process A LOT of credit card payments via AdWords.

Ashley