Summary: Advertising-supported websites will soon be a thing of the past. As I predicted a year ago, sites began charging for services in 2001. Although most sites are still not handling payments right, two innovative European projects hold much hope for 2002.
Rarely have my predictions for a new year been as accurate as my Alertbox for Christmas Eve 2000, entitled The Web in 2001: Paying Customers : "2001 will be the year that website operators come to their collective senses and start charging customers for service."
Every week during 2001, websites launched new for-pay services. A special website, The End of Free, offered a running chronicle of the myriad formerly free services that began charging users this year.
Venture capitalists will now laugh you out of their office so hard that you'll tumble across Sand Hill Road if you present a business plan that relies on Web advertising revenues.
Since 1997, I've said that advertising doesn't work on the Web because it's contrary to the fundamental nature of the user experience: goal-driven navigation. (The exceptions are search-engine ads and classified ads; these support users' goals instead of thwarting them.)
Some advertising executives are still in denial and think that ever more intrusive and annoying ads will be the Web's salvation. Wrong. If a website degrades the user experience too much, people will simply stay away. There are already several sites I am reluctant to visit because they pollute my screen with pop-ups.
The current fashion in for-pay services is to charge users a subscription fee. Typically, these are $10-25 per year, though some are more expensive. As I have said since 1997, subscriptions are also a bad idea because they violate another fundamental web principle: freedom of movement and discovery.
Although a few sites can succeed with subscriptions, users simply cannot afford to pay such fees for all the Internet services they're likely to benefit from. Five or six $20 subscriptions add up to real money for most people, and yet that doesn't even begin to scratch the surface of the websites, music downloads, and other services people want to use.
At the recent annual Online News Association conference, Travis Smith, editor of Variety.com described how the site is making money from subscriptions. Fine, but Variety is a highly targeted trade publication. A given set of people in the entertainment industry needs the information it provides and will subscribe. On the other hand, Smith also lamented that other websites have stopped linking to Variety. Very understandable, since an author would not want to give readers a hyperlink that only a tiny minority would use.
Subscriptions kill links and undermine the usefulness of search engines -- the two main ways users explore and find a richer Web beyond the sites they've bookmarked.
Micropayments: OK (If Done Right)
Micropayments are the answer. They provide a revenue stream to websites, and yet don't interfere with the freedom of linking and navigation.
Unfortunately, there are many misconceptions about micropayments, especially that they require users to stop and think about every link.
A true micropayment system would operate invisibly and simply accumulate charges on the user's monthly bill without an explicit confirmation for every click. That's exactly how electricity bills and long-distance telephone bills work. True, people wouldn't make many long-distance calls if they first had to discuss the fee with an operator (though we certainly made calls back when we had to talk to a long-distance operator and acknowledge charges for each call). In any case, telephone companies now simply add up the calls and put them all on a single bill. Intellectually, you know that it costs money to use the phone and turn on a light, but if you want to talk to somebody, you pick up the phone. And if the room is too dark, you switch on the light. You don't go out to the meter every few minutes to check on your electricity bill.
The point is, micropayments are so small that they are not worth a user interface. They just happen. One cent here, one cent there. At the end of the month, your bill is maybe $20, but you got 2,000 articles for your money.
In addition to true micro-payments, some sites might have midi-payments ranging from 20 cents to a dollar, and perhaps even maxi-payments of several dollars. After all, some content and services are very valuable to users and can command a higher fee. For such payments, the browser will have to display a warning, and users can set their individual threshold for the amount of money they feel comfortable spending without an explicit confirmation.
2002: Slow Progress
Unfortunately, micropayments require a ubiquitous infrastructure to work. All users must have a payment service installed, or websites won't be able to collect their money. It's a well-established fact that Web users don't want to download special software just to access an individual website. Pre-installed, or no cigar.
Given this, we are not going to get true micropayments in 2002. I do predict many more services that rely on user payments, but the payments will be bigger than I like and clunky to collect since there is no infrastructure to rely on. Many sites will implement their own payment scheme, which is a doomed idea except for big service conglomerations like Yahoo and AOL.
In Europe, Denmark and Sweden have announced plans to implement countrywide micropayment schemes that use a single standard supported by all of the important websites in each country. This approach obviously only works in small countries, but it will be interesting to see what types of new services flourish once these payment schemes are operational. Denmark and Sweden could well become the Web's micro-laboratory and show us what ideas will work when payment for services is finally possible.