Error 402: Would You Pay A Tenth Of A Penny For This Article?

Business Models

from the please-deposit-your-micropennies-in-the-slot dept

In our continuing Error 402 series on the monetization of web content, we’ve been talking a lot about things that haven’t worked and a few things that have (kinda?) worked, but not in a particularly appealing way (ads, mainly). We will eventually get to more examples of things that are working — along with some areas that might hopefully work better in the future — but today we have another story of a regularly hyped up idea… that never quite seems to work: micropayments.

Thinking about micropayments for digital content predates the modern internet. Ted Nelson, who envisioned a very different kind of digital hypertext system in the 1960s called Xanadu, had assumed that it would make use of micropayments. But instead we got the World Wide Web and its vision of hypertext and related concepts.

The lack of an actual implementation of the Error 402 Payment Required functionality is often chalked up to the lack of an infrastructure that could handle micropayments. In the early years, this was often blamed on a variety of different technical issues, such as how to manage transaction costs when payments were tiny (envisioned to be less than a penny). With credit cards charging a percentage plus a small fixed fee for each transaction, that just doesn’t work for true micropayments.

There were, of course, some attempts to get around this technically, usually through bundling and tokens, with the idea being that even if the transactions for something that costs $0.001 would be too big, if you bundle together a million such transactions by using tokens in the interim, then settle up across the larger bundle, the transaction costs turn out to be lower. Historically, though, those systems were cumbersome and complicated and didn’t get much usage.

There have been other attempts to deal with the transaction cost problem, including (notably, and with disclaimers) the Interledger Protocol (the Foundation behind which is sponsoring this series), but there remain questions about whether or not this was really a technological problem blocking adoption or if there were aspects that were even more fundamental.

For example there have been many discussions on the issue of mental transaction costs. Nick Szabo, who has been involved in the digital currency world longer than most people, wrote extensively about the mental transaction cost issue back in the 1990s.

The short version, though, is if you have to pay something for every article you read, you have to have a mental debate over whether or not it’s worth paying, and that mental process of considering whether or not something is worth a tenth of a penny (or less or whatever) when you don’t know what it is before you’ve even read it is taxing. And if you have to do that for everything you read, it becomes very taxing, such that people just won’t bother.

That doesn’t mean it’s impossible. As lots of people point out, for most people electric bills effectively work on a kind of micropayment system, where turning on your lights does cost a little bit, but your bill is based on adding up all the little uses of electricity and then presenting you with a bundled up bill. Not that anyone particularly enjoys getting their electricity bills, but at least you can understand how it came about.

That said, electricity is different. For one, you know what you’re getting (mostly) when you utilize electricity (your light turns on! your computer boots up! etc). One reason micropayments for content are trickier is you have no idea if what you’re going to read will even be worth it.

I’ve heard of a proposed solution to this: make micropayments reversible for some period of time, such that if you open an article and regret it, you can get your money back with one click. Of course, that would also be open to gaming.

About a decade ago we saw a flurry of attempts to do micropayments in a manner that minimized the mental transaction cost by using a flat-rate system. While there were a number of companies that tried this, the one I was most familiar with (and tried here on Techdirt) was Flattr. The idea with Flattr was that you designated some monthly flat rate that you would pay ($5? $10? whatever) and then as you browsed the web, if you encountered websites that used Flattr and had Flattr buttons on them, you could “upvote” that content, and thereby allocate some percentage of your monthly fees to that site.

So, for example, if you visit 100 sites with Flattr enabled, and click the button on each of them, then your $5 would be split with $0.05 going to each site (there were also transaction fees and Flattr’s own cut, but you get the idea). The upvoting also (in theory) created a Reddit-like directory of content people were enjoying so much they were giving money.

So this model could reach the level of micropayments, but without the mental transaction cost of having to think through “will this particular site be worth any money,” because no matter what you’re paying your $5/month. The only question is how that $5 gets divvied up.

But, also, it wasn’t required, so there was a different kind of mental cost: the cost of remembering to click the Flattr buttons, and the decision about whether you wanted to share some of your monthly donation with that particular site. Again, there are possible ways of dealing with some of this, including not needing to click but just designating the money based on visits, but that then risks the possibility of giving money to a site you “hate read.”

Of course, there’s still a larger and more fundamental problem with micropayments: most of the web is still pretty much free. We can go back to our “information wants to be expensive; information wants to be free” discussion. When you have a ton of supply, much of it available for free, it’s always going to be difficult (though far from impossible) to convince people to step up and pay. This is why advertising still remains the top method of monetization: the end user doesn’t have to pay (other than in annoyance).

And, thus, even if you can solve the technical transaction problems, and avoid the mental transaction problems, is there any way to still make it work? Hopefully, the answer is yes… and we’ll keep exploring some of what is working and where it might go as the series continues.

