Dot-Coms Pull Back On Internet Freebies

[miriama59]

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Just thought this would be of interest to most of us here.. saw it on "another board" lol

By David Streitfeld and Ariana Eunjung Cha
Washington Post Staff Writers
Sunday, March 18, 2001; Page A01


Last year, Jim Reardon was able to equip a home office from the freebies he got off the Internet.

A free color printer from Estamps.com and a free scanner from Insight.com. Unlimited Internet access through Netzero.com. Free voice mail from Ureach.com. Free subscriptions to Wired and other magazines from various sites. Free digital photo prints. Even a free yellow-and-black lava lamp from Lavaworld.com.

These days, the Illinois college student is hard pressed to find a free digital postcard. NetZero has started making him stare at movie ads before the service boots up. The company has also told him that if he spends more than 40 hours a month online, he'll have to pay a $10 fee. And his voice mail now costs $5 a month.

"I think the Internet's going to pretty much be, 'If you want something, you're going to have to pay for it,' " Reardon said. "You might find free junk, but nothing like the free services and cool things you might have taken for granted these last couple of years."

Reardon is one of millions of people who had a good thing going. In the Internet's brief history as a commercial enterprise, both entrepreneurs and established firms have focused on building an audience by giving things away. Later, once they had a huge base of fans, they would figure out how to make money off them.

Later has now arrived. The crash in technology stocks has prompted Wall Street to demand profitability from Internet ventures -- immediately. Web companies that had been hoping to survive with advertising, such as the Yahoo portal or the Encyclopedia Britannica Web site, are furiously trying to develop subscription services. Companies that didn't previously bother their users with advertising, including the retailer Amazon.com Inc. and the e-mail program Eudora, now make full use of it.

"The Internet used to be a little like a 1968 Haight-Ashbury commune, where essentially everything was free," said Charles Ardai, chief executive of Juno Online Services Inc., an Internet service provider. "Now it's becoming more like Manhattan in 2001, where you have to pay for the things you most want to do."

Juno customers get a free Internet connection in return for agreeing to view advertisements. In a quest for more revenue, Juno will soon ask users to keep their computers running all the time so the company can use special software to harness the collective processing power of those 3 million computers and sell it to third parties. The more successful the project is, the more likely Juno is to make participation mandatory.

The deal might strike some as fair. But in general, trying to make customers pay for value received has been a tricky notion on the Net.

"When 50 companies are giving things away for free, it's hard for one to charge," Ardai said. "When 40 of them go out of business and the other 10 are looking at each other nervously and thinking, 'We all need to find some way to make more money,' I think the environment is suddenly more conducive."

That's what Britannica.com, the Web site of Encyclopedia Britannica, is hoping. Since 1999, Net users have had free access to the 32-volume set, which retails in the physical world for $1,250. Last week, however, Britannica.com fired a third of its U.S. workforce and said it would "accelerate the marketing of pay services" in ways it declined to explain.

Yahoo Inc. is trying to do the same thing with its 185 million users. In a conference call earlier this year, Yahoo President Jeffrey Mallett said the company's "biggest priority is to convert visitors to members." In an interview, Mallett added that while such core services as search, e-mail and bulletin boards will remain free for the foreseeable future, "I don't know about free forever."

One of Yahoo's first steps to get money from users came in January, when it instituted modest listing fees for its auctions. It wasn't a huge shift; market leader eBay has always charged. But the number of listings on Yahoo quickly dived as much as 90 percent.

Despite this disappointment, tapping its users' checkbooks has recently become an even more urgent project for Yahoo, as online advertising has slowed dramatically. Yahoo, which gets more than 80 percent of its revenue from ads, announced earlier this month that its first-quarter revenue will be little more than half its initial projections.

Amazon, too, is hurting financially. The online retailer's search for new forms of revenue has led to the development of its Sponsored Results program, which allows for ads to be placed alongside search results. A new horror novelist, for example, could run an ad alongside all searches that use the words "Stephen King," to encourage readers to give his book a try.

"It's an experiment," said Amazon chief financial officer Warren Jenson, adding that it was too early to tell how much Sponsored Results would help the bottom line.

It's not just struggling dot-coms such as Amazon, Yahoo and Britannica that are exploring these new revenue forms. The Internet company with the deepest pockets of all, Microsoft Corp., is just as eager to make money off the tens of millions of users of its free MSN sites.

"We've started to evaluate customers based on their level of engagement with our network," Microsoft group product manager Bob Visse said. "Do they come back one, two, three, five, a hundred times a month? Do they use Money Central or [the free e-mail service] Hotmail? The more engaged these users are, the more likely they are to purchase additional services. They are the low-hanging fruit."

Visse is quick to add that Microsoft will do this without violating any individual user's privacy. But the marketing, at Microsoft's sites and many others, will soon become intense. "The business model now is, 'What can you do incrementally to really make more money?' " Visse said. "It's something none of these companies should be shy about."

Too Good to Last


A decade ago, before the first ad was sold on the Web, before the Web itself even existed, the Internet was about one thing: communication. This was the full flowering of the bulletin boards, discussion forums for everything from science fiction to tech problems to sex. Commercialization was unthinkable and impossible.

