Archive for Monday, May 7, 2001

Web sites charge into new territory

May 7, 2001

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— The dot-com wipeout that obliterated stock market fortunes is now starting to chip away at consumers' pocketbooks: Web sites are increasingly charging for information and services they once provided for free.

A free-to-fee evolution now permeates the Internet, from regional sites like the Web edition of Rochester, Minn.'s hometown paper to heavily trafficked sites such as Yahoo!, Major League Baseball, Salon.com and online telephone directory 555-1212.com.

Even FreeEdgar, a storehouse of financial documents filed by publicly held companies, is charging for some services.

"Some people think everything on the Internet should be free, but those people are in for a surprise," said Ed Bernstein, chief executive officer of PhotoPoint.com. "There aren't going to be many Web sites that aren't charging in the future if they want to stick around."

San Francisco-based PhotoPoint, a digital photography site with 1.6 million members, recently began charging $19.95 to $29.95 per year to use its formerly free online service for posting and sharing photos.

"Tens of thousands" of PhotoPoint members already have sent in money to subscribe, Bernstein said.

Many of those subscribers received a $9.95 promotional subscription that PhotoPoint initially offered to existing members like Lori Hitchcock, a graduate student at the University of Indiana who stores digital photos on the site.

"I was dismayed when I found out about the fee. I paid it for this year, but I probably won't pay it again next year," said Hitchcock, 34. "A site is going to have something that really knocks my socks off to get my money."

Changing the mindset

The pressure to charge Web surfers is the next logical step in a no-nonsense environment where online advertising revenue has dried up. These businesses must either show a profit or face extinction, dot-com entrepreneurs and analysts say.

"It's going to take some time, but it has to be done," said online analyst Alan Alper of Gomez.com, an e-commerce research firm.

"The biggest challenge that these sites are going to face is trying to change the consumer mindset," he added. "It's hard to charge for something once you have been giving it away for free."

Most Web sites are trying to ease visitors into paying by offering a limited amount of service for free before demanding money. San Francisco-based 555-1212.com, for instance, lets its registered users search for up to 30 phone numbers per month before imposing fees.

"If people see they are getting value out of a service, they are more willing to pay for it," said 555-1212.com CEO Pamela Roussos. "We are taking a risk (by charging), but it's a calculated risk. The business model we had before was quite ludicrous."

For some entrepreneurs weary of the upside-down economics that prevailed in e-commerce's early days, the fee phenomenon is a refreshing dose of financial reality.

"Now, we are all going to have to survive on our own merits," said Homestead.com CEO Justin Kitch. Menlo Park-based Homestead creates Web sites; it recently imposed a $29.95 monthly fee aimed at small business owners.

Enticing offers

For Web surfers accustomed to a free ride, the proliferation of new fee-based services will force tough decisions.

"I'm torn. I can see why some of these sites have to charge, but I still feel like information on the Internet should be free," said Ashley Highsmith of Austin, Tex. "I have always thought of it as the world's public library."

Highsmith, 23, so far has resisted the Web's fee push during her roughly 20 hours of weekly online usage.

Persuading Web surfers to pay for once-free services will require enticements.

Salon.com, a San Francisco-based online magazine desperate for more revenue, recently introduced a premium service that includes features unavailable on the free site, including "erotic" art and photography.

Salon's management thinks it can raise as much as $1.8 million annually from $30-a-year fees to premium subscribers. Salon has lost $57 million since March 1998; its stock is so low the company fears its shares may be delisted from the Nasdaq Stock Market as early as June.

Breaking the mold

Few traditional newspapers and magazines charge to read their Web editions, largely because so much online news coverage is available for free. So far, other news organizations' attempts to charge subscriptions from Slate.com to TheStreet.com have flopped.

That doesn't mean subscriptions won't work on the Web, asserts Martin Nisenholtz, CEO of New York Times Digital.

"We believe there are many things that people are willing to pay for on the Web," Nisenholtz said. "The question is how you structure the offers."

The Rochester Post-Bulletin, a daily paper in Minnesota with a paid circulation of about 42,000, broke the mold beginning May 1 by imposing a $60 annual subscription on all online readers living outside its circulation area.

Readers residing within the circulation area must subscribe to the print version to read stories on the paper's Web site.

The change triggered hundreds of e-mails in protest, but the paper's management stood by the decision, reasoning that readers interested in Rochester can't find a better source than the coverage provided by Post-Bulletin's staff of 72 journalists.

"We don't want to keep feeding this idea that our content has no value," said Post-Bulletin Editor and General Manager Jon Losness.

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