What Would Google Do_ - Jeff Jarvis [40]
Obviously, that’s absurd. The goal of any business is to collect money and make a profit. The most sensible way to do that is to charge the people who consume what you produce, right? Not always. Return to the chapter on networks, where new-age phone companies (Skype), retail marketplaces (Amazon, eBay), and classified-ad marketplaces (craigslist) grow larger by charging less, even nothing.
As much as I abuse media for operating under the rules of the old economy, let it be said that more than a century ago they created a new model built on not charging customers full freight. Rather than making readers or viewers cover costs, media charge the people who want to reach the people they reach—they charge advertisers. That is what makes broadcast free and newspapers and magazines inexpensive. A high-end magazine might cost $4–$5 per copy to produce and distribute; it might cost another $20–$30 to market to acquire that subscriber. Yet many successful monthly magazines charge their readers only $1 per copy to subscribe; it’s nearly free. A publisher in this scenario is in the hole $50 or more per subscriber in the first year (that improves every time readers renew). Clearly, though, magazines make money from ads—enough to dig themselves out of that hole and earn an impressive profit through the side door.
Google and the internet have created more models for making money through that side door. The appeal of this path is that often you need not own the assets that make you money. Google doesn’t want to own the content it searches; it wants knowledge to be free online so it can organize more of it. In the late 1990s, Google executives came to me when I worked for a magazine publisher, trying to convince us that we should take all our content archives—for which we charged readers—and put them on the internet for free. Google search, in turn, would send lots of traffic to the old articles. Google also offered to put its ads on these pages, making new money on old content—more money, they assured us, than we were making from archive fees. They were probably right, but I knew it would have been impossible to convince magazine publishers—who were too accustomed to owning and exploiting their valuable assets—to see value elsewhere. At the time, publishers didn’t understand that restricting access online was turning away people to whom they could show ads and sell magazines and build relationships. The pay wall was less a revenue opportunity than an opportunity cost.
The New York Times learned this lesson through experience. So accustomed were Times executives to selling papers and charging readers for access to content that they couldn’t bear the idea of giving it all away on the free web. They decided to charge readers online and had to find something to put behind a pay wall. It had to be something that would not hurt their advertising business (they wouldn’t have wanted to put ad-rich travel content behind a wall, losing audience and ad revenue, for example) but something that readers thought was still worth paying for. In 2005, NYTimes.com fenced off columnists and archives along with other goodies and charged $49.95 per year for access. TimesSelect got 227,000 paying customers (plus print subscribers and students, who received it for free). It brought in a reported $10 million annual revenue. I never saw an accounting of the cost of marketing to acquire those subscribers or of customer service; the profit margin was not reported. In a speech then, Guardian editor Alan Rusbridger showed a picture of The Times’ lavish new headquarters and said that revenue wouldn’t pay the gas bill in the building.
The Times killed the service in 2007 and freed its content again for a few simple reasons: First, it increased the audience to the paper’s site; within months after tearing down the wall, audience increased, by one account, 40 percent. Second, The Times could make more money on the advertising