Tough Decisions in 2001

Over the past few weeks, we’ve been discussing some of the lessons learned and adjustments that need to be made to become a profitable online publisher in the post-bubble Internet.

I proposed that we as an industry may have no choice but to abandon the “all free” content and tools we’ve been offering. The VC and IPO money that subsidized this “free” content wasn’t free, and somebody has to pay for it.

Many of us are going to find out the hard way whether our content is valuable enough for people to pay even a modest amount of money for it. We’re going to have to stand or fall on the value of the content we offer — and that will be determined by the marketplace.

So as we ponder continuing or launching a particular type of content on our sites, we need to ask the following questions:

Is this content so valuable that people would be willing to actually pay for it?

Is this content so compelling that it could attract an audience that a sponsor would be willing to pay to get in front of?

Can it do both?

The sobering truth of the matter is that unless we can answer in the affirmative to all three questions, we might not have a viable online publishing business for the long term.

The closest cousins we have to the online publishing model are newspapers and magazines. Over the years, these businesses have had to ask themselves the same tough questions that we will have to ask in 2001.

They have to generate a critical mass of paying customers and, in so doing, monetize that audience further by packaging it for their advertisers. Most newspapers and magazines have to have both revenue streams to be viable.

But there is another revenue stream that print publications enjoy that we online publishers do not.

Subscribe to almost any print magazine under a unique spelling or variation of your name, and just watch your mailbox. Within weeks, you will begin getting a steady stream of direct mail offerings and catalogs targeted to the typical subscribers of that publication.

Let all of those direct mail pieces from just one publication pile up over the course of a year, and you will see a pretty big pile next Christmas.

Why? Because print publications further monetize their respective audiences by selling subscriber names and addresses, day in and day out, week in and week out, to as many direct marketers and catalog merchants as they can. And they make pretty darn good money doing so. It’s a huge industry and creates a handsome revenue stream for those who practice it — and most print publications do.

Before I go on, let’s just remember that our print cousins are now up to three revenue streams versus our one: subscriptions, advertising, and list sales. Take any one of them away from a magazine, and you’re putting a mighty dent in its business — perhaps rendering it unprofitable.

Our print cousins have gotten us so used to receiving mail without asking that they don’t have to worry about seeking permission from us to sell our names, nor do they even bother to provide a means for us to opt out. It’s just built in to the program.

Try to follow the print model online, and you’ll be in for a world of hurt. The storm troopers from the Mail Abuse Prevention System (MAPS) will blacklist you overnight, and you’ll see no end to the abuse that results.

But the dirty little secret of the Internet is… the online merchants are already doing it.

They aren’t selling your email address. Heaven forbid! They’re selling your name and address because they know that you won’t get ticked off about it.

From a business standpoint, a good argument could be made for brokering your subscriber list to other marketers to create an additional revenue stream; however, you would be absolutely insane to do so in the current online environment — not to mention that you’d be breaking the law in many states.

The smart way to create a list-based revenue stream is to offer a number of opt-in opportunities that are directly relevant to the reasons that brought people to your web site in the first place.

In our case, we offer opt-in opportunities on things like email marketing services or special offers from publishers.

The key is, you need to build those lists to a critical mass before you can begin to sell them. A list with fewer than 5,000 names or so is not really worth anybody’s time.

One thing I’ve noticed since ClickZ joined the internet.com network is that it’s doing quite well with sales of opt-in lists. It has dedicated significant resources to them and considers selling them a vital part of its business for years to come. We dabbled in opt-in prior to the acquisition last fall but are now quite focused on developing that revenue stream.

At some point in time, though, if we (that is, all online publishers) continue the “free” content model, we may have to consider stating right upfront to our subscribers that part of the price they pay for getting this free content is agreeing to receive marketing emails from select partners. There would be no “opt” about it.

No doubt about it, this would aggravate many of those who feel they are entitled to “free” content. But what they don’t understand is that the VC and IPO money paid for that content.

How? Well, it did so in two ways. First, it funded the publishers’ businesses, the creators of site content. Second, it funded many of the companies that advertised on those sites.

With money drying up on both ends, it stands to reason: The slack has to be picked up somewhere.

When the time comes that we as an industry make the shift to some sort of tiered model of free and paid content, be prepared for all sorts of grief. You will lose the majority of your subscribers. You will get calls from outraged subscribers. Hate mail. The works.

But, as one of my readers who recently went through this asked, “Wouldn’t you rather have 100,000 paying customers than a million free ones?”

So as you get rolling on the new year, get ready for some tough sailing as you make and implement the decisions that will ensure your long-term survival and prosperity.

Stay tuned for more…