Referral fees, barter agreements, banner swaps, and more formal banner-exchange networks - who knows what might happen next?
Charlie Morris
is the Managing Editor of the Web Developer's Journal.
For news and reviews of the latest computer audio tools, visit:
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PERPEND
The Web in 1998 - More of the Same?
by
Charlie Morris
At the Web Developer's Journal, we get a tremendous amount of email, asking for advice on everything from how to find drivers for long-vanished hardware to Paige Turner's personal habits. One thing we get asked over and over again is what we think about current Web trends. Will TV take over the Web, or will the Web take over TV? (The latter.) Will Apple go belly-up, or will everyone chip in to keep them on life-support and keep the antitrust hounds at bay? (Ditto.) What will be the killer app of 1998? (Frogware.) Which Web publishing techniques will be the most important in years to come? (Reading the WDJ.)
So here goes. The state of the Web according to Chuck, August 13, 1997. Tomorrow I may have changed my mind.
Actually, you may be surprised to learn that I think things will go on pretty much the same, just more more more of it. The high growth rate of the Web will continue, and so will the incredible explosion of products, services and clever techniques, as everyone tries to stake out their little profit center. True, sometime in the next few years, bandwidth will greatly increase, rendering many of today's technologies irrelevant. Who'll need graphic compression schemes, or streaming audio, when we have unlimited bandwidth? However, in certain applications and in certain parts of the world, meager bandwidth will be the scene for a long time, so all the dozens of clever little techniques that Web developers have invented to work around bandwidth limitations will continue to haunt the scene, even after they fade from the mainstream.
The Law of Loss Leaders
A lot of people are predicting the demise of free Web sites. Reasoning that information is valuable, and correctly pointing out that the full costs of the Web have thus far not been passed on to its users, they predict that all decent Web sites will become subsription-only, perhaps charging a fee of a few pennies using ecash or something similar. Just the opposite is true. The already huge amount of valuable information available for free will become even huger, and many services that we happily pay for today will become much cheaper or free.
Why? Well, I shall make my debut as a theoretical economist, and posit the Law of Loss Leaders. A loss leader is a product which is given away or sold at a loss in order to generate publicity for another product. Netscape Navigator is of course a classic example. In fact, many software developers find it economical to give away certain products for various reasons. Software is the ultimate loss leader, because it costs nothing to produce an additional copy. That is, its marginal cost is nil. My Law of Loss Leaders, then, states:
Any product or service that can be delivered via the Web at no marginal cost will eventually be offered to consumers free.
Another way of putting it is that no one will be able to charge for something that costs them little or nothing. How do you get readers to go to your site, and skip your rival's? By offering a traffic-builder or loss leader for a lower price than the competition. A price war quickly ensues, and sooner or later everyone in the business is forced to offer that product or service free in order to stay in the game, and sell their main product.
Sound far-fetched? There are several examples, one of which is stock price quotes. Big investors like to keep up with the prices of their stocks on an hourly basis. Stockbrokers have always offered free quotes over the phone to their customers. But what if ya could check on yer stocks on the computer?! Golly! When AOL first came out, you could get stock quotes for a quarter a pop! A nifty little racket until Compuserve started doing them for 24 cents, etc, etc, now every financial site on the Web offers real-time stock quotes for free!
Not a convincing example, you say, because that was really just a case of some scamsters trying to charge for something that had been free before the Web. But what about actual stock trades? Decades ago, stock investing was strictly the province of the wealthy, until retail stockbrokers like Paine Webber and Merrill Lynch came along. Even 20 years ago, to buy or sell stock worth $5,000 might have cost you $200 or so. Along came a chap named Charles Schwab, who realized that a lot of investors were paying PW and Merrill for services they didn't need, namely advice. If all you need to do is make a trade, then all the stockbroker needs is a guy to sit by the phone and punch a couple of buttons on the computer, and your $5,000 trade can be done for perhaps $50.
Of course, other upstarts had undercut Schwab even before the Web came along, and there are now several places on the Web where you may trade stocks. Even the guy sitting by the phone is no longer needed, replaced by the Web. Commission rates keep going down, and eventually they'll hit the floor. Brokerage houses, banks and perhaps other institutions will someday offer stock trades as a free service to their customers.
But if everything becomes free, what are those customers going to be buying? It's all very nice for consumers when a useful service becomes a free service, but what if your business depends on that service? You needn't cry crocodile tears over the brokerage houses, of course. Retail stock trades were never much more than a lucrative sideline for them anyway, and the Web doesn't seem to be hurting their investment banking business, to say the least.
However, some predict that "middleman" business like travel agencies are threatened with extinction. I think not. There will be fewer, and the ones that survive will be very good at their business. To flourish, a "middleman" will have to provide personal service that his customers can't get from a computer. Any business whose product consists of nothing more than the guy answering the phone and tapping on a keyboard is probably doomed.
