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October 19, 2009

Business models of the new web

It seems micropayments are the general trend on the web.

Early in September, Google announced its micropayments platform that could save the newspaper industry, or to help monetize the all free new/social media. On the other side, there are many local/regional players betting on micropayments. For instance, is a new initiative in Denmark that already managed to attract on their side some of the biggest national content producers.

Yes, the micropayment system has a huge potential, but there are other solutions that offer new business opportunities and call for innovation. This is one of the perspectives found in a recent study on "Business models of the new web: The economics of content, software and social networks" by Nikita Gazarov. The research paper is about 30 pages, but it's totally worth the reading. Here is a brief summary of the study with its main concepts and statements:

The micropayment problem
There are various payment methods which balance between convenience, security and minimizing technical costs, but ultimately there is a tradeoff between them, and the overall transaction costs are generally too high to use per-article pricing. An obvious solution would be to sell access to bundles of articles... but as the demand for such content is really thin, it's never a significant part of the total revenue.

Links and visitor multiplication
Increased number of visitors means increased number of links which means that the number of visitors is further increased (both via links and searches) (the loop goes on). This effect makes it much more costly, than an oversimplified economic analysis may show, to hide the content behind a paywall. Free content would significantly increase traffic to newspapers' websites, but it would be worthless if it could not be converted into revenue.

The fundamental problem with current advertising technology, however, is that it prevents the spread of information. It relies on pageviews and thus restricts the use of content/information to a particular website. However, if the copyright holder had a way to get significant revenue from republishing, it would be in his best interest to allow to republish their content. Actually, it's a solid business opportunity to create an advertising platform that would take the origin of the article into consideration and split the revenue from page-views between the copyright holder, the republishing website and the ad platform.

P.S. Indeed, it's easier to manage and handle a micropayments system, but it's not clear whether it would be good enough to save the newspaper industry. Having a more complex approach, like the one mentioned in the research-paper, could provide an alternative way to capitalize on online content. Anyway, the web is about openness, collaboration and socialization.

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