Online Business Models: Where's the Money Going?by Steve Lionais

Print Vs. Electronic
If you’ve been reading the news, you’ll know that there are some serious problems afoot in the traditional ‘paper’ publishing industry. The Chronicle Herald in Halifax has let go a large chunk of its newsroom, The Chicago Tribune Co recently filed for bankruptcy protection, and the San Francisco Chronicle is in serious danger of closing. Even the venerable New York Times had to shore up its cash-flow with a $250 million loan from billionaire Carlos Slim.

You may assume that an advertising-supported business model just won’t work in these economic times. However, consider The Wall Street Journal which charges for access to most of its content. It isn’t in any better shape after NewsCorp (its parent company) wrote down the value of its newspaper business by $3 billion.

Much of this turmoil has been exacerbated by the economic downturn which saw marketers reigning in their advertising budgets, especially the brand dollars. Perhaps the problems with the newspaper industry pre-date the collapse of economies; it was the straw that broke the camel’s back. For several years, newspapers have seen shrinking revenues from their stalwart revenue line: classifieds. Websites like Craig’s List and Kijiji have figured out how to make it easier for consumers to find deals and sell stuff online and for free. Why pay the newspaper $35-$50 for 4 tiny lines of text that can’t be searched by keyword or found in a search index?

What Will People Pay For?

So now you’re thinking: ‘Sure, it's easy to get people to come to your website if you’re giving them something for nothing. But what will people pay for?’ The most popular online business model is to give content away and make money from advertising. Clearly, that’s not working for the newspapers.  

RevenueTwoPointZero has some suggestions for the newspaper industry, but there are plenty of Internet-based businesses doing fine charging users for premium content and services. Stockbrokers happily pay Bloomberg.com for timely financial news, the adult film industry practically pioneered premium paid-for content on the web, and virtual worlds Second Life and Habbo manage to make money by selling virtual products and services. How great a business model is that? No inventory, no overheads, just pure profits! 

Discovering Value

The secret is creating value. Evidently, Second Life users find value in their virtual purchases. The same goes for iPhone applications. There’s an entire economy dedicated to applications for Apple’s iPhone. Businesses like Tapulous have built an entire revenue model around developing and selling iPhone apps for as low as $0.99 a download. 

Advertising dollars will eventually find their way back into the pockets of online publishers and will undoubtedly help those businesses reliant on that revenue. Publishers (online and offline) who survive the recession will be those who have figured out how to operate lean and take advantage of all revenue opportunities available to them. Be creative, manage your costs, and by all means, ensure there’s value in your product.