US News.com nology 4/9/01 New tolls on the info highway

The Internet starts facing the reality of a free-lunchless world

By Dori Jones Yang

It sure was great while it lasted, the free Internet. Consumers could spend hours online, chatting, gathering information, all for next to nothing. Investors who bought Net stocks early even profited from the Internet–way back when tech stocks soared.

Now the free ride is over. The Nasdaq crash has wrecked more than financial portfolios; it's also changed the Internet forever. Pushed to show profits, online companies are scrambling to find ways to charge for what once was free. "With the meltdown in the dot-com space, there's no question today's Internet business model needs a reboot," says Bob Muglia, vice president of Microsoft's .NET services group.

Count Microsoft among those eager to see more-profitable models emerge. Microsoft bCentral already charges small businesses for Web-based tools, and its money-losing MSN service is planning fee-based "premium services." But Microsoft's main meal is expected next year, served up on a platform named HailStorm. Unveiled in mid-March, HailStorm promises to store all your key personal information in one place on a Microsoft computer, so you don't need to type it in for each service and device you use. Microsoft already offers a few such services, and some will still be free–"even though that business model by itself has proven to be troublesome," says Microsoft Chairman Bill Gates. But the firm hopes to persuade consumers to pay monthly fees for new features, such as storing and locating information.

Gold digging. Microsoft is not alone in mining new revenue lodes. AOL, which already bombards subscribers with ads and charges extra for television and telephone access, may soon charge for mobile-phone access. Juno, which offers free Internet access, is pushing heavy users to pay a $14.95 monthly fee and recently asked subscribers if it could use their personal computers for large distributed computing projects.

On other fronts, RealNetworks, which provides audio and video content over the Net, said last week it would charge $4.95 a month for access to its Major League Baseball game broadcasts. For another $5 it will offer NBA basketball broadcasts as well. Print media too are seeking to cover the high cost of maintaining Web sites. Many may follow the New York Times in charging for archived articles, while entertainment trade publication Variety recently began charging for access to its Web site.

But wait. Isn't it a core Internet precept that information should be free? Well, television was once free, too, based entirely on advertising. Pundits predicted no one would pay for it, yet today pay-per-view and monthly cable charges are widespread. Many see the Internet following suit. "Just as our parents told us, there is no free lunch," says Giga Information Group analyst Rob Enderle. "It just took a while for this market to figure it out."

At the moment it isn't easy for online services to collect that lunch money. Credit card companies cannot yet handle "microcharges"–dimes or dollars paid for access to small amounts of information. (Analysts say Microsoft's Passport might someday let online merchants aggregate purchases from many sites into a single bill.) Online retailers are in a double bind. Imposing fees would discourage people from "walking in the door," while easy comparison shopping puts a constant squeeze on prices. Bucking the pay-to-play trend, Amazon recently offered free shipping for certain items, "Friday sales," and an online outlet mall. Still, says Prudential Securities analyst Mark Rowen, "clearly consumers have to pay for what they use in one way or another, or those companies are not going to survive."

And the news for consumers isn't all bad, says Enderle. Some revenue-starved Web sites started selling consumers' personal information after they went out of business. A model like Microsoft's–where customers pay upfront to store information but have more control over how it's used–may appeal to people concerned about security. Moreover, if consumers pay, Web sites may be tailored more for their needs and less for advertisers, says Jakob Nielsen of Nielsen Norman Group, a California expert on Web usability. Today, content on many sites is displayed to maximize the number of ads seen, and ads are getting bigger and splashier. Fees might change that.

"Last year's business model was: How can we separate the investors from their money? This year's business model is: How can we separate the customers from their money?" says Nielsen. "This is a more healthy business model."

-- Anonymous, March 31, 2001