Maybe “Paid” Is the Future of Online Business

[qi:110] In 1988, “Saturday Night Live” aired a parody commercial deriding clumsy business models. “At First CityWide Change Bank, our business is making change,” said actor Jim Downey, portraying a naive “service representative