Why Newspapers' Websites Should be Free

by: Felix Salmon

Nick Carr makes a valiant attempt at defending TimesSelect, riffing off Tim Harford's column on Saturday. The basic idea is that when online advertising is in its infancy, it makes sense to charge a subscription rate for website access. Eventually, when the advertising business picks up, it makes sense to drop the web subscriptions and go free: that way you maximize your total profits.

If you rush to set the price of the web edition at zero too early, before online ad sales reach a certain level, you may sacrifice revenues from print sales and ads without making them up through online ad sales. The better strategy, explains Gentzcow, would be to charge a fee for access to the online news (or at least, by implication, some part of it valued by print readers). That way you dampen the loss of print sales and ads and maximize your overall revenues and profits. At some point, once online ads sales strengthen sufficiently, it may then make economic sense to remove the fees for accessing the site.

But what Carr and Harford fail to do is place a value on the headstart that a website can achieve by going free early. As one of Nick's commenters says,

In periods of fundamental technological change & discontinuity, leaving money on the table may well be a smart strategy...
Companies such as Costco or Southwest explicitly leave money on the table, for example. Sam Walton (whose descendants collectively are now the richest people in the world) pointedly refused to price the goods at the "going rate", which a Harvard Business School prof of that time would have considered stupid...
Larry Ellison, nobody's fool as a businessman, enunciated it thusly: in early markets, maximize marketshare, not profits. NY Times should have become the go-to place for news & views online. They always had the breadth & depth of content. The fact that they let a whole lot of other sources jump ahead speaks volumes of their failure of vision.
If they had that vision, it is possible that most respected bloggers (like you!) would have found it profitable to channel their content through the NY Times online site, which got, say, 50 million readers a day.

Now that's what I call a vision. The NYT now has 43 blogs, and it pays for all of them. By contrast, HuffPo has 1,800 blogs, and pays for a tiny fraction of them. If the NYT had got the jump on Arianna Huffington by inviting the world's thought leaders to blog on its site, it could have a truly unbeatable web presence by now. Instead, it went the other way, putting all of its opinion content behind a subscriber firewall where no one could see it, and letting HuffPo and the Guardian steal its march.

Says Fred Wilson:

I have a lot of scars in my back and one of them is the decision we made at TheStreet.com to charge a subscription while our competitor, MarketWatch, went with the free ad supported model.

Free is inevitable, and the longer you put off going free, the more you lose in the long term. The FT is not there yet but it still has a few weeks before Rupert Murdoch officially takes control of WSJ.com. In fact, it might have even longer than that, since Murdoch is now making some weird noises indeed:

Murdoch said he expected to expand digital editions of the Wall Street Journal worldwide and launch new "vertical" sites around specific sectors of interest. He did not elaborate.

I don't know what this means, but it doesn't sound like going completely free to me. "Digital editions" is like the different versions of Vista: there's no point in differentiating unless you're going to charge different amounts of money for different products. Murdoch should have one price and one price only for the WSJ online: $0.

But the FT, of course, shows no indication whatsoever that it's capable of getting its online act together. When it launched its new business plan, the whole site was in fact free for about a week, since the software driving the new model didn't work. Now the software does work, but it automatically logs out visitors after half an hour, "for security purposes". Can anybody give me a single reason why this helps with security? You can't spend money on the site, so it's not as though it's possible to commandeer somebody else's computer and drain their credit card if they're still logged in.