All across the Net, the sale of information products has become a popular means of
revenue for corporations and entrepreneurs alike.
Everything from company reports sold by online brokers to graphics and digital photos sold
by artists and photographers to whole books from individual authors can now be accessed and downloaded
with the click of a mouse. These new "information providers" are redefining what is bought and sold
on the Net, and are creating brand new markets.
The selling of digital content has gained popularity because of its unique
characteristic that both the delivery of the goods (usually an electronic file) and the
transfer of money for payment of the product can be accomplished on the same
electronic network. The physical distribution channels and costs usually associated
with the delivery of hard goods are virtually non-existant. However, the very same
technology that has made
the manufacturing and distribution of these products so easy is what is
causing headaches and fits for merchants who sell "small ticket items."
Pitfalls and Technology Snags
In the physical world, many products exist which cannot be sold profitably except
by cash or coin, such as vending machine goods, document photocopies, and various
other small (usually under $15.00) purchases. Unfortunately, e-commerce systems for
such small payments (micropayments -- the Net equivalent of coins and small bills)
are not yet experiencing the success and popularity we''d all like to see.
There has been limited, if any success with some established micropayment technologies,
including Cybercash, Digicash, Netcash, etc. Digital cash transactions are expected
to become more commonplace by the year 2000. However, the major problem with this technology is that
there are a number of competing protocols, and it is unclear which ones will become
dominant.
Another downside to the sale of electronic information over the Net is that most
information on the Net today is free. Intellectual
property owners have little incentive to make valuable information
accessible via the Internet because of the relational costs of accepting credit
cards and other means of billing that result in costs for the merchant. The cost
of processing a transaction via the credit card system would
destroy any profit margin on inexpensive items.
Early newletters aimed at physicians tried to sell individual articles and reports,
but lost out to more ambitious Web sites that posted lots of this information
for free, meanwhile being underwritten by pharmaceutical companies and
instrument manufacturers. The true leaders in online pay-per-view have been
pornography sites. Teasers -- very graphic pictures which promise more -- are provided
for nothing. However, sales are made by using the "what''s behind the curtain" gimmick.
You get "access", as long as you provide your credit card number.J
Charges can be for access to certain areas on the site or for "timed viewing"
(pay per minute, for example). Naturally, most of these sites sell magazines
and products, too.
How the Big Boys Do It
Currently, the most common means of selling digital content has been
through subscriptions. Ordinarily, an account is established with a vendor such
that the customer is billed periodically at a fixed rate.
For example, The New York Times gives free Internet access to customers who
subscribe to the physical paper on a regular basis. The Wall Street Journal
charges a monthly fee ($4.98) to customers that want access to their site but
don''t want to buy the paper on a regular basis. Payment is made via your credit
card, which is automatically charged each month. (In both cases, access is
controlled by log-on name and password.)Another variation of this is the download of "archived material" -- content
that ranges from 2 weeks to 6 months old.J Each
company sets the limits. Charges are relatively high, currently around$3.00
to $5.00 per article. This is due to the high cost of processing payment by
credit cards, which can seriously compromise profits.
Another workaround is to pre-sell "packages" of archived articles or
special reports. For example, $24.95 could give a customer the right to
download 10 separate documents.J This follows the "magazine subscription
model" which sells a years worth of issues at much cheaper rates
than individual issues.J For the merchant, some of this "discounting" makes
great sense because they can more efficiently sell andJ promote services and
products to repeat customers. Such customers are more valuable to advertisers, too.
Firms Debut Micropayment Plans
Two companies have recently rolled out innovative solutions for delivering and
charging for digital content.
Qpass will sell content from publishers such as The Wall Street Journal
Interactive Edition on a short-term or per-article basis. And incentive
marketer Cybergold will launch a program that lets users purchase digital
content such as MP3 songs, software, and video files.
Both companies have set up micropayment programs to deal with the
challenges of charging small amounts online. Qpass'' system allows users to
register once and then purchase content from various publishers, such as
mutual funds researcher Morningstar and the U.S. Department of Commerce.
Users receive a monthly bill that''s charged to their credit card, and Qpass gets
a small fee for each transaction.
Cybergold has created its own digital economy: Money earned on its site for
viewing ads or trying out products can be redeemed for digital content priced
as low as 25 cents. Users can add money to their account by charging with
their credit cards.
The company, which claims 1.5 million users, will receive transaction fees
from each of its content partners.
CEO Nat Goldhaber said Cybergold is considering licensing its micropayment
technology.
Reprinted from InternetWorld, March 9, 1999.
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This type of pricing is popular with, for example, financial letters
published on line. Many trading services,
especially those which are part of major brokerage houses, provide free
on-line investment research to customers.
But they also provide "silver, gold or platinum" reports for a monthly fee.
They also use incentives to urge the customer to "upgrade" by packaging these
reports together with additional benefits; for example, real time quotes or
"special alerts," such as notices concerning stock splits, dividends, SEC
filings, and insider trading.
Still another variation on this is to provide such services free to
customers who "qualify."J For a financial site or e-trader, this might mean
discounts to those clients who execute more than 30 trades a month.J
A charge of $19.95 per trade thus makes "qualified customers"
those who spend at least $600 a month.JAgain, this a
clever way to sell individual articles/reports by pricing them within a larger
revenue stream and avoding the costs of processing each transaction.
One day, perhaps micropayments and digital cash will become a reality.
Then it will be possible to charge per article or report on a true pay per
view basis.J It is a hard road to pave for single
entrepreneurs or small companies, unless they have something that is
desperately needed by a well capitalized customer base.
Don Sussis is an eCommerce advisor and business consultant. He
frequently writes about business over the internet.
He can be reached at dons@interested.com.
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