Monetising content - end of the free lunch?

Nick | 24 Mar 2009, 14:10

An article in The Economist has re-ignited the debate on monetising digital content by casting its verdict on Web 2.0’s free model.

Entitled The end of the free lunch—again, The Economist argues:

“In recent years, consumers have become used to feasting on online freebies of all sorts: news, share quotes, music, email and even speedy internet access. These days, however, dotcoms are not making news with yet more free offerings, but with layoffs and with announcements that they are to start charging for their services. These words appeared in The Economist in April 2001, but they’re just as applicable today.”

Examining the rise of the businesses that sprang up during the first dotcom bubble and the subsequent re-emergence of Web 2.0 firms giving away content in the hope that advertising revenue would materialise later, the article acknowledges that the “power of free” has clearly been compelling to all and concludes that the demise of a popular but unsustainable business model (of free content) now seems inevitable.  As the Evening Standard points out:

“The business of free depends chiefly on advertising and the problem is that revenues have abruptly stalled because of the recession.”

The question of how to monetize content has never been more pertinent and was a key talking point at the recent MediaGuardian Changing Media Summit.  As the newspaper industry faces its biggest crisis in a climate of falling revenues, The Independent and The Times have both recently announced they are considering introducing paid-for content on their websites. The concept of micropayments, one solution that has been put forward, has not proven popular so far. The New York Times website – one the most popular news sites in the world –is a famous example of one publisher that withdrew its subscription model for access to online content.

Chris Anderson, editor-in-chief of Wired and author of The Long Tail believes the answer may lie in pursuing a hybrid model of free and premium content. The ‘Freemium’ model posed by Anderson is an inversion of the old free sample model - instead of giving away a few physical samples to attract customers, a company gives away its basic service to everyone for free and then charges a fee for an upgraded or premium version.

The question of whether the concept of free is still relevant, particularly in this tough economic environment is an important one.  As the Evening Standard notes, going free will inevitably mean driving up revenue from another source.  Paidcontent.com sums up this position well:

“The psychological and economic case for it (free) remains as good as ever—the marginal cost of anything digital falls by 50 percent every year, making pricing a race to the bottom, and ‘Free’ has as much power over the consumer psyche as ever. But it does mean that Free is not enough. It also has to be matched with Paid.”