The halcyon days of free online information are waning. A great reckoning is coming. In the future, if the information is any good, you and I will have to pay for it.
Web 1.0 emerged with the advent of Netscape Navigator, an easy way for the masses to look at information on the Internet. Upstart Yahoo!, using technology developed by Canada's Open Text, provided a way for people to find the kind of information they wanted. And, boy, did they ever want information!
Humans want to communicate. The Internet provided a "free" avenue to communicate with the world. Web 1.0 was characterized by the euphoria of a world able to express itself like never before.
Surely there was a way to make money from the Internet miracle. Oddly, all the software and information was at that time being given away for free. "Information wants to be free" they said.
But the truth is, information very much does not want to be free. It wants to be paid for. There is no arguing people want free information. They certainly do. In the midst of this revenue starved tension , the "eyeball" business model was born.
Like radio and television before it, the attention of the Web masses would be monetized through advertising. The consensus was unassailable. However, unlike the heavily regulated worlds of radio and television, the Internet suffers from extremely low barriers to entry. Competitors by the thousands and millions could cheaply be eating away at your cherished eyeballs in a heartbeat.
Web 1.0 was doomed before it started. The cost of producing good quality web "content" is not low - its high, sometimes very high. With no way to collect a sufficient toll for the expensive content, and fickle viewers spread thin over infinite website choices, eyeballs proved stingy. Faced with no or low revenues, information creators turned to Venture Capitalist for dollars. Billions and billions and billions of dollars.
VC firms were happy to oblige, as investors believed in the eyeball model and rewarded VCs with glorious IPO windfalls. Somehow, magically, website visitors could be monetised, investors were told. If advertising revenues were not the goal, it was believed visitors could be sold products through other avenues. Every deal was like "the next Netscape." The deals could neither be too many nor too big. But the end was near. The Stock Market crash of March 2000 brought an abrupt end to the venture cash cow and the websites died by the thousand quickly or slowly, as the money could not last. Monetization proved elusive. Very elusive.
There are notable exceptions in the downfall of the advertising-only business model, like Google, whose size makes them the king of the winner-take-all market for clicks. Even mighty brands like the New York Times can't make their websites pay. Microsoft's Steve Ballmer was reported to say recently that there will be no recovery in online advertising dollars, ever. Web 1.0 RIP.
Enter Web 2.0, our current phase. With payrolls gone, the legions of web developers, free-lance journalists, graphic artists and creative geniuses behind the explosion of web content went home, seven figure stock option bonanzas a distant and fading dream. But the Web Dream would rise again, blog style.
The humble "weblog" seemed initially to be an innocuous novelty that made it easy for joe average to post daily musings to the Internet, as I am doing right now. I, the user of the Web, am generating my own content, for "free." Multiply me by several tens of millions and you have the rebirth of Internet content. User generated content, coupled with the eyeball model, has given the Internet a new lease on life. And it actually seems to be making money.
Or is it? Web 2.0, which started with text-based blogs like mine, became the darlings of silicon valley. However, the armies of people typing away were soon dwarfed by the onslaught of user generated photo and video content. The colossal price paid for YouTube by Google represents a pinnacle of Web 2.0, a place to monetize eyeballs from content for which they paid zilch. A guaranteed cash cow, right? Maybe.
As if YouTube wasn't big enough, social networking phenoms MySpace and Facebook appear to be the new zillion pound gorillas on the block, their rumoured valuations stratospheric. And now we have Twitter, changing the world and gobbling up users by the billion. Given that the content on these sites is free to both the website owners and the users, surely the eyeballs can be turned to gold.
Gold indeed. Fools gold. Although private, Facebook continues to report weak revenues. Myspace has been laying off thousands. Recession squeezed advertisers are cutting budgets ruthlessly. What now?
In spite of the advent of user generated content, and much of it amazingly good, web enterprises like FB and MS seem persistently expensive to run. Ever mindful of the fickle web surfer, social networking sites need to constantly bring cool new features to their users. To maintain loyalty, Facebook needs to keep getting better and better, at huge cost.
