Pay-Per-Click: The Next Great Online Revenue Stream?

By: Steve Outing

Internet publishing today is a mix of revenue models, but the majority of commercial content on the World Wide Web is offered for free, supported primarily by advertising and sponsorships. A few newspapers charge a subscription fee for access to their content, including the Wall Street Journal, which just launched a $49 per year Web service last week, and Knight-Ridder's newspapers, which charge a subscription fee to access full content of their Web sites while keeping a large portion of the sites free. The next wave that we will begin to see more of will be sites offering pay-per-click content.

Bill Densmore, president of Newshare Corp. and the originator of the Clickshare system, believes that pay-per-click is poised to transform Internet publishing, and free newspapers from the strictly advertiser-supported model where everything is given away free.

In recent conference presentations, I've been telling my audiences that the model that makes the most sense for newspapers operating on the Internet right now is to give as much away free as possible, and concentrate on attracting advertisers because they will carry most of the weight in supporting newspaper Web operations in the future. Densmore's pay-per-click strategy actually fits in well with this advice, in that pay-per-click allows a publisher to charge potentially small amounts (microtransactions) for premium content that is worth paying for from the consumer perspective.

Densmore recently responded to some questions about pay-per-click versus the everything-for-free strategy employed by most Web sites:

Q: I've been saying that Web publishers need to give away as much as possible for free. (Drive traffic to site in order to generate enough to support ads; there's too much free stuff on the Web to make it feasible to charge for news content; only truly valuable stuff like personalized clipping services and archive searches will warrant a price tag; etc). Comments?

A: "We agree with your view. Ever notice what supermarkets do at Thanksgiving time? They give away turkeys. This is the time-honored principle of the 'loss leader' in retailing. But supermarkets, once you are inside, sell everything on a 'per-click,' a la carte basis -- because that's how consumers are afforded maximum choice and convenience. Until the Internet, it was not economically feasible to sell information in a disaggregated form as we all buy groceries. That is no longer the case. But there will always have to be an element of marketing to induce the consumer to start clicking. Clickshare implements this by allowing publishers to have 'tiers' of content: Some completely free and open to all users, Clickshare-enabled or not; some free but only available to Clickshare-enabled users; some available to Clickshare-enabled users on a subscription basis; some available on a charge-per-click basis only."

Q: If publishers can't charge for current news (which I believe is the current consensus), what can they charge for by the click? What will Internet consumers be willing to pay for when there's so much good information out on the Web for free?

A: "We're not seers on this one. The marketplace will decide what consumers will pay through evolutionary marketing. But I have some guesses:

* "Even in the physical world, it is not so much information which consumers pay for but access to information which has been presented in a useful and time-saving fashion. Lead Story (AT&T's service that selects a daily top business news story and links to the best articles on the Web at other media sites) and the search services save time. Emerging personalization technologies will do so as well. This is what mass-market consumers will pay for. Those of us who have used the Web for many months as an occupation are accustomed to the search for information. Consumers won't tolerate it, and will pay to avoid it. So it is useful to talk about 'chargeable context' as well as 'chargeable content.' Each has value."

* "An array of specialized content is already charged on a per-item basis by the various proprietary services. These include offerings in business information, law, medicine and science. So the notion of paying for electronic information by a combination of subscription and byte is very well established -- just not yet on a public network. The only 'leap of faith' required to embrace Clickshare is faith that a technology now exists to do it across a public network."

* "Most people do assume archival material will be chargeable. We concur."

* "We think hard, breaking news will be chargeable for a short period during and after a major event while the vending publisher has it exclusively. But this will only be possible if a system is in place allowing consumers to easily find the breaking news. Such systems will emerge."