No, cars and TVs and beer are not going to become free. It's grunty little tasks like stock trades, or buying concert tickets that will be free (and easy to do). But in delving into the larger spheres of economics and sociology, I have strayed from my point, which is:
The only Web sites that will be able to impose a subscription fee will be those that provide vital business information and that have a very strong brand name. The vast majority of the news and information available on the Web, the cats, the dogs, the underwater basket weaving, and yes, even the good old WDJ, will remain free as air.
The WSJ (would you believe, our sister publication?), of course, has long charged a subscription fee for their Web site. The Wall Street Journal is one of the most respected publications in the world, and the people who read it usually do so with a view to making money, so they don't mind spending some to get news they can trust. Other highly-respected names in fields like law, medicine, and business will be able to command a subscription fee, but precious few others will. There's just too much competition out there, looking to sell ads.
If you pay peanuts…
Another pearl of specium that you hear a lot is that impression-based banner advertising is unimaginative, old-fashioned, and headed for the scrap heap. Horsefeathers. True, we have only scratched the surface of what could be done with Web ads. Banners can become "microsites," or micro-TV channels , or even 3D micro-worlds. More important yet, the Web provides the opportunity to collect unprecedented amounts of information about consumers, enabling what some call "microcasting" or "micromarketing", and we here at the WDJ like to call "Very Highly Targeted Marketing Indeed." Advertising on the Web will become incredibly sophisticated, in ways we cannot as yet even guess. The lowly banner ad, however, a static or animated message with a link to the advertiser's site, is, like the billboards that deface our highways, here to stay.
And what about "cost-per-click" advertising? I recently read one of those "meet the World-Wide Web" articles in a mainstream magazine. After pointing out that there is, in fact, a certain amount of non-pornographic material available on the Web, they prosed about Internet advertising. Impression-based advertising sales used to be the scene, but gee, you never know how many visits to your site you're gonna get. Can you imagine? Advertisers couldn't be sure what they would get for their money! So now, we are told, cost-per-click ad contracts are "the norm." A lot of unsophisticated ad buyers would love to believe that, but it is of course preposterous.
Paying for advertising by clickthroughs is what is known as "paying on spec." In the music business it's called "playing for the door." In the publishing business it is known as "subsidy publishing," or, less flatteringly, "the vanity press." Arrangements like these have a place in the business world, but they are found near the bottom of the food chain, not in the middle.
In any creativity-based business, especially the arts, a simple fact has always been true: There are far more people who are trying to be professional artists, writers, content providers if you will, than there are funds available to support them. The most talented (at marketing themselves) will secure paying gigs, while the unwashed masses will come up with all sorts of desperate schemes to eke out enough chips to stay in the game.
For a musician, playing for the door is a way to get out of the woodshed and play in front of an audience. And if a prospective employer stops by to listen, he doesn't need to know that you're taking the door, does he? It works the same way for a Web site. Advertisers are happy to do cost-per-click arrangements, and marginal sites have no reason not to accept them. A promise of a few dollars is better than a big nothing, and it looks better to prospective advertisers if they see that you already have an ad on your site.
In the fecund capitalist soup of the Web, several flavors of cost-per-click contracts are making the rounds. Referral fees, barter agreements, banner swaps, and more formal banner-exchange networks abound. But in the minor and major leagues, the mainstay of Internet advertising is and will continue to be, banner ads sold by the impression. 100,000 impressions per month is the preferred unit, and the more highly targeted your content, the higher CPM (ad jargon for "cost per thousand") you can command, from $10 to 50 and up. Business is done through Internet ad networks, through ad agencies, and directly between Web publisher and advertiser.
In all the talk about how Web ads are a brave new world, in their infancy, etc etc, many people overlook the fact that quite a few ad agencies got hip to the Web very quickly, and are getting hipper all the time. The advertising industry is very mature, and not particularly conservative. When the Web came along, few of them kept their fingers in their ears long. True, a lot of advertisers are still clueless about the Web, but as for the ad agencies, they got those email impression reports (and those checks) rolling in pretty quick. Some folks complain that many in the ad biz act as if the Web were little different from print. Why shouldn't they?
The Web presents tremendous opportunities for innovation in the advertising field, and don't you worry, the revolution will come. However, the basic facts of advertising will always remain the same:
- You have a message.
- You want to deliver the message to prospective customers.
- The amount you will pay depends on the quantity and quality of the audience you reach.
It makes a good story when they say that the business model of the Web is about to be turned inside out. "They're gonna start makin ya pay…Advertisers are gonna stop spendin…The government's gonna fine you for saying "gosh-darn it!" The fact is, however, that many business models exist on the Web. It is used to sell products, publicize products, provide technical support, and of course to expedite business communication. All of these will grow and grow. Every possible way that anyone can think of to make a buck will be done a million times. But the basic landscape of the Web will not be that much different. Ever more great material will be available for free, and there'll be plenty of advertising. Some ads will be more obnoxious than others.
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