Is the free web dead?

By: Mark Patron | June 10th, 2010

Database Marketing – June

“Quality journalism is not cheap,” said Rupert Murdoch. “The digital revolution has opened many new and inexpensive distribution channels but it has not made content free. We intend to charge for all our news websites.”

The free web has created winners, such as Google, and many losers, such as publishers. In the mid-nineties everyone believed that the information rich internet would be built on an advertising model. Fifteen years later it is hard to find a publisher that makes a profit online.

Google is the clear winner. With UK revenues last year of £1.9 billion it represents a staggering 54% of all UK internet advertising, and made the equivalent of £52 per internet user in the UK. In comparison social media only typically makes £4 per year from each user.

However while social media may not be monetizing the web it certainly has reach. Facebook alone accounts for 20% of all online display ads in the UK, reaching an audience of more than 30 million unique visitors. Worldwide social networking sites have almost one billion users. Social networking sites like Japan’s Mixi or China’s QQ make three quarters of their money from services other than advertising such as gaming or selling accessories.

One group that is struggling to make money online is publishing. Last year the daily national newspaper market was down by 5% year on year, and 4.5% down the year before. So publishers need to make the internet work more than most. However publishers have too often tried to simply replicate their offline advertising models online and it has not worked. Pure play online publishers, similar to Asian social networks, have been more successful with a more diversified mix of revenue streams such as training and saleable information. They often end up looking like a cross between market research organisations and communities. Econsultancy is a good example. These organisations do not have offline baggage distracting them from having a single business focus. Offline publishers on the other hand had to diversify online.

So is it only the pure-plays, such as Econsultancy or Amazon, that are winning? The numbers would suggest otherwise; over 60% of the top e-commerce sites are traditional offline businesses such as Tesco or Argos. Online sales now account for almost 10% of total retail sales in the UK, and this is predicted to be 20% by 2020. Online currently accounts for a quarter of all new retail businesses with forecasters expecting this to be 50% within ten years.

Similar to e-commerce online advertising is destined to grow. The internet gets 38% of consumer time but only 8% of the advertising dollars compared to newspapers, which get 20% of the ad market, even though they only get 8% of consumer time spent. Internet ad spending shrank in the US in 2009 although it grew in the UK. Internet advertising has now overtaken TV to become the UK’s single biggest advertising medium. While online advertising is growing it is quite different to traditional advertising. Consumers consider online advertising much more intrusive than offline media. Consumers don’t want pop ups and they don’t trust them. Offline is a push medium, online is a pull medium. Offline we target consumers, online we engage with them.

A free web is an open web, and the recent spat between Apple and Adobe challenges this. Steve Jobs accused Flash of being a “closed and proprietary” system. Adobe hit back by saying that by Apple refusing to support Flash it was undermining openness. Both Adobe and Apple are simply highlighting the fact that while the web maybe open for some, once money changes hands the walls go up. For example, the Apple revenue model is very much based on a walled garden where you can buy content only from Apple.

So where is all this headed? First, I believe internet businesses need to use database marketing strategies more effectively to increase the “value of a name” from social media levels up to Google’s. Second, I don’t think we will see the death of the free web. For all the bluster more and more businesses are segmenting the market into free and paid. FT.com is a good example. Content is free, but only up to a point. So are the reports of the death of the free web exaggerated? I’ll leave the final word to Murdoch again “Frankly, the big free competition will be coming from the BBC.”