* "Local news will be chargeable, either by subscription or by the hit to the extent it is exclusive. It is true that the latest news from Washington or the Mideast has no incremental value because it is readily available quickly and at no charge from a variety of sources on the World Wide Web. But what about an account of last night's school-board meeting? If your child is in that school district, and it's the only account of the meeting available, that report will have value, certainly in the range of some number of pennies per read. Or such reports would be available as part of a subscription to Clickshare-enabled information, for instance offered by a local ISP, newspaper or broadcaster."

Q: What about services like AT&T's Lead Story, which drive users to publishers' Web sites but rely on the articles they link to being free-access? Doesn't pay-per-click defeat this strategy? (And there will be others trying a strategy similar to AT&T's).

A: "AT&T's Lead Story site is a prototype of the way the World Wide Web will permit the sharing of users and content in the next century. But it lacks the revenue model necessary to sustain the cooperation and support of collaborating publishers. As it stands, it is a 'win' for AT&T -- because surfers will come to the Lead Story site looking for daily 'scoop.' But it is not a significant win for the sites spending the money to do the reporting to which Lead Story links. They have no reason not to collaborate, but little incentive to do so."

"Just as in the physical and cable TV worlds, advertising alone cannot support a complete content service. It takes a three-legged stool -- advertising, subscriptions and per-item charges. The greatest frustration faced by Web content consumers is the relative inability to find what they are looking for easily and quickly. A content service which efficiently provides the information a consumer wants is adding value worth paying for. While the content Lead Story links may be a commodity, the service Lead Story provides -- finding the information and presenting it in useful context -- is a valuable, non-commodity service. The work done by Lead Story editors saves valuable browsing time and is certainly worth 10 or 20 cents per daily read."

"So if Lead Story can convince its users that the context-building service provided by its editors is worth 10 or 20 cents a day, wouldn't it then make sense for Lead Story to be able to pass along some of that revenue to the collaborating sites it links?"

"A prototype for such a revenue-sharing model is operating. It is our Clickshare Access and Payment Service (CAPS). With Clickshare, a publisher who 'owns' users -- in this case that might be Lead Story -- can create hypertext links to other Clickshare-enabled publishers who wish to vend content. When a Lead Story reader clicks on that link, the vending publisher 'sells' the content to Lead Story, which in turn sells it to the end-user -- all instantaneously."

Q: How do you see the pay-per-click strategies playing out in terms of the news product of the future?

A: "News by the byte is a hard notion for newspaper publishers to swallow. They are used to providing an aggregated product where they can get a nice, steady stream of 30 cents or so per day no matter what. They worry that readers of disaggregated content won't see advertisements, costing the publisher revenue. In the disaggregated environment of the next century (which consumers will demand, now that they can have it -- just like groceries), their daily 'clickstream' will depend upon a daily stream of compelling individual items. And over time it will drive consumers away from purchase of the uncustomizable daily print product produced on a centralized printing press. If print publishers don't start to make the transition now, others (AOL and Microsoft come to mind) will, and (newspapers) will become the next century's equivalent of buggy-whip manufacturers."

(By the way, Clickshare got a boost this week when the Christian Science Monitor announced it will be formally launching its new Web site in a couple weeks using the Clickshare Access and Payment Service, initially for audience measurement, with microtransactions to follow).

Contact: Bill Densmore, bill@Newshare.COM

Movin' On

Gina Maniscalco is the new director of Boston.com, the Web service of The Boston Globe, replacing Dave Margulius, who is moving to San Francisco but will continue to work as a consultant for the site. Maniscalco previously was general manager of Boston.com and is a nine-year veteran of The Globe.

Mark Potts has left @Home, the Silicon Valley TCI-Will Hearst joint venture that's bringing super-fast Internet access to U.S. homes over cable modems, and returned to Virginia where he is opening an electronic publishing consulting practice. (Among his clients: @Home.) Potts was one of the original team of Digital Ink, the new media arm of The Washington Post. He can be reached at MarkPotts@aol.com.

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This column is written by Steve Outing and underwritten by Editor & Publisher magazine. Tips, letters and feedback can be sent to Steve at outings@netcom.com