No free Internet lunch: the bubble long busted, Web sites turn to selling content to survive.

Reviewing the latest report from the Online Publishers Association (OPA) covering online paid content, electronic information has all the looks of a hot commodity.

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Surfing around the reaches of the Internet, consumers spent US$748 million for content during the first and second quarters of last year, a jump of 23% over the same six months in 2002, according to the OPA.

Jupiter Research, an international research outfit, predicted that year-end figures for 2003 will show that spending on online content grew by 30% in the year--to US$2 billion from US$1.6 billion in 2002. By 2007, Jupiter says, payments for online content will be US$5.4 billion. Meanwhile, some newspaper chains with Web presence also offer rosy numbers. Knight Ridder Digital reports that in the third quarter of last year, revenues reached US$21.5 million, up 51% over the same period in 2002.

For its part, New York Times Digital said third-quarter revenues in 2003 climbed to US$21.8 million, a 19.7% improvement over the previous year's US$18.2 million. Content that people pay for on media Web sites range from archived news stories to crossword puzzle solutions to articles bundled together around a particular topic.

"Consumers are slowly opening their pocketbooks for paid content," said David Card, vice-president and research director at Jupiter.

Are they? What do people mean by paid content? And when online content providers report glowing revenue figures from online customers, they often don't mention profitability. Is anyone actually making money selling content?

COOKING THE E-BOOKS

Some figures cited above--and those of the OPA in particular--have been met with skepticism. Vin Crosbie, president and managing partner of Digital Deliverance, a consulting firm in Connecticut, that helps clients market content online, called the publishers association's numbers "questionable."

He said the figures include sales of things like music, professional wiring reports from the Web site of the Institute of Electrical and Electronic Engineers, greeting cards people send each other online and information on former high school buddies sold by Classmates.com.

According to Anne Holland, founder of MarketingSherpa, a marketing consulting firm, "You have to read those numbers carefully because they add in things that may or may not be [true content], things like dating services. There are different definitions of what information is and what people are paying for. It's very confusing."

Skeptics cast a dubious eye even on the figures reported by some newspaper companies since the numbers include items such as the sale of old articles on third-party services like LexisNexis.

When Crosbie analyzes the online divisions of newspaper corporations, he "backs out" these kinds of earnings because, strictly speaking, they are not coming from the Internet operation.

Crosbie and others also note that in some cases newspapers include revenues from their print classified ads with those earned by their Web sites, believing some ads are read online when browsers look at the paper's electronic edition or are duplicated online as part of its Web site.

If a newspaper says that its online service generated US$60 million, but US$20 million of it is an accounting transfer, then that can skew the actual revenue picture, Crosbie said. Anne Holland, for her part, suggested that revenue reports such as the one released by the OPA miss many of the real marketing success stories in online publishing because the researchers concentrate only on the "big, famous" sites.

"But loads of successful subscriber and for-fee content sites fall under the radar, in particular business-to-business sites," Holland said. "They don't show up in the reports because they don't have millions of people paying a few dollars a month." One example she cited was Hrnext.com, which targets human resource professionals. The site, which charges almost US$500 a year for membership and also sells reports, "is doing extremely well," according to Holland.

GOOGLING FOR FREE INFO

The argument over the validity of some of the numbers notwithstanding the debate over the willingness of consumers to pay for their information is far from settled. During the Internet boom, a vast number of sites lured Internet surfers by offering them lots of free information, e.g. news, business data and sports statistics. But with the dotcom bust, much of that free information disappeared. Some surveys show that consumers who once feasted on no-cost data are not necessarily resigned to paying for it now that it has a price tag attached.

In one such survey, conducted by Jupiter Research in 2002, more than 60% of respondents said they would not be willing to pay for online content they liked if the free versions were to disappear. The belief is still strong among many Internet surfers that they can Google their way into finding what they want for free somewhere among the billion-plus Web sites still out there.

However, experts and owners of information are convinced that the tide has turned and that information and content will, increasingly, carry a price tag. Wharton marketing professor Peter Fader said that may be especially true for consumers and businesses seeking highly specialized information. Also, folks unwilling to invest time and effort in online searches are likely to hand over some cash for run-of-the-mill information.

