Mac Musings

The Ad-Based Web Is Dying

The Case for Micropayments, Part 4

Daniel Knight - 2001.06.21 -

The ad-based Web isn't dead, but neither is it healthy. It may be terminal.

Where fees of $20-40 per thousand impressions (CPM) used to exist, many publishers today thrill at the thought of $10/CPM - the same penny-a-page level we're looking at with micropayments.

Online publications are dropping like flies, and the bigger they are, the less they are able to sustain themselves on ads alone. The biggest failure on the Mac Web was Macweek.com, which was unable to succeed with millions of visitors each month. And that's nothing compared with some of the big dot-com failures of the past couple years.

Everyone depending on ad income to keep their site going is on a slowly sinking ship. Everyone. And each year that ship sinks a bit more.

The Problem

Why is the online advertising ship sinking? Because it's too easy to measure immediate results, so advertisers ignore long-term impact. If an ad doesn't provide an immediate click, the sponsor sees it as a failure. They look at CPM and CTR (click through ratio). If CTR drops by half, CPM had better drop by the same amount. The only thing that counts is immediate results.

Radio, television, newspaper, magazine, billboard, bus card, and other ads don't work that way. They promote a brand or a product, but they can't measure results directly. How many people saw their ad on page 9C of today's newspaper? Nobody will ever know. How many people decided to try Pepsi after seeing their latest Brittany Spears ad? Nobody will ever know.

Traditional advertising has been based on mass exposure. As people continually see Saturn ads on TV, they become more likely to consider a Saturn as their next car. "Rip. Mix. Burn." hopes to attract music fans to the Mac.

But on the Internet, sponsors demand immediate results. They don't put up a "Life tastes good" banner with the Coca-Cola logo and hope we'll buy Coke next time we're thirsty. Instead, they want us to click their ad and visit their site.

If you don't click that ad for Dell, the Ford Explorer, someone's Visa card, etc., they consider their ad dollars wasted.

That seems unlikely to change.

The Solution

Content has value. If not, you wouldn't spend your time on it. "Boston Public" is worth 10-12 minutes worth of ads. MacHome is worth pages and fractional pages of ads plus a few bucks from your wallet. And some ad-free professional journals are worth a hefty subscription fee.

The key is setting a value on content and raising sufficient funds to net those funds. Super Bowl ads are an extreme example, where companies pay millions for ad space and additional millions on deluxe ads that may only appear on the Super Bowl.

On the Mac Web, a lot of us are struggling along on less than a penny per page - far less. We can't keep our businesses running at these levels. Almost every time we pay a writer, we are paying him/her less money than that article will ever generate. It wasn't that way last year, but those are the realities in 2001.

The solution is to move away from strictly ad-based content, since the ad fees no longer cover the cost of business.

Affiliate Programs

One of the greatest ideas in the history of the Internet is affiliate programs. If I put up a link to Amazon.com and you buy anything through that link, Amazon.com sends me 5% of your purchase price. That's a great way for us to make a little extra money at no cost to you. That's why we have those "Support LEM" links down at the bottom of the navigation bar.

We can make it even easier than sending you to Outpost.com - we can provide a direct link to a specific product. And that's where we may lose our objectivity. We benefit when you buy via such a link, so we have a vested interest in your purchase. That could be a conflict of interest.

Each site finds its own way to deal with that conundrum. On our Best iMac Deals, we include links to several sites. Some we have an affiliate relationship with; others we don't. We benefit more if you buy from an affiliate, but if someone else has a better deal, we don't want to keep you finding it.

At the end of reviews we may provide some purchase links. If you think you may want to buy the product, these links facilitate that. We want to avoid turning Low End Mac into a store while still benefiting from affiliate programs and making it easy for you to buy reviewed products.

Subscriptions

From the world of magazines we also have the subscription model. You pay an annual fee and receive each issue in the mail. Some magazines have no ads, but most use ads to subsidize your subscription cost.

Websites are moving toward that model with various degrees of success. The Wall Street Journal seems to be a leader in that respect, charging $59 a year for full access to their site plus additional services. Even then, subscription fees apparently cover only half their expenses.

I've been chatting with other publishers, and we all have different ideas, but one site is very seriously considering offering ad-free content for a fixed fee. I don't know if, when, or how they'll implement that, but I think regular site visitors might like that idea.