Filed Under: error 402, information wants to be free, mental transaction costs, micropayments, web monetization

Error 402: Gone Native

Business Models

from the natively-bad dept

We’re back with another post in our ongoing series on web monetization, the Error 402 series. Before the holidays, we had talked about some of the earlier attempts at monetizing content, which included paywalls, banner ads, search ads, and eventually concepts around upselling into premium services under the banner of “freemium.” I originally was going to do the next entry in the series on other types of subscription models, but a few people raised other things that they wondered about, so this week and next I want to cover some of those.

Starting around 2010, there was a concerted effort to search out more alternatives to banner & search ads, including a concept called “native advertising.” Now, the very concept of native advertising predates the internet, as many early forms of newspaper and radio advertising could be seen as “native,” in that they were more closely integrated with the content itself. Things like the “Texaco Star Theater” on radio and television, in which Texaco’s sponsorship of the variety show was integrated throughout. Or even things like the Michelin Guide for suggesting good restaurants for motorists, further encouraging people to drive places (on Michelin tires).

The key part of such things is integrating the ad or sponsorship more closely with the content in a manner that doesn’t seem intrusive or out of place, but still creates some level of brand recognition. Sometimes it works, in a manner where the sponsorship is actually beneficial and users are appreciative, but much more often (unfortunately) those ads turn into annoying “advertorials” or misleading content in service of the advertisers.

On the internet there were many different ideas of how to create “native” ads, some of which were more like advertorial content. For example, the NY Times famously (or infamously, depending on your standpoint) blurred the lines between sponsorship and editorial with some of its “native content.” A decade ago, they published a “paid post” with shoemaker Cole Hahn called “Grit & Grace.” The content was made to look like an article about ballet dancers, but it was created and designed by the brand and placed on the NY Times website.

There were other forms of “native” content, including some that I thought were promising. One form was something we even experimented with at Techdirt, which involved having brands ask questions of the Techdirt audience. I don’t remember the exact examples, but it could be something like having a mobile phone company asking our audience what qualities and features they were most interested in for their mobile provider.

To me, that always seemed like a smart approach because it allowed the brand to get their name out there while getting real and honest feedback at the same time (which might be legitimately useful for the company). Unfortunately, we found the companies that provided the tools for running such programs kept quickly shifting away to more intrusive kinds of ads (at one point we had an unfortunate experience of having a partner that had been testing those useful kinds of approaches insert a pop up window on our site without telling us… and that was not cool).

Indeed, the failures we saw personally with the native ads that I was most interested in kind of highlighted where much of the market headed. With companies less willing to experiment with such innovative approaches to “native” ads, many moved towards the model pioneered by Outbrain: what’s sometimes known as “chumboxes,” in which boxes appear beneath articles suggesting “other stories you may be interested in,” or “paid promoted stories” where the “other stories” are off on sketchy websites, and are often nonsense clickbait, barely connected to reality, and (quite frequently) just plain disgusting.

Here’s an example (my computer is so locked down against this nonsense, it took me a few tries to figure out how to even see it, but once I did, it wasn’t hard to find):

These have become a staple of local news sites, but also often signal the kind of news site you shouldn’t trust and should stay away from. Despite many companies pushing these types of ads on us (and hearing from other sites that they actually do pay well), we’ve always refused to run them on Techdirt, as they fundamentally seem annoying and awful for readers.

And that kind of demonstrates where native ads went wrong — and where many other kinds of ad programs like this go wrong. While they can start out as more serious attempts to create “win-win” setups like what I described earlier, since the underlying focus is on getting paid for content, it opens itself up to sleazier and sleazier advertisers who are willing to pay more to get access to audiences, and thus the quality drops.

Frankly, it’s still disappointing to me that no one really figured out an effectively non-awful setup for native ads, as I thought it could have real promise if done right. But, alas, we ended up with chumboxes.

The other area to explore, which will cover next week, is all the various attempts at micropayments.

Filed Under: advertising, error 402, native ads, web monetization

Error 402: Information Wants To Be… Freemium?

Business Models

from the scarcity-and-abundance-returns dept

Last week in the Error 402 series on the past, present, and future of web monetization, we talked about the whole “information wants to be expensive, information wants to be free” dilemma, that partially explained why early paywalls failed, and why display and search ads seemed to be the primary way in which internet content was monetized.

But, still, plenty of people were uneasy with this setup. And there were good reasons to be concerned. The online ad market is, inherently, cyclical and seems to go through fads. It also raises questions regarding what power the advertisers have over the content. And, of course, there are many security concerns regarding online ads as well. But, most of all, ads tend to be pretty damn annoying in many cases. They are often intrusive and not at all helpful. There are some exceptions, and there are cases where well done ads can actually have value, but those tend to be few and far between.

And so it was inevitable that people would begin to seek out alternatives. A few early internet services started to find some level of success by offering a free version of their service and then eventually upselling users to a premium offering. Venture capitalist Fred Wilson noticed this pattern in 2006 and talked about how it was his favorite business model, but that it needed a name.

Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc, then offer premium priced value added services or an enhanced version of your service to your customer base.

