• by Tom Hespos , April 7, 2003

Dave Smith was right on with his last column about paid content. Can it become a short-term fix for content providers who are having trouble monetizing assets through advertising? Probably not, unless the content in question passes a few tests.

Dave's prerequisites for a viable paid content model include the right price and the right frame of mind. I'd like to add a few of my own.

First of all, there's the right competitive positioning. This is absolutely crucial for web publishers looking to make money from content or services. Before considering the paid model, publishers have to be sure that no one else is offering something similar for free or at a significant discount to what the publisher plans to charge. One of the reasons why The Wall Street Journal has been so successful with the paid model is that it would be extremely tough to replicate the quality of their content. If there weren't so many fans of the publication that couldn't live without the WSJ's insight, they would be just another financial services website giving their content away for free and struggling to upgrade their user base to "premium services."

Paid services live and die by the same rule. My favorite example of this is quite old, but still quite valid - Remember when pay-to-post financial services site Raging Bull fell victim to Yahoo Finance? Yahoo essentially gave away Raging Bull's message board functionality for free, causing a mass exodus from Raging Bull to Yahoo over the course of only a few months.

Secondly, there's the notion of the right positioning with respect to illegal violations of copyright. If some hacker working in his mom's basement can easily copy your content and disseminate it freely, it becomes difficult to charge for it. That's why content providers need to invest in digital rights management technology. The record industry can whine and complain all they want about the various peer-to-peer networks cutting into their profit margins, but if they shut their mouths and worked on developing an appropriate DRM technology, they could have a remarkable business going forward, as music fans and the Internet would essentially take care of distribution for them.

People generally don't pay for things they can get for free. If your average Internet user can download a peer-to-peer client and find an MP3 of pretty much any song or a copy of almost any piece of software, that is a threat to the business models of those holding the copyright, even if it is illegal.

Another prerequisite is the right understanding of how shelf life relates to value. Before any content or service provider decides they want to move to a paid model, they should determine where, specifically, the value lies within their content or service. If we're talking news content, is the value inherent in the information itself? Or is the value in getting that information first, before anyone else? If we're talking about a service, is the value in the service itself or, as Yahoo's Tim Sanders pointed out recently, in the experience of using the service?

Once the shelf life/value equation is better understood, it will be easier to understand why consumers would be interested in forking over perfectly good greenbacks in exchange for content or services. A deep understanding of this concept is the reason why The New York Times can give its product away when it is new, but can charge for it when it gets more than seven days old. Counterintuitive, indeed. But successful as well, because the Times understands how the shelf life of its content relates to its value.

What do all three of these prerequisites have in common? All three are easily gauged by doing some simple competitive analysis - something that ad agencies are generally very good at, I might add. (Hint, hint.)

See you next week.