Vint Cerf, who helped create the Internet's predecessor 35 years ago as a government communications project, said he knew the communal nature couldn't last -- and what's more, it shouldn't.

"It was never my expectation that the Net be solely public in all of its aspects," Cerf said. "I was quite concerned that the network couldn't grow to scale if it didn't have a commercial, money-making component."

When dot-coms began taking over the global network in the late 1990s, everyone envisioned big money but no one seemed sure how to go about making it. One popular approach was to try to attract "eyeballs" to a site by any means, the idea being that each viewer represented a certain amount of future advertising and e-commerce revenue. More often than not, that meant giving something away.

It certainly got people's attention. More than half of U.S. households are connected to the Internet. "Now it makes sense to start monetizing that access," venture capitalist Tim Draper said. "This was always the plan."

Whether people will appreciate the shift is another matter. After all, it didn't help the e-commerce sites when they started charging real-world prices for their goods instead of giving them away. Many lost their customers and promptly went out of business.

"Consumers are smart," said Bob Kagle, another venture capitalist. "Some may be disappointed but more will be resigned. They know that if they're getting something of value, there has to be some way to pay for it."

Figuring out what people will put up with is the chief challenge facing many companies. To watch movie trailers on Film.com, for instance, you have to sit through an ad for NBA.com before you get to the film preview, which is itself essentially an ad.

Nader Tavassoli, an associate professor of marketing and entrepreneurship at MIT, said the Internet is shaping up like television, with its free network channels surviving alongside cable subscription services.

"I think people would rebel if they suddenly had to pay for network TV, but those same people will gladly open their wallets for cable," Tavassoli said.

Some companies are offering users a choice of features. Eudora, a popular e-mail service owned by Qualcomm Inc., is marketing a free version with ads (corresponding to network television), a $50 version without ads (cable) and a "light" free version without ads but with fewer features (a hybrid).

As the medium changes, even talk is no longer always free. The casual banter and advice that were the foundation of the online world now compete with such for-profit sites as Keen, ePeople, ExpertCity and HotDispatch.

These sites are basically virtual trading places for advice. The curious post questions, and the authorities answer them -- except that, in this case, the inquirers have to pay $5 for the simplest query up to thousands of dollars for more complex projects. The sites take a commission off the fee.

Joel Peach, 22, of Columbus, Ohio, answers questions for free and for pay. He is known for the helpful counsel he often provides free on message groups for Java programmers, but he has also become a well-paid specialist on HotDispatch, which focuses on technical solutions.

"A lot of people are basically using cash to speed up a process and get an answer they would normally get for free through a news group or through a buddy," said Peach, who recently picked up $700 for about 10 hours of work.

No Charge for Pat Boone


The sites most directly affected by the diminishing supply of free Internet goodies are naturally those that specialized in listing them.

If you looked on FreebieDirectory.com site a year ago, you'd find a virtual bonanza -- personal computers, online access services, digital music files, even free gift certificates.

Today, the pickings are leaner.

"Well, there's a free CD offer," FreebieDirectory.com founder Marc McDonald said. "It's called the Pat Boone CD, but it has various vintage artists: Sha Na Na and George Jones."

In true never-say-die entrepreneurial fashion, McDonald thinks the current economic downturn can only help his site. "A free tube of toothpaste or free instant coffee -- in a recession, these things become even more appealing," he said.

Jim Reardon, who loves giveaways so much he started a Web site named Freecenter.com to list them, hopes the Internet freebie will come back.

"As companies figure out how to make money off of online ads and realize what they can give away and and still make money, we'll see free stuff come back," he predicted.

At the moment, though, the trend is firmly in the other direction. One of the sites promoted last week on Freecenter as the Freebie of the Week was Driveway, a Web site described as "the best place to organize and store your files online."

Last month, Driveway announced it was "repositioning" itself. Most of the staff was laid off, and the storage space shut down.

[jersey_girl227]

Noooooooooooooo!

[bigredmonster]

I am really sorry to hear confirmation of the strategy toward less freebies, and I know I will miss out, but at least we can all talk about "the good old days". Hopefully the concept of freebies will rebound before long. Maybe, to give each other the freebie fix we all crave, we should start a round robin ceremonial freebie, just so there is something unexpected and unpaid-for in the mailbox once in a while. If A sends a free pencil to B, and B sends a free mousepad to C, and C sends a free tshirt to D... maybe we can make it through the withdrawal symptoms... What do y'all think?

[kennedy8989]

Very relevant.

[ftmom]

Thanks for the post!

[whitequeen96]

sniff...sob! So those were "the good old days"!

[elf64]

please let it not be so.i got to have my freebies.

[pandybat]

I've noticed lately how lean the freebies have been getting too. I've signed up for nearly everything I wanted and now all I ever see are repeats of the same old freebies. I hate to see the freebie scene dimish.
What's next, charging us for emails and for chats??!!?!!?

[blueaguave]

George Jones is a true artist, he has nothing to do with Pat Boone and Sha Na Na!!!!!!