He correctly noted that this kind of setup wasn’t entirely new, pointing to shareware and other offerings, but also highlighted that it worked even better on the internet:

It works even better with web native services.  A customer is only a click away and if you can convert them without forcing them into a price/value decision you can build a customer base fairly rapidly and efficiently.  It is important that you require as little as possible in the initial customer acquisition process.  Asking for a credit card even though you won’t charge anything to it is not a good idea. Even forced registration is a bad idea.  You’ll want to do some of this sort of thing once you’ve acquired the customer but not in the initial interaction.

While there were various comments suggesting what this could be called, it wasn’t long until a comment from Jarid Lukin won the day, naming this business model “Freemium.” This caught on almost immediately, and became a pretty standard strategy for many online services, though with mixed levels of success and failure. As an article about the early days of Freemium highlights, Wilson named six companies in his original blog post, and two of them still have a similar freemium setup, two of them still have it but in a deprecated and hidden manner, and two others have dumped the freemium setup altogether.

It’s not a golden bullet, but it remains a useful tool for many web services. Of course, web service is not the same as pure web content, and experiments in freemium for content are a more recent phenomena.

The trickier part when it comes to content is providing that “extra” value that makes the paying part worth it. With a web service, you can figure out some interesting layer of scarcity to make pay-only: it could be more storage, or more features, or less intrusive branding, or more users. There are a variety of different levers you can pull.

With content, it’s harder. To make it work, it still needs to be something scarce to make it worthwhile to purchase, as anything widely available is trickier to convince people to pay for at any reasonable scale. Here at Techdirt, we actually started experimenting with “premium” scarce features back in 2009. We offered merch (scarce), physical signed books (scarce), and even a chance to have lunch or spend a work day with me (something a surprising number of fans actually did!).

We’ve also experiment with other kinds of scarcity such as our Crystal Ball, that lets you access many Techdirt articles before anyone else can see them or access to our Insider Discord chat.

To us, these were always examples of a kind of freemium setup, in which the content (abundant) remained available, but the scarcities cost money. However, the real leap forward with freemium and content came a bit later with various services that offered a kind of hybrid subscription model, which is what we’ll discuss in the next edition (which will come after the holidays, early next year).

Filed Under: abundance, business models, error 402, freemium, scarcity, web monetization

Error 402: Information Sorta Wants To Be Expensive; Information Almost Wants To Be Free

Economics

from the this-information-is-free dept

We took a few weeks off in our Error 402 series on the history of web monetization, but we’re back. If you’re just catching up, we’ve talked about the earliest monetary transactions online, the rise of e-commerce, the initial failed attempts at paywalls for content, and the rise of internet ads followed quickly by the dominance of search ads.

Basically we reached a point where users were clearly willing to pay for goods shipped to their home (e-commerce), but paying for content directly was a bigger challenge, and thus, advertising became the primary way in which content was funded.

And there are good fundamental economic reasons for this, which are worth exploring to better understand newer systems of monetization and how they can work.

Stewart Brand, the founder of the Whole Earth Catalog, is famously credited with saying “information wants to be free” at a Hackers Conference in 1984. The full discussion (actually in response to a comment from Apple co-founder Steve Wozniak, pushing for companies to let engineers take ideas the companies don’t want to develop and spin out their own companies) shows a somewhat more nuanced (and far more interesting) point that Brand is making:

“There are a couple of interesting paradoxes that we’re working here…. On the one hand… information sorta wants to be expensive, because it’s so valuable. The right information at the right place just changes your life. On the other hand, information almost wants to be free because the cost of getting it out, in many respects, is getting lower and lower all the time. So you have these two things fighting against each other.

If you listen closely, in the background someone (I think Woz) responds “information should be free, but your time should not.” And Brand replies again, noting how things can get out of balance if these don’t line up: “But then, at what point of amplification is your time being so well rewarded that it’s getting strange. Or so under-rewarded that it’s getting strange. There’s problems there with the market.”

And while this was an off-the-cuff discussion, in some ways it really represents a core part of the struggle about paying for content online. These two competing factors are very much in tension, and Woz’s point about time is important. It’s also important to realize that at the time of this formulation, the internet only barely existed and was nothing yet like our modern internet. When Brand talked about the “cost of getting [information] out,” I think even he may have underestimated how much lower it would get in just a decade.

One of way of thinking about the tension here, in more economic terms, is to think about the fight between scarcity and abundance. Basic economics 101 teaches how it’s not necessarily the cost to produce something that instructs the price, but rather the marginal cost to produce. That is, what is the cost to produce just one more of something? In some cases, that might not be all that different than the cost to produce the first one. In some cases, it may lead to things like mass production and automation, as the scale allows for the marginal cost to shrink, enabling lower prices for a bigger market.

