Summary: Offering free services on websites is not a sustainable business model, nor is advertising, which doesn't work on the Web. Most Internet companies are now pursuing an enterprise strategy to make money, but they'll soon begin turning to individual customers for revenue as well.
In the tradition of year-end predictions, I offer my own: 2001 will be the year that website operators come to their collective senses and start charging customers for service. Given that this will be a difficult change (users have become quite accustomed to getting services for free), I do not predict that most websites will be charging by the end of 2001. What I do envision is the revival of the paying-customer concept as a Web business model.
It made sense for the Web to be free in the early days:
- From 1991 to 1993, the Web was dominated by academic content. University professors have a long tradition of giving away their research results in exchange for access to those of their colleagues.
- From 1994 to 1996, the Web was mainly promotional, populated by marketing sites launched for the sole purpose of making a company look good. It would be unfair (and certainly counter-productive) to charge people to look at marketing brochures.
Since 1997, however, the Web has gradually evolved into a true economy. It offers both real services and real content, much of which is even useful or interesting.
One of the greatest mistakes of early Web development was to build the infrastructure for the new economy without a sound business model. How can you have an economy without money? A Web that is totally free is not sustainable.
As I've said since 1997, advertising doesn't work on the Web because it is contrary to user behavior, which is largely goal-directed. Now, at the end of 2000, emerging trends are further validating my earlier analysis:
- Business plans don't get funded if they are based on advertising revenues.
- Web-based advertising agencies are downsizing.
- Click-through rates continue to drop and we continue to observe strong banner blindness in user testing. Users have even stopped clicking on useful page elements that look like ads.
From 1997 through about mid-2000, it was possible to build Internet services using a business model based on separating gullible investors from their money. Because this is no longer feasible, the focus is now shifting to separating customers from their money. A much healthier way to build a business.
That websites must make money is splendid news for usability. Bloated and useless design survived for years based solely on its ability to lull investors into additional funding rounds. Although usability clearly generates traffic, customer loyalty, and sales, simplicity doesn't demo as well as glamour.
During the last few months, most Internet companies have announced an enterprise strategy as their way to make money in 2001. That's fine, and even better news for usability: Closing an enterprise sale requires a focus on task analysis and productivity improvements.
In addition to enterprise sales, which generate many seats paid from a single invoice, websites have two other basic revenue streams:
- Committed individual customers, who subscribe to the service on a long-term basis.
- Impulse buyers, who purchase individual articles or a specific service on a one-time basis.
The Internet facilitates smaller deals and faster decisions. Committed subscribers are nice when you can get them, but users build commitment slowly, and typically start out by sampling the service and buying a few individual items.
If websites are to earn money from impulse purchases, users must have an easy way to pay. The underlying infrastructure for this is still not in place. We need micropayments and application service providers to handle subscriptions, customer verification, and the other practical aspects of dealing with millions of $1 purchases.
Now that the Web is so big, I've given up hoping for rapid infrastructure improvements. Thus, I don't expect 2001 to be the year in which most Internet services turn users into customers. I do, however, see the coming year as the departure point. Many sites will make the change, and many more will contemplate it.