Here cometh the pay wall: the countdown begins...

So the Times Online will be charging for news content from June 2010... News International is just one of several news organisations (some big, e.g. NY Times, ABC, etc.) which have plans to erect pay walls and develop subscription based models imminently. Love him or loathe him (well, most people loathe him), you have to respect Rupert Murdoch's pit-bull instincts in leading a growing number of content providers to erect – or at least consider the erection – of pay walls. Murdoch knows that most of the content industry wants to see the proliferation of pay walls. In fact, pay walls are their only saviour. Certain death awaits them otherwise. James Harding of The Times said as much in an interview today: "It [charging for Times Online access] is less of a risk than continuing to do what we are currently doing".

The trouble is that few yet have the gumption to do it. Murdoch, I suspect, is one of several who thinks that once there is a critical mass of high profile content providers implementing pay walls then there will be deluge of others. And I think he is probably correct in this assumption. After all, subscription can actually work. The FT and Wall Street Journal have successfully had subscription models for years (although they admittedly provide an indispensible service to readers in the financial and business sectors). An additional benefit of pay wall proliferation will be the simultaneous decline of news aggregators (which Murdoch has been particularly vexed about recently) and 'citizen journalists', both of which have contributed to the ineffectiveness of advertising as a business model for online newspapers. The truth is that the future of good journalism depends on the success of these subscription-based business models; but the success of this also has implications for other content providers or Internet services experiencing similar problems, social networking services being a prime example.

If you take the time to peruse the page created by BBC News to collect user comments on this story, a depressingly long slew of comments can be found in which it becomes clear that most users (not all, it should be noted) have a huge difficulty with subscription models or simply do not understand what the business problem is. And largely this is down to the fact that most ordinary people think:

1. That content providers of all types, not just newspapers, are a bunch of rip-off merchants who are dissatisfied with their lot in the digital sphere;
2. That content providers generate abnormal profits from advertising revenue and that their businesses are based on robust business models, and
3. That free content, aggregation and 'citizen journalists' fulfil their news or content needs admirably and that high quality journalism is therefore superfluous.

My opinion, for what it is worth, is that most users simply don't recognise that businesses require business models, nor do they realise that many of the services they use on the web day in and day out are either unprofitable or are losing large amounts of money. It's always good to receive something for free; however, someone somewhere has to pay. This reality is inescapable. Traditionally this has been advertisers, partly because Google have been good at it; but what do you do when advertising doesn't bring home the bacon??? Many users dismiss the implementation of pay walls by telling us that they will get their news from a free sources or blogs. The reliance on free or citizen journalism is disappointing, but more than that it is dangerous for democracy. Such sources simply do not have the resources (financial or intellectual) to deliver high quality, reliable news. They don't have the training, or the new connections, or the international correspondents, or the access to the information required, nor do they operate within recognised ethical boundaries or present facts and stories objectively and with appropriate sources or evidence. Often they are motivated more by communicating with like minded readers, perpetuating gossip or untruths.

The real truth of course is that newspapers are losing tremendous amounts of money. It seems to be unfashionable to say it – even the great but struggling Guardian chokes on these words – but free can no longer continue. Newspapers across the world have restructured and reinvented themselves to cope with the digital world. But there is only so much rearranging of the Titantic's deck chairs that can occur. The bottom line is that advertising as a business model isn't a business model. (See this, this and this for previous musings on this blog). Facebook is set to be 'cash flow positive' for the first time this financial year. No-one knows how much profit it will generate, although economic analysts suspect it will be small. What does this say about the viability of advertising as a revenue stream when a service with over 500 million users can barely cover costs? But what are Facebook to do? Chris Taylor conducted an unscientific survey with some International MBA students last week, all of whom reported positively on their continued use of Facebook to connect with family and friends at home and within Liverpool Business School. The question was: Would you be willing to pay £3 per annum to access Facebook? The response was unanimous: 'No'.

Sigh.

Broken business models again...

In a tenuous link with several previous blog postings (this one and this one), the latest BBC dot.life posting by Cellan-Jones discusses the future of the music industry. It's an interesting summary of recent research on the music habits of the British public. Surprisingly, CDs remain by far the most popular music format, even amongst teenagers. This pleases me because – although I am a man that enjoys his eMusic downloads - I am also a chap that enjoys the CD, its artwork, its liner notes, its aesthetic qualities, etc.

Of course, the big finding that people have been latching onto is the large reduction in illegal file sharing. This is indeed good news; however, whilst many of these music fans will have switched to legal download services (e.g. iTunes, eMusic, Amazon, take your pick....), many have reverted to legal streaming services like Spotify. The trouble is, as Cellan-Jones points out, Spotify is another service lacking a robust business strategy. Advertising doesn't bring home the bacon and Spotify is relying on users upgrading to their pay-for premium service. Unfortunately, nobody is. Without this revenue stream Spotify is doomed in the longer term. Nothing new in this; Spotify simply joins the growing number of Web 2.0 services that are failing to monetise their innovations.