This is much better than the alternate model of offering limited site content to nonsubscribers. Subscribers would view ad-free content, but everyone would still have access to the site.

Micropayments

My people, the Dutch, have a reputation for stretching a dollar. (Some call us tight, but frugal is a much nicer word. They also joke that copper wire was invented by two Dutchmen fighting over a penny.) I'd think long and hard before spending $10-20 for unlimited ad-free access to a site. Over the course of a year, how often would I visit? What would be the net cost per page? Is it worth 20¢ or 40¢ a week?

Probably, especially if it's a very good site, one I visit daily and link to regularly. But given the choice between free content and spending $10-20 a year, I'd have to give the whole thing some serious thought.

Micropayments would be easier. Sure, I'd gladly invest a penny to read most of the articles I click on. Micropay is more of a pay-as-you-go system than subscriptions.

Making Micropayments Work Today

We've discussed some possible models for micropayments and how it's really going to take a huge company with an international presence to make it work globally, but there's an alternative - local micropayments.

Local micropayments would work like global micropayments, but with a more limited focus. You might pay $10 to "MacMicroPay" to receive 1000 credits, each good for a page view.

Member sites might display a small thin frame at the top of your browser that has your ID, your credit balance, and a link for managing your account. You might tell it that you always want to pay for page views at Low End Mac, but want to be prompted when visiting another member site.

MacMicroPay would disable ads for members, but leave pages intact for nonmembers - or MacMicroPay members don't want to pay for pages on a specific site.

Since you've already paid for your credits, MacMicroPay can distribute funds to member sites on a weekly or monthly basis. No more waiting for advertisers to pay - at least as far are pay-per-view pages are concerned.

There are probably a thousand logistical details behind such a system, but it would give you the opportunity to choose ad-free site content without paying a subscription fee to a specific site.

From the publisher's perspective, our share of that penny-a-page fee is more valuable than the ads we're displaying, and we would see more immediate cash flow.

Case Study

We'll use Low End Mac to look at some possibilities and some very approximate ballpark numbers. We're currently averaging around 650,000 pages per month and 45,000 unique weekly visitors.

Sticking with just ads for income, we're lucky to see $2,000 a month these days. With continued use of ads, affiliate programs, and visitor donations, we might see an annual income of $30,000.
Switching to a subscription model at $20 a year and having 1,000 subscribers would give us $20,000 from subscription fees but reduce ad income by maybe 20%. Annual income might increase by $10,000, but it depends on how many/few are willing to pay for ad-free content.
$10-12 annual subscriptions might result in 3,000 members and cut ad income by one-third. Annual income might be $5,000-7,500 higher than with the previous model.
Adopt a micropay model that results in us receiving 0.5¢ per page from the micropay manager. Estimate 10% of site traffic is micropay users. Ad income drops 20%, micropay brings in about $40,000. Annual income would become quite comfortable.
Manage our own micropay system at 1¢/page. Micropay doubles from above model, bringing in maybe $80,000, but we have to hire someone to manage it. Annual income jumps greatly, but with a huge increase in expenses.

These are ballpark figures and pie-in-the-sky projections. We have no idea how many of you would pay for ad-free content. But we do know that ad rates are no longer enough to keep us afloat, nor do we anticipate that changing soon (if ever).

Free Access vs. Free Content

To date, Low End Mac has been able to provide free access to free content thanks to site ads, affiliate fees, and, more recently, donations. As ad rates plummet, running a profitable business becomes more difficult.

We'll probably end up with some sort of hybrid - pages with ads for some, but an ad-free option for those willing to pay for it, and a little affiliate income each month as the icing on the cake.

Given the choice between managing subscriptions, setting up our own micropay system, or working with someone else who manages a broader micropay setup, I'll take the third option.

Regardless, we know this site can't be profitable with just ad income, even though that model worked in the past. To avoid the fate of Macweek.com, we are exploring our options. We want to keep the site as accessible as possible, but we have to remain in business to keep the site on the Web.

Much as we want to offer free access to free content, that may only be possible for some if others are willing to pay for access to ad-free content.

The Micropayment Series

A Penny for Your Thoughts, an introduction to micropayments
Little Payments, Big Business, the scope of micropayments
Paying For Web Content, why you'll like micropayments
The Ad-Based Web Is Dying, how micropayments can change the face of the Web
Conclusion: Making Micropay Work
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