But when it comes to information, especially in the era of the internet, you get a slightly weird scenario: one where the marginal cost to produce the original is high, but the marginal cost to produce each additional copy goes effectively to zero. This is not a wholly new challenge, and certainly predates the internet by some time. Thomas Jefferson’s famous letter to Isaac McPherson in August of 1813 lays out a similar issue, though from a different era:

if nature has made any one thing less susceptible, than all others, of exclusive property, it is the action of the thinking power called an Idea; which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of every one, and the receiver cannot dispossess himself of it. it’s peculiar character too is that no one possesses the less, because every other possesses the whole of it. he who receives an idea from me, receives instruction himself, without lessening mine; as he who lights his taper at mine, receives light without darkening me.

In short, ideas or information become abundant as soon as they leave our minds and are shared outward. And, as they are abundant, the marginal cost on sharing them tends to be low. And that only became much more true in the age of the internet, in which we took machines that were designed to copy and reproduce information, connected them all together around the globe, and let them communicate.

But, still, there are two flipsides to this. First, there is the idea that information wants to be expensive because of the value it can provide. That is, information can be valuable. But economics teaches us that price and value are not always connected. We don’t only pay for things because they’re valuable. The value part only determines whether or not the price is acceptable. But the price is determined by the intersection of supply and demand, and when the supply is abundant and the marginal cost is low, the price will face downward pressure.

At the same time, there is the second (unstated initially by Brand, but touched on by Woz’s response) point about the cost of creating that first copy. While it’s not as direct, when Woz refers to “time,” that’s more or less the point he’s making. Someone needs to pay for the “time” someone needs to create that first copy.

And, if you think about it in economic terms again, you realize that someone’s time is scarce. And before someone has created information, that information is also scarce. And thus the marginal cost before something has been produced can be seen as a scarcity that can be “expensive”, and then after it’s produced it’s free because it’s no longer scarce, but abundant.

That leads to, as Brand noted, a paradox. Historically, we’ve tried to deal with that paradox through copyright and patents. Those kinds of laws effectively try to keep that pre-creation scarcity for some (in theory) limited period of time post creation, by giving a monopoly right to the holder of the copyright or patent to restrict access. But this creates new problems, and for those who wish to access that kind of content during the artificially scarce period, it can be frustrating.

What we’ve seen over the last few decades with the internet is the ability to explore different ways of dealing with this paradox without leaning so heavily on copyright’s artificial scarcity, but on other more technological mechanisms.

Next week we’ll explore the concept of Freemium, and how it fits into this framework.

Filed Under: economics, economics of information, error 402, information, information wants to be free, marginal costs, patents, steve wozniak, stewart brand, thomas jefferson, web monetization

Error 402: Searching For Ways To Pay For Content

Business Models

from the search-eats-everythin dept

Last week in our Error 402 series on the history of web monetization, we wrote about the earliest forms of web advertising: banner ads. As we noted, this “simple” way of making money seemed to derail other forms of monetization, including early attempts at paywalls (which had many other problems and were destined to fail). Either way, though, the success of ads as a way of funding content online in the mid to late 90s of the original dot com boom certainly meant that much less attention was paid to other ways to monetize content on the web.

Of course, much of the early dot com boom in advertising was funded by startups with massively inflated bank accounts from venture capitalists, and those companies, in turn, spent the money on ads. Sometimes, this all turned criminal, such as the time AOL agreed to help an ad buyer show fake revenue in order to keep the company purchasing ads.

The boom in online ads also created its own industry of middlemen, with DoubleClick being the largest. DoubleClick became a kind of marketplace connecting advertisers with websites, and then tracking how many views those ads received. The earliest ads were paid (like most other forms of advertising before it) based on views, not clicks (despite DoubleClick’s name).

But another type of online advertising quickly surpassed it.

Search on the web was seen as a big business from early on, with many players. Yahoo (which was initially just a human-created index that later bolted on a search engine), Lycos, Altavista, Excite, Infoseek, WebCrawler, Dogpile… the list went on and on. And most of them made money by utilizing those banner ads we discussed last week. In fact, most of them shifted from being “search engines” to being “portals” where they hoped you’d spend more and more time (and see more and more ads).

Then came two companies that changed a lot: Google (obviously) and GoTo. Lots of people will know about Google, which bucked the trend of all those others in two important ways: first, it said that it didn’t want to be a portal, but just to provide search and send you on your way (how things have changed, huh?) and second, it made search much better through innovations like PageRank (again, how things have changed…).

In the early days, Google had no business model. Indeed, there was a point at which they thought their business model would be selling their search tools to enterprises, or just licensing their search code to portals like Yahoo’s (which they did for a time). Eventually, Google hit on its text relevant ads that were (initially) based off of the keywords you searched for and were (initially) in a separate and distinct column on the results page. This was originally called AdWords and by 2002 it was based partly on how much people were willing to pay to advertise, but also on performance (the more people clicking through, the more your ads would rise to the top).

That pricing mechanism was at least marginally similar to another company’s. And for that, we turn to the story of Goto. Goto was launched in 1997 (before Google!) and was one of dozens of companies that spun out of Bill Gross’ Idealabs, which was a sort of incubator for early internet ideas. Goto was also a search engine, but it’s big differentiator was that every result would be a paid result. The only way to get into the Goto search results was to pay to be there.

