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Brave new world that is failing to pay for itself

New media companies are struggling without a decent way of charging for services

 

WHAT HAS HAPPENED to the brave new world of the internet. We were told that this revolution in publishing was as big a breakthrough in our time as Gutenberg’s printing press was in his.

 

We have recently become used to small start-up internet businesses failing to attract audiences and going under, but now its getting really heavy. Major international publishing groups such as Go (Disney), News Corporation and CNN (Time Warner) have closed or severely cut back their new media divisions and have laid off hundreds of staff.

 

Even the mighty Yahoo, widely regarded as the best example of a new media business, has now admitted sharply lowered earnings and is searching for a new Chief Executive.

When Pearson announced that it was continuing to invest heavily in its FT.com portal the markets took a very dim view and marked them down.

 

It all seems so strange – surely it must be much easier and more efficient to publish over the internet than to print ink onto paper and then physically transport the results around the country in trucks. As a result of the savings made it should be possible to provide valuable publications on the internet for a fraction of the cost of the printed versions.

Trouble is – how to collect that fraction?

 

The real problem is the lack of a billing system on the internet that can collect relatively small amounts of money – it’s tough to build an economy without a currency.

 

This has been masked for years by the hope that advertising might somehow pay for the services, just as it does in commercial television. Or maybe it was just the internet "magic dust" that persuaded people to suspend their normal judgment during the 90s

It wasn’t supposed to be this way. When the personal computer first took off in the 1980s, consumer online services were pioneered by companies such as Prodigy, Compuserve and America Online (AOL). Naturally, they constructed billing models similar to the one people were already used to on their telephone service - a basic monthly subscription plus additional charges according to the amount of information they used.

 

When Microsoft tried to catch up by launching MSN in 1995 they also built in a charging system. These online services did deals with various content providers and vied to provide the most compelling competitive offering.

 

Meanwhile, the most bizarre thing happened. The non-commercial internet, owned and managed by nobody, suddenly overtook and eclipsed all of them. One by one, they were forced by pressure from their customers to adopt internet standards, took down the "walls" separating them from the rest of the internet, and abandoned their billing systems.

 

Unlike the commercial online services, nobody had ever considered building a billing model for the internet; it was originally a communication network for research workers in the defence and academic communities and there was no need for money to change hands. By the time it was realised that a billing system was required it was too late. The world wide web consortium developed a Joint Electronic Payment Initiative (JEPI) in 1997 but it never took off - by 1997 the internet magic dust was everywhere.

 

But that was "so last century". Jakob Neilsen, the usability guru of the internet (www.useit.com) predicted in December that “2001 will be the year that website operators come to their collective senses and start charging for service”.

 

We now know that advertising doesn’t really work on the internet, users have developed advertising "banner blindness". Advertising rates have plummeted.

 

As Neilsen puts it, it is no longer possible to build business models based on simply  “separating gullible investors from their money”. Business models now have to concentrate instead on “separating customers from their money” – a much more appropriate goal for a business.

 

The future of publishing on the internet is now on hold. The company which develops a really effective way of charging and collecting small payments on the internet will clean up.

 

As it turns out, it is rather comparable to Gutenberg. His innovation was also ahead of its time, his business failed, and his bankers repossessed his printing press.

 

At least nobody remembers the names of the bankers.

 

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