By coincidence Guardian columnist, Paul Carr, authored an article a few days ago entitled, 'I'm calling a 'time of death' for London's internet startup industry'. The article laments the failure of London based Web 2.0 companies to experience any modicum of successful or profitability. Many of his arguments have been applied elsewhere, but the London focus makes it compelling reading, particularly because Carr was around during the first dot.com boom and has personally witnessed the mysterious nature of revenue within new media. His book, 'Bringing Nothing To The Party: True Confessions Of A New Media Whore', says it all. Like Cellan-Jones, Carr also singles out Spotify, although professing to be "discreet with names". Says Carr:

"You see, the sad but true fact – and I've said this before, albeit in less aggressive terms – is that the London internet industry is increasingly, and terminally, screwed. I'll be discreet with names so as not to make things worse but since I've been back in town, I've met no fewer than three once-successful entrepreneurs who admit they're running out of money at a sickening rate (personally and professionally) with no prospect of raising more. I've seen two businesses close and one having its funding yanked suddenly because, basically, it was going nowhere fast. Everyone I speak to has the same story: investors aren't investing, revenues aren't coming, founders are being forced out – or leaving of their own accord – and no one seems to have the first idea what to do about it. Even Spotify, the current darling of London startups (which is actually from Sweden), might not be doing as well as it appears. The company says it's projecting profitability by the end of the year, with a senior staffer boasting about that fact to the geeks at the Juju event. Unfortunately, when one blogger challenged him to provide numbers to back it up, he was forced to admit that the profitability is less "projected" and more "hoped for". Meanwhile, rivals (and fellow London poster-children) Last.fm just saw all three of their founders depart the company leaving a huge hole at the top during a time of massive uncertainty. However you dress it up, that's not good."

No - it's not good; but when is the madness all going to end? Like many others, I keep on thinking the end is 'just round the corner', but it never comes. How many insane venture capitalists are left? Will it be a house of cards, and, if so, which card is going to be removed first? Perhaps a little schadenfreude is order of the day - shall we have a sweepstake?

Web 2.0? Show me the money!

Just a quick post... Today the Guardian blog reports on the financial woes of YouTube. I don't suppose we should be particularly surprised to learn that according to some news sources YouTube is due to drop $470 million this year. When this figure is compared to the $1.65 billion pricetag Google paid a couple of years ago we can appreciate the magnitude of their YouTube predicament. The majority of this loss is attributable to the failure of advertising to bring home the bacon; a recurring issue on this blog. But huge running costs, copyright and royalty issues have played their part too. Google is reportedly interested in purchasing Twitter, but surely their failure to monetise YouTube - a service arguably more monetiseable (?) than Twitter - should have the alarm bells ringing at Google HQ?

I find the current crossroads for many of these services utterly fascinating. I don't have any solutions for any of these ventures, other than to make sure you have a business model before starting any business. Would RBS give me a business loan without a business plan and a robust revenue model? Probably not. But then they are not giving loans out these days anyway...

R.I.P advertising: Business models on the Web

Rory Cellan-Jones, BBC News technology guru and blogger at BBC dot.life, posted some interesting musings about Firefox 3 yesterday. Mozilla Firefox 3 is due for final release in June 2008. One controversial development, however, is the 'awesome bar' - controversial owing to the manner in which it gathers data on user searching behaviour...

Seemingly – and probably unsurprisingly if one gives it a second thought – the Mozilla Foundation have struggled to keep their head above water. How does the "poster-child of the open-source movement" keep a staff of 160? Until fairly recently the majority of revenue was generated from Mozilla branded merchandise. Incredible that the browser you are probably using to read this blog was created by a bunch of people selling T-shirts to keep their passion afloat. As Google have demonstrated, the true Web money is in information retrieval and intelligent advertising. To this end Yahoo! is attempting to rejuvenate itself in the face of Microsoft by (hopefully) revolutionising information retrieval through leveraging structured data (e.g. metadata, Semantic Web data, microformats, etc.) – because that is the honey pot. For Mozilla, the Firefox awesome bar is set to supplement revenue generated by the default Firefox Google search box. But as Raju Vegesna acknowledges, "People are realising that advertising is not good for everything, that it's not going to make them the next Google". This is simply because not enough people look at adverts.

But this post is a general musing on Web business models. Sure - open-source is about user emancipation. And those innovative enough (i.e. Mozilla) will find good revenue generating tools, ultimately based on advertising. But what about Web journalism, or Web 2.0 services? How are they going to put dinner on the table in 3-4 years time? Has our unbounded enthusiasm to provide everything for free during the mid to late 1990s created a business model nightmare today? Have we passed the point of no return?

These aren't new questions, but they are questions we continue to agonise over. While the Future of Journalism conference attendees do a little more agonising, the pioneers of Web 2.0 engage in their own head scratching. As we learned a few weeks ago, Bubble 2.0 might burst soon; many are finding advertising difficult and some openly acknowledge that a robust business model was a secondary concern for their Web 2.0 enterprise. Others are resorting to subscription to pay the bills. Is it time to acknowledge that – except for the few (i.e. Google et al.) – advertising, as the basis for an e-business model, is finally dying?