And, as part of that, Goto had to figure out how to handle ranking the results, and decided to do it… via an auction system. Those who wanted to be listed in Goto would put in the keywords they wanted to show up for, as well as the maximum price they’d pay for a click. And the search results would be ranked accordingly.

But who wants to go to a search engine that is all advertising? Turns out not many people. What ended up happening was that Goto quickly got into the search spamming arbitrage game. They’d buy ads on Yahoo or AOL for valuable keywords on Goto, but at a price less than advertisers on Goto would pay, and then direct results through to Goto. Buy the keyword on Yahoo for 5 cents, sell it on Goto for 10. Profit.

Eventually, as Google’s advertising grew by using a similar auction model, but (again, initially!) keeping the ads separate from the organic search results, basically all the other search engines started relying on Goto not as its own search engine but to power keyword based ads to compete with Google. Goto changed its name to Overture (and sued Google for patent infringement), and basically became the alternative to Google ads for many search engines, including Yahoo. Eventually Yahoo bought the company outright.

But “keyword” advertising had been shown to be a money printing machine, and Google (and, later, Overture/Yahoo) looked to expand it beyond search. Twenty years ago, Google launched AdSense, with the claim that it would help publishers who were having trouble setting up their own advertising leverage Google search keyword advertising. It wasn’t based on keywords directly (since publishers didn’t have keywords in the same way search did), but took that underlying concept to target ads based on the content on a publisher’s site, tied back to the keyword-based advertising Google had become so dominant in.

Of course, that also continued to grow and grow. Google eventually swallowed DoubleClick, and basically became the center of gravity for all kinds of internet advertising. Yahoo and Overture faded, and were eventually bought for pennies by Verizon who merged it into AOL (which it had also recently bought), and then sold it off again in a deal no one remembers.

But the dominance of internet advertising for publishers became basically unstoppable as a business model. I still remember, in the early 2000s when Techdirt resisted putting ads on the site, someone emailing us incredulously asking how stupid we were for not cashing in on the advertising boom.

At the very least, though, it dampened any discussion of more creative business models for content. And that’s what we’ll discuss in the next installment (which will be in two weeks, as next week is Thanksgiving).

Filed Under: advertising, error 402, internet advertising, search, search advertising
Companies: doubleclick, google, overture, yahoo

Error 402: You Will Click On Internet Ads, Oh So Many Internet Ads

(Mis)Uses of Technology

from the have-you-ever-hated-internet-ads?-you-will! dept

Last week in our Error 402 series on the history of web monetization, we covered how early paywalls for content almost universally failed. We’ll explore a bit more of the why later, but first we need to talk about internet ads. Because they basically sucked up all of the oxygen in the online monetization world. As this series pretty clearly notes, when the early web was being developed, the very fact that a 402 “Payment Required” status code was created and was slotted in before things like the much more well known 403 “Forbidden” and 404 “Not Found” shows that it was intended to be a core part of the web.

But that pretty much completely fell by the wayside. I find it somewhat hilarious that 402, which dates back to some of the earliest days of the web, is still described as “experimental” and “reserved for future use.”

It’s quite likely that a big part of the reason it was never really developed or standardized is that online ads basically changed everything when it came to funding content. And, yes, I know that everyone hates internet ads. I hate internet ads. But to understand this series, we need to explore internet ads and what happened with them.

The first web ad is generally credited to Hotwired (the online entity created by Wired magazine), which had the first banner ad (for AT&T!) in 1994. It played off of AT&T’s famed “You Will” marketing campaign in the early 1990s, in which Tom Selleck (!!) narrated TV commercials describing future things AT&T thought you’d be able to do (mostly online) as the technology got better. As Tim Lee noted a few years back, those ads were… actually amazingly accurate in retrospect:

And, in some ways, that very first banner ad was kind of prescient as well. “Have you ever clicked your mouse right HERE?” it asked? “You will.”

And while many of you will likely deny ever clicking banner ads, many, many people did. And, suddenly, money flowed. Content sites proliferated, as did banner ads. Of course, the actual performance of banner ads was mixed. The first one performed incredibly well. Perhaps because it was first. But also, as the guy who created it at the ad company admitted years later, it was actually part of a more thoughtful integrated marketing campaign, rather than just a random banner ad:

Almost 20 years ago, on 27 October 27, 1994, the first banner went live on hotwired.com. For over four months, 44% of those who saw it clicked on it.

Because I wrote that banner, I’m often asked why it worked so much better than today’s banners, which get clicked by only four out of every 10,000 people who see them. Expressed another way, why did that first banner generate more clicks with 10 impressions than the average banner today generates with 10,000? What have we done to destroy one of the most effective forms of advertising ever invented?

As you’ll see, that first banner had three advantages over modern digital ads: it was part of an integrated marketing campaign; it was a great experience (as opposed to being a mere message); and it was created with only good intentions toward consumers.