Web 3.0 will soon be upon us. It will consist of ever tweaked and "revolutionized" social networking technologies that will make every possible attempt to make Web 2.0 pay. But it won't.
Web 3.0 will be about bringing more Web 2.0 to your phone, Blackberry, and iPhone. It with shoehorn social networking into your TV. Into movies. Into eateries and bars. Into your fridge and stove. It will seek to have your eyeballs locked on more times and for longer times. If you think social networking is ubiquitous now, you ain't seen nothing yet.
A few years from now, with Web 2.0 and 3.0 strategies failing to make money, with the grand old names of the media business at death's door, the rebel yell of the Internet revolutions, "information wants to be free," will finally breath its last. The once lofty proposition that the online world is not subject to economic laws will be relegated to the dustbin of bad
A year of gloom will ensue. Then a new dawn will come, brighter than before.
Picture a news stand. Picture the vendor smiling as every shred of paper is whisked off his shelves unpaid for by myriad passersby. Picture the vendor on the phone ordering up new stock as invoices pile skyward. Picture investors happily paying the invoices in hopes the passersby can be monetized. It's an absurd picture.
Web 4.0 will be about online information consumers paying for the information they want to consume and ignoring everything else. All forms of content, from music to news to eBooks to magazines to video will be purchased on a pay-per-view, "all you can eat" subscription, or hybrid basis. The price for the content will be driven by demand.
Web 4.0 will dramatically improve the Internet by curing a host of chronic problems plaguing the Net Age, such as:
1. Information overload. Zero costs lead to over consumption. We gorge on content, and not all of it is good for us. We are bombarded with nifty websites and free newsletters. Content filters like RSS push too much stuff at us. Workplace productivity cannot be helped by more Facebook and more news. We are saturated.
The payment requirements that are coming will force us to reduce information consumption to manageable levels.
2. Quality will improve. The coming world of online payments will force consumers to be more selective and demanding, which will force suppliers to provide a better product. This trend will help suppliers whose quality is already high but are losing money, such as the NYT Online. Free suppliers will be competing not for dollars, but for that warm, fussy feeling you get for having done a good job. That feeling will fade, and advertising dollars will not bail them out.
3. Reliability and accuracy will improve. Over the centuries, scholars have developed systems to ensure that published material is authoritative. Amazingly, Wikipedia has managed to bypass the rigors of peer review while maintaining authority. Or has it? The famously self regulated online encyclopedia is receiving fresh criticism that its articles are often biased, self serving, and at times wildly inaccurate.
Eventually, Wikipedia will need money, and as we have observed, the eyeball business model is flawed. To ensure academic rigor and factual accuracy, Wikipedia will need a sizable staff of professionals. The best way to fund this is to charge the users. If the users refuse to pay, it can be concluded that Wikipedia's popularity is driven mainly by it's low price, not by it's quality. People are getting what they don't pay for.
4. Innovation will thrive. While hailed as the greatest breakthrough since railroad, the World Wide Web has been strikingly old fashioned in the way it does business. The Internet is profoundly different from print, radio and television, but for some reason there has been an insistence on shoehorning it into the old school "soap selling" format.
As discussed, the free information craze has become entrenched. There will soon come a tipping point (within 5 years) where the paid model will start to gain traction. This shift will open a floodgate of innovative business models where the consumer's dollar is efficiently directed to the content providers they value.
5. The real new media revolution will begin. There is only so much new media that can be inspired by and paid for with venture and IPO money. Eventually, new media platforms will need to be real businesses that generate revenues above costs. Once this starts to happen, a new wave of venture capital and IPO fortunes will be made, driving a new technology boom.
There are many facets to the story of Web 4.0. Stay tuned for Part II of this series: The Real Goods on Digital Goods.
(Note: In this article I discuss media driven web strategies, as opposed to "ecommerce," whereby goods and services are bought and sold through the Internet, such as eBay or eTrade)