Free content websites will soon crumble, according to Gerry McGovern, chief executive of Irish internet consultancy firm Nua.
Dublin-based Nua is best known for its Internet Surveys newsletter and received the European Commission's Best Overall Web Business Achievement award in 1996. And McGovern is reputed to be a leading thinker on internet business. His book, The Caring Economy: Internet Business Principles, was published last year.
Here he explains why ad-driven content websites are on their way out, and why he thinks broadband and Wap are ludicrously over-hyped technologies.
Gerry, you say that free content sites are misconceived and that one day people will pay for content on the web. Why?
I think what you'll see over the next six to 12 months is a liquidation of the free content model. Unless you are part of an already established publishing structure, where the content is already created for another medium and just has to be adapted, you'll fail.
The story emerging from the pure content publishers in the US - the Slates and the Salons - indicates that the model is simply not profitable. Even The Wall Street Journal is just scraping a profit and it has the benefit of 500,000 subscribers.
Now, this is not to say that the subscription model will not come into play. That will definitely happen. If you can prove to someone that the content you are delivering to them is better organised and more up to date than it is in a free content context, then they will pay. That's the logic of all business. Either content is going to support commerce or it has to be paid for.
OK, but isn't free content on the web paid for by advertising?
There are very few publishing models that have survived long term that were driven by advertising. You either get into the freesheet or advertorial publications if there is no cover price.
Also, a lot of the free content is driven not so much by ad revenue as by venture capital money - and that is now drying up. I think you'll see a general drying out of the free content environment, and you will see specialised content that people will pay for.
What about independent television? That thrives on advertising revenue. Isn't that a successful model?
Well, the independent TV analogy is one certainly one worth making. But if you look at that model in the US, it has an horrendous advertising drive-through. If you go down that route, then you really are talking about advertorial.
The internet as a medium is still not ready for heavy-duty advertising. The best we have is the banner ad because of bandwidth considerations and so on. Imagine if you were reading a document on the web and you were interrupted every 15 minutes by three or four flash screens. You'd get very annoyed and would rather pay a cover price.
Doesn't that imply that the internet is a medium for premium information rather than entertainment or quick-fix news?
Well, the internet is where you go to find out things. Finnish youth, for example, are very heavy internet users, and the majority of their use is for information, not entertainment.
So the value of a website lies in the quality of its information?
Yes, and you cannot deliver a long-term model of quality information on the internet that is purely advertising-driven.
Lou Celi, the head of the Economist Intelligence Unit's Electronic division, argues that unless you have a great off-line brand and a quality product, you will lose online. Do you think he is right?
There is a lot of truth in that because of the marketing value of distribution. People say, you have minimal distribution costs with the internet and that's a significant cost advantage over delivery in the print medium.
However, distribution also has an advertising function. The very fact that The Economist is in WH Smith is a banner ad in itself. You might not buy it for years, but you're constantly aware of it.
Brand exposure has to be constant, constant, constant. You should never underestimate the brand building over time that comes through physical distribution.
On the web, there is a huge effort in trying to get the customer to come to you, and that is where the off-line brand has a hugely significant advantage.
Do you think that the emergence of broadband will change things because of its capacity to carry clever interactive content of the ilk of Big Brother?
No. Number one, broadband is massively over-hyped. We are years away from it being a serious percentage of the marketplace. Any business model based on broadband today is almost certainly bound to fail. If you have a content model based on a broadband offering, you are digging your own grave. Had Big Brother not also been on television it wouldn't have been such a success.
But what happens when the internet moves on to television?
That's a long way away. If you use the TV as the broadband and the internet as the discussion forum then yes, that is an interesting model. But that is not broadband per se. It's using the internet for what it is still best for - that is, low bandwidth, text-based or conversation-based content.
I'm not saying broadband is not the wave of the future, it's just that that wave is in the mid-Atlantic and forming!
And Wap technology? How do you see that transforming the marketplace? After all, mobile phone use is huge.
Wap is another massively over-hyped technology that is already seeing severe backlash. There is a lot of stuff that you're not going to read on a small screen, and so you have to severely narrow the range. And even time-critical information like stocks is of questionable validity - ditto the location-specific stuff.
The basic problems with this kind of stuff is that it is horrendously complex, and there is no point in getting it 98 per cent right. If you want to know where the nearest Japanese restaurant is, you're better off asking the hotel concierge.
What will change the picture decisively?
New models of remuneration are clearly needed. When you can bring in models where a reader can pay five cents, then they'll do it. At present, people are breaking copyright because there is no simple way to pay.
So, the emergence of easy micro-payments systems is crucial?
What we're talking about is different ways to consume. What has happened with the internet is that it has brought forward different ways to consume, but not different ways to pay. So we have different ways to consume, but the old ways to pay.
What, finally, are you optimistic about?
There are a lot of drawbacks, but the internet is still the fundamental wave of the future, and the information economy is still the fundamental future for all of mankind. Being part of the process is about being part of the future.
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