Rather than going back and more deeply exploring other monetization approaches, the focus started to turn to how to make more people click on ads. The incredible 44% click through rate on the first ad set up some ridiculously lofty aspirations which did not hold up. At all. But rather than exploring all that, people just moved on to experimenting with more annoying ways to get clicks, with the most annoying of all being the pop-up ad.

Ethan Zuckerman, who has spent many years trying to make the web a much better place (his projects are really cool), has also spent many years apologizing for creating the first pop up ad. How many of his modern really cool projects are penance for that earlier mistake… well, we’ll never know for sure.

To be honest, I find it amusing that so many of the pioneers in online advertising have gone on to try to make amends for their role in shaping an ad-dominated webscape. Beyond Zuckerman’s work, Andrew Anker, who was CTO at Wired and CEO of Hotwired when that first ad debuted, spent years trying to explore other forms of online monetization, including founding a company called Tugboat Yards that created what might be thought of as a (too early) Substack-like setup (which was eventually purchased by Facebook). But part of his thinking in creating Tugboat Yards was to try to help publishers make money in a manner that didn’t rely on the very internet ads he’d help invent.

Similarly, Brendan Eich, who created JavaScript and is sometimes blamed for building the enabling technology that allowed folks like Zuckerman to load up the internet with pop ups (and pop unders), eventually went on to found Brave, the web browser that tries to limits ads while also experimenting with monetization alternatives for sites.

But, for all of those later decisions to try to move the web content away from just advertising-based business models, none of that really mattered for the vast majority of the web, which became inundated with ads… in part because of the evolution we’ll discuss in next week’s entry in the series: the rise of Google and search ads.

Filed Under: banner ads, error 402, internet advertising, pop up ads, web monetization
Companies: wired

Error 402: But How Do We Pay For Content?

Journalism

from the paywall-fails dept

Over the past few weeks of our Error 402 series on the history of web monetization, we talked about the rise of the commercialized internet, and how it enabled transactions online, leading to the original dot com bubble around e-commerce. But, as we noted, nearly all of that was based on using the internet as a kind of glorified mail order catalog to order something physical, rather than something digital.

The path to paying for digital content took a very different route. As we highlighted last week, some news industry veterans decry the decision by many news providers to put their content online for free as the “original sin” of the news industry in the internet era. The argument, in short, is that by putting news online for free, we trained consumers to expect online content to be free, and made it impossible to charge.

Both ends of that equation are somewhat suspect, however. First, in the early days of the web, neither the infrastructure nor the culture was really set up for paying for content online. Most of the earliest attempts at doing so failed miserably. On top of that, over the past few years, we’ve seen that some sites (including news sites) have worked out successful strategies for getting people to pay to support them, though, as we’ll explain as this series goes further, the reasons they have been successful, and what lessons can be learned, have been widely misunderstood.

Indeed, there were early attempts to get people to pay for content online using various forms of paywalls that mostly did not succeed. One of the earliest news “paywalls” was launched by Microsoft, which created Slate as a site that wanted to charge a $20 annual fee for access. It did offer content for free for a couple years before launching the paywall in 1998. However, by the end of 2001 it decided to drop the subscription fee, saying that it resulted in “sluggish growth.”

Salon had a similar experience, charging users $24/year initially for some “premium” content, though by the end of 2001, it had switched nearly all of its news to be behind the paywall. A year later, recognizing that its subscriber base had stagnated, the company started experimenting with “day passes” for users who agreed to first watch an advertisement. By 2009, Salon finally dropped the paywall, admitting it was a mistake. Former Salon editor Andrew Leonard noted that, at its peak, Salon’s paywall brought in about $2 million, the costs were just too high, and the company was out-competed by news organizations that provided equivalent content for free.

Leonard made an important observation: “locking your stuff away in order to charge for it means that you are usually making it less valuable at the moment that you are asking people to pay for it.” What he was highlighting is that, in the internet world, sharing content is almost as important as accessing it, and making it more difficult to share is a real limitation.

It’s also one of the things that more modern paywalls have gotten much better at dealing with, which we’ll get to later in the series.

The NY Times, whose modern paywall is considered one of the gold standards of media paywalls (though even it has many limitations) also tried and failed with an early paywall. In 2005, it launched TimesSelect, the first version of its paywall, focused mainly on its opinion columnists, op-ed section, and business stories. The thinking going into it was that these sections were the parts that were unique to the Times, and not easily replicable elsewhere (or regarding the business section: timely, and mostly read by those with budgets to spend). However, it was seen as a failure and was shut down after exactly two years.

As Vivian Schiller, then the Senior VP and General Manager of the Times, noted at the time:

Since we launched TimesSelect in 2005, the online landscape has altered significantly. Readers increasingly find news through search, as well as through social networks, blogs and other online sources. In light of this shift, we believe offering unfettered access to New York Times reporting and analysis best serves the interest of our readers, our brand and the long-term vitality of our journalism. We encourage everyone to read our news and opinion – as well as share it, link to it and comment on it.

