The land grab of the Web's early years has come back to haunt sites that once gave everything away, but are now desperately seeking profitability. Many B2C sites are anxiously looking for alternate revenue streams to augment disappointing ad revenues. Their hope is that paid services, such as enhanced email, instant messaging, file sharing, and photo storage, will be the answer.
But it may be a hard sell. Sixty-nine percent of US consumers are unwilling to pay for any Internet services, according to a new report from Jupiter Media Metrix. That's even bigger than the 63 percent of US consumers who are unwilling to pay for content, which was the last revenue-generating scheme to offset the advertising slump and which has mostly been a bust.
Paid services have been broadly touted as the next phase of the Internet's commercial development. As some of the big sites begin to experiment with rudimentary services, software vendors are busy building the technological underpinnings that could improve the Web's ability to handle service offerings. However, Web services and other service-oriented technologies are more likely to succeed with B2B applications because it will be difficult to change consumers who have come to expect free content and services on the Web.
Email is probably the best-known free service and the closest thing to a "killer app" on the Internet. A third of all US online adults use a free email service for their primary personal account, according to Jupiter Media Metrix. MSN Hotmail has between 34 million and 37 million users per month in the US and Yahoo's monthly email users number between 25 million and 28 million.
However, only 12 percent of all consumers surveyed by Jupiter were willing to pay for enhanced email. That hasn't stopped some of the big portals, such as MSN and Yahoo, from charging for extended email capabilities. Late last year, MSN began to charge for premium features such as extra mail storage, Web page storage, and freedom from deactivation for accounts that remain inactive for extended periods of time. In March, Yahoo began to charge for some previously free features, such as email forwarding and POP access. Yahoo also introduced new features, such as extra storage, the ability to handle large attachments, and no promotions in messages, on a paid-only basis.
It's too early to tell how successful Yahoo and MSN have been with these programs. MSN claims to have 300,000 subscribers for its paid services, of which enhanced email accounts for the vast majority. MSN charges US$20 a year for enhanced email, which includes 10MB of storage and the ability to send attachments up to 1.5MB. Yahoo claims that it derives US$146 million--or about 20 percent of its 2001 revenues--from fees and listings but that total includes both consumer services and corporate and small business services. Jupiter estimates that consumer fees account for only 20 percent of that US$146 million.
Other service offerings are likely to fare worse than email. Jupiter found that the next two categories consumers were most willing to pay for were recruitment and job sites at 8 percent and enhanced instant messaging and file sharing at 6 percent. At the bottom of the list were wallet and ID services, and personals and dating services, for which only 2 percent of all surveyed users were willing to pay.
One thing is clear. If your enterprise plans to derive significant revenues from paid services, it won't be easy. Consumers will slam the door on some services and only grudgingly pay for others. The following tips can help you ease the transition to paid services and reduce your chances of alienating existing customers.
- Don't take something that was once free and start charging for it. This is likely to make users angry and will probably just chase them into your competitors' arms. It's much better to be creative by charging for enhancements.
- For most services, it makes sense to offer consumers a free basic service offering while charging for enhancements and extended value. This permits sites to attract beginners and gather valuable marketing information while still permitting you to derive some revenue from your customer base.
- Be generous with basic services rather than offering anaemic, barely functional features that satisfy users' needs in name only. As users grow savvy about the split between free and paid levels of service on the Internet, a miserly approach could eventually tarnish your brand.
- Consider offering some paid services on a free-trial basis but be careful not to confuse customers about the limits of the trial, or behave in a way that might make customers feel cheated by the trial.
- Don't nickel and dime consumers for small service items. Jupiter recommends offering users the ability to build their own bundles of services by choosing from among a number of items using a "Chinese menu" approach.
- Be prepared for competitors, especially upstarts, to offer similar services for free in order to capture market share. You can help keep customers loyal by providing consistent and good service and a clear and reasonable fee structure.