Sites ranging from Insidedigitalmedia.com, which sells transcripts of interviews with digital mavens, to Rpiratings.com, which sells esoteric data about men's and women's basketball statistics are finding success selling the information they own, according to Fader. "We are seeing providers put up dollars against content, with little pushback from consumers. For many consumers, it's not 'What can I steal?' but 'What can I get in the form I want because time is more important to me than money?'"

WHEN YOU CAN'T GET IT ELSEWHERE

The flip side to the declining resistance to paying for information may be that increasing numbers of businesses generating information are concentrating on very specialized content that is difficult, if not impossible, to get easily elsewhere. And that may be the right way to go, according to eMarketer, a research firm.

In late 2002, eMarketer, using data collected by the OPA as well as several independent research companies, rated the three-to-five-year revenue growth potential for 15 categories of paid online content. Eleven of those categories, including news, adult information, diet and health advice, personal investment and financial information, have only moderate potential for revenue growth. Just four sites, including those offering educational and reference material and those with unique content and services have a high revenue growth potential, according to the research firm.

Online publishers who know how to add value to mundane products are also best poised to generate meaningful revenues online. Take Congressional Quarterly, which has been a must-read for politicians in Washington, D.C., political insiders and others for almost half a century. When CQ decided to also publish online during the mid-1990s and charge the same price for its Internet publications as for the printed ones delivered all over Washington, the reaction and the revenues generated were unenthusiastic, said Keith White, CQ's vice president and general manager.

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POACHING AND GATHERING

The failure of CQ's online effort to add to the bottom line was especially ironic. Beginning in 1984, long before the World Wide Web became a phenomenon, CQ was making a handsome sum gathering free printed government documents and then charging for making them available to its customers via what was then a far more restricted Internet. When the World Wide Web became more available to all, federal bureaucracies began posting their documents online, easing access for everyone at no charge. "That cut into our electronic revenues severely," said White.

But the fact that CQ's customers had once been willing to pay for what became freely available data was not lost on CQ. At the end of the 1990s, the Y2K bug loomed. Though it would have been easy to spend money on updating its computers, CQ decided it would use the opportunity to expand its technological capabilities. The result of that decision was the acquisition of a unified data repository, including a massive computer-based collection of public documents.

A story about a bill pending in the U.S. Congress, for example, is studded with an array of hyperlinks that take the reader to relevant documents such as an analysis of the bill and a full version of the proposed legislation's text, as well as amendments that have been offered, accepted or dropped.

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"For people who are following Congress, that is a powerful tool," White said. In other words, CQ has, once again, found a way to use free government documents to its advantage, this time to add value to its online proprietary products and pump up its flagging online effort.

As a result, CQ's online business now generates 50% of its revenues, compared to 20% in 1999. White declines to give a dollar figure, noting that CQ does not publicize any financial details.

Has the online effort cannibalized the print versions of CQ's publications, which cannot offer as much? Yes, White said. But he is far from worried. In addition to existing online publications, CQ can now turn on a dime and make available, for a fee, special reports geared to developing events. Thus, during the creation of the U.S. Department of Homeland Security last year, CQ was able to put together an online package that included, among other things, the proposed budget for the agency and the regulations promulgated for it in the Federal Register.

"The repository allowed us to respond to the market with a robust product." White said. "That is the future for us, to create and expand high-end government information."

LEARN TO SELL YOURSELF

Of course, not all businesses seeking to market content online can create the sort of value-added Internet packages that give Congressional Quarterly a more secure future on the Internet. But even content providers with run-of-the-mill products can prosper if they are smart about their marketing, said Holland of MarketingSherpa.

"Companies that do well all invariably have executives that came from a marketing, direct-response or mail-order background," she noted.

What the marketing-driven executives know, according to Holland, is how to test online products, how to constantly revise headlines, colors and wording on their Web sites and how to track, through an endless series of spreadsheets, ways in which the changes affect the willingness of browsers to start paying for content.

This approach has worked for sites as different as consumerreports.org and classmates.com, she said.

As Holland put it. "You have to know what to test, how to test, how to make your offers, how to compare a regular page against a tweaked page and to tweak and tweak again until you get a higher conversion rate."

This article is reprinted with permission from knowledge@wharton, an online resource affiliated with the University of Pennsylvania's Wharton School of Business.

Reprinted from knowledge@wharton