Basically, the competition (from blogs and social networks) was getting stiffer, and the ability to share and comment on content became critical to being deemed a part of the wider conversation. By 2009, Arianna Huffington had declared “the paywall is history.”

In short, the “original sin” was probably a necessity, rather than a mistake in development. Later in this series we’ll look at more modern paywalls that have solved some (but certainly not all) of the problems of the earliest paywalls, as well as other methods of paying for content online.

That’s not to say that all paywalls were a disaster. The Wall Street Journal was actually somewhat successful with a paywall in the mid-90s. The “Interactive Journal,” came about in early 1996, charging $49/year (or $29 if you had a paper subscription). While the then CEO of the paper, Peter Kann, chalked it up to his own “ignorance,” the reality probably had more to do with the uniqueness of the WSJ’s business content, and the value to business readers of having ready access to it.

Next week we’ll dive into an even bigger reason why paywalls failed: online advertising was just a way more lucrative means of supporting online content.

Filed Under: error 402, history, journalism, monetization, news, paid content, paywalls
Companies: microsoft, ny times, salon, slate

Error 402: E-Commerce Goes Mainstream, But Something Is Missing

Business Models

from the e-commerce-is-only-half-digital dept

Last week in our Error 402 series on the history of web monetization, we talked about the earliest secure monetary transactions on the web, soon after the National Science Foundation opened up the early internet for commercialization. There were electronic transactions over networks that pre-dated this (such as on proprietary online services like CompuServe, but the World Wide Web commercialization only began in the early 1990s).

Soon after those early transactions, the web as a place for business exploded. In 1995, both Amazon and eBay were founded. Tons of other e-commerce rushed into the market as well. Indeed, a few months before eBay was founded, another online auction house, OnSale, came on the scene, and received tremendous press coverage. At the time, I remember talking to a venture capitalist who insisted that OnSale would easily win over the “latecomer,” eBay.

Amazon, of course, started out by selling books, but expanded over time to selling everything. But the e-commerce boom of the late 90s involved companies springing out of the woodwork on a near weekly basis, claiming to be the e-commerce site for every possible category under the sun. I even remember sitting in on meetings with people going through lists of the most popular categories of goods and looking for “gaps” in the e-commerce market that people could build a dot com around.

Soon there were e-commerce sites for music, for books, for non-perishable food, for DVDs, for software, for toys, and much much more. Most famously, of course, towards the end of the original dot com bubble, there were a slew of e-commerce companies all looking to sell pet food and pet supplies. Many people are aware of Pets.com as the quintessential example of dot com excess in the late 90s, but what many forget is that it was competing against a bunch of other pet-related dot coms, each trying to raise more venture capital money than the others, in order to acquire more customers.

There was PetStore.com, Petopia, PetPlanet, and Petsmart.com, which basically licensed the name from the brick-and-mortar retailer to set up its own e-commerce operation (sidenote: after Pets.com went bankrupt, PetSmart.com bought the domain name).

And while the e-commerce bubble popped a bit after the dotcom craze collapsed in the early 2000s, e-commerce was clearly here to stay.

However, one element was missing. All of these transactions were about buying physical products by ordering them online. There was still little to no market for spending money on actual content online, and it was debated if there ever would be. Indeed veteran news executive Alan Mutter famously argued that newspapers failing to charge for their content online is the “original sin” of news going on the web. However, that ignores some early attempts to do just that, which failed miserably in the face of a few fundamental challenges to the economics of monetizing online content.

Next week we’ll explore the early experiments in monetizing content and services online.

Filed Under: e-commerce, monetization, web monetization

Error 402: The First Secure Monetary Transaction Online

Business Models

from the encryption-ftw dept

Last week, we kicked off our Error 402 series on the history (and hopefully future) of web monetization, by talking about much of the framing of what this series will be about. I started it out by noting that it has been 30 years since I first got online in 1993. That also happened to be right about the point at which the ability to exchange money online became a thing.

While the predecessor of the Internet, the ARPANET goes back to the late 1960s, it was gradually replaced by what became the Internet with the adoption of protocols like TCP/IP and then having the National Science Foundation (NSF) establish NSFNET, which officially resulted in the phasing out of the ARPANET in 1990. This is right about the time that Tim Berners-Lee was creating the concept of the World Wide Web, with the first web server showing up at the end of 1990.

Around this same time, the government started waking up to the potential of such a network. While he is often mocked as taking credit for “creating the Internet” (or “inventing” it, though he never said that), Al Gore was the author of the High Performance Computing Act of 1991 that basically supercharged the internet. Among other things, it funded the National Center for Supercomputing Applications (NCSA) at the University of Illinois at Urbana Champaign (UIUC) where a young Marc Andreessen created Mosaic, the first web browser with integrated graphics, which supercharged the World Wide Web.

Again, right as the HCPA was supercharging the web, the NSF decided in 1991 to lift commercial restrictions on the Internet.

