Online Pricing: Analysis Misses the Door to the Bank
April 13, 2020
I spotted a discussion about online pricing written in 2018. The focus was Google. “Would Google Search Make More Money If They Charged 1 Cent per Search?” contains some interesting information. In fact, the write up underscores how those wearing blindfolds outside the online sector wake up in the dark only to discover they have been swallowed by a whale. (How did that work out for Jonah?)
The write up contains an analysis by Jasper who does “a little back of the napkin calculation.” The results are that Google could charge for each search and possibly generate more than it generates from online advertising.
Rop-ke, another participant in the discussion, points out:
But to tell you the truth, people would search a lot less if they were charged money per search.
In fact, Rop-ke pointed out that “Google will die.”
Alenda made clear that the free Craigslist killed newspapers. (Well, not quite, but Craigslist added to the hurt.)
The most recent comment about this article appeared on April 12, 2020. I quote:
They would until someone replaced them with a free service.
Several observations may be warranted:
- There are times when people will pay for online information. The most common is a “must have” situation. What would you pay for an online search for an antidote to save your child from death by poisoning? What would a person like Harvey Weinstein pay for an online LexisNexis search as part of his effort to avoid further prosecution in Los Angeles? The idea is that “must have” information will cause people to pay.
- Asking people to pay for online information splits the user base into two groups: Those who will pay to use the service and to have access if the service is needed. In general, only a small number of online information services can stay generate enough revenue to make the online service into a sustainable business.
- The modes of online access have shifted dramatically in the last 30 years. In 1980, one needed a separate device like a Texas Instruments Silent 700; today one can do a search talking to a smart television set. Most of those searching are not aware that their actions are an online search. The lack of awareness creates a clueless mass which can be converted to revenue.
How do online companies make money today? Let me highlight a few of the more popular approaches:
- Selling data either directly or indirectly. The user’s actions are the bits that matter. Even cash strapped enforcement agencies will pay for data when the investigation warrants.
- Online is a stepping stone to other businesses. Example? Online sales. The Amazon model is built upon search. Want a cloud service? Do a free search of the AWS documentation. The motivation is gratification like buying an eBook or shifting to the cloud so pesky information technology staff can be riffed.
- Online search facilitates a new type of revenue stream. If you want to make a fortune in digital currency, you need to find a digital wallet. Then you need to find a “how to.” For those providing that information, the payoff comes from getting their hands around money churn.
The problem with selling online information is that it is difficult to generate sustainable revenue, cover the infrastructure and other costs, and spin a profit. But when online provides options for other streams of revenue, the digital bits can be like gold dust.
Will Google charge for search? Maybe, but the company is charging to use its search infrastructure. The company offers a Microsoft Office killer for a fee. Google sells phones, mostly not so good, but like the Loon balloons, the company is trying. One can also rent the Google plumbing for cloud computing.
I am fond of pointing out that Google has one business model, a model it obtained in a moment of inspiration from Yahoo. Google was more clever than Yahoo’s management. Google has been more clever than many companies.
Will that cleverness come to an end when a better search engine comes along? Not likely. For now, online search seems easy to do and monetize. Every human construct winds down. But with Google’s seemingly free services rolling along, the firm has momentum. Its tie up with Apple suggests that no quick changes will occur.
What does persist? Some misunderstandings about the costs of offering online information in either free or for fee mode. I remarked decades ago that online is a fairly tricky business to make pay even for criminals selling contraband on the Dark Web.
Imagine how difficult it is for LexisNexis to pay for the technological debt it has strapped to its back. Most online companies are in the same slog. The New York Times talks about its rapidly growing online business. What the NYT doesn’t say is that the cost of its missteps in online which began when Jeff Pemberton’s in house online system was terminated with extreme prejudice. Yeah, I know the current crop of NYT managers will ask, “Technical debt. Who’s Jeff Pemberton?”
The cloud of unknowing about online continues to swell just like the ad revenues from search at Amazon, Facebook, and Google. These are not habits; they are addiction. There’s money in serving addicts: Perceived must havism.
Stephen E Arnold, April 13, 2020
Stephen E
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