While some of the early commercialization was around companies setting up their own access ramps to the Internet in the form of Internet Service Providers, plenty of people were planning out other ways to make money online. In the summer of 1994, the NY Times wrote an article proclaiming the first secure credit card transaction online for a music CD:

From his work station in Philadelphia, Mr. Brandenburger logged onto the computer in Nashua, and used a secret code to send his Visa credit card number to pay $12.48, plus shipping costs, for the compact disk “Ten Summoners’ Tales” by the rock musician Sting.

Much of the article focuses on the wonders of encryption that allowed this transaction to occur securely, but notably towards the end of the article, it’s admitted that many people had actually been making purchases less securely prior to this, though it quotes PGP creator Phil Zimmermann talking about his hope that encrypted transactions will open the floodgates for online commerce:

Although Net Market has been selling various products like CD’s, flowers and books for several months on behalf of various merchants, yesterday was the first time they had offered digitally secure transactions.

“I think it’s an important step in pioneering this work, but later on we’ll probably see more exciting things in the way of digital cash,” said Philip R. Zimmermann, a computer security consultant in Boulder, Colo., who created the PGP program.

Digital cash, Mr. Zimmermann explained, is “a combination of cryptographic protocols that behave the way real dollars behave but are untraceable.”

And while the NY Times article declared the (new) Internet “open for business,” it still took a while before we figured out exactly what that would look like. And those early days certainly were not about monetizing content online, but rather selling goods, which is what we’ll cover in next week’s article.

Filed Under: al gore, arpanet, commercialization, encryption, error 402, marc andreessen, nsfnet, phil zimmermann, tim berners-lee, web monetization, world wide web

Error 402: Exploring The Little Understood History Of Online Monetization

Business Models

from the a-historical-exploration dept

I realized recently that I had now passed 30 years on the internet, having obtained my first internet access in August of 1993 — the same year that many consider to be the year that the internet became commercial. That was back when you had to obtain access to the internet, rather than just… having internet access around you at all times. I’ve lived through a decent amount of internet history, and sometimes that makes me forget that other people have not.

For example, I’ve followed most of the trajectory of how people try (sometimes successfully, often not) to make money off of content online. I’m not ashamed to admit that the first time I spent money online was logging into a telnet server to purchase some music, and sharing my credit card in a manner that I can guarantee you was not secure (though, amazingly, nothing bad happened, as credit card scams really didn’t hit the internet in any major way until much later).

However, over the last few months and years, I’ve noticed a pattern of people talking to me about ideas on monetization who seem unaware of many of the things that have come before, including what worked and what absolutely did not. That is not to say, of course, that things that failed in the past will ultimately fail again. The internet is littered with stories of ideas and concepts that failed once when they were too early, but succeeded wildly when the time was right. But, still, it’s important to understand why things failed if you’re hoping to do it correctly this time.

So, this new series (which was conceived of over a year ago, but is finally getting started now) is going to explore the past, present and (hopefully?) future of monetization online, looking at how people on the internet have made money — and how they’ve failed to make money over the past three decades.

My hope is that in going through this history and examining the different elements of what works, it will help many creators and entrepreneurs better think through strategies themselves for how to make money online, how to provide services for helping others make money online, and how to best support the online creators whose work you most appreciate. Hopefully, this new series may inspire others to come up with better ways that help enable more creators to be able to keep creating online in a manner that works for everyone.

Nothing about this series is designed to present the “right” way of doing things. In fact, much of it is about situational differences that explore why some concepts work for some users at some times in some places, and others don’t. But it is designed to explore the various ideas and concepts, and how the idea of monetization itself online has changed over time as the technology and culture have changed.

The plan is to drop a new article in this series each week for a few months. While we have a full outline planned, along with a few initial articles, I fully expect that we’ll hear from people and learn something new as we go as well, leading me to add in new stories and new articles, beyond the initial outline.

As for the name of the series — Error 402 — that comes from one of the initial list of HTTP errors that were created in the early days of the World Wide Web, Error 402: Payment Required. You’re probably already familiar with Error 404: Not Found, and maybe even Error 403: Forbidden, but almost no one I know is aware of Error 402. And, that’s mainly because it was never implemented.

The early developers of the web came up with this list of errors, including 402, contemplating that monetization would be built in to the web as a core bit of functionality. And then… they didn’t. Things got pretty busy and pretty crazy pretty fast. And money was flying all over the place, and somehow… the core concept of monetization got left behind for everyone to just figure out.

So, let’s dig in and figure it out.

Oh, and I’d be remiss if I didn’t mention in a series on monetization that Techdirt has been in existence for over 25 years, in part, because some of you help to pay to keep the lights on here. And there are many different ways that you can help to keep us going in the future (many of which may make appearances later in this series). And, on that note, I also need to thank the wonderful folks at the Interledger Foundation and Grant for the Web for the initial funding to put together this series, as they’re trying to better think through what the future of web monetization looks like as well.

Filed Under: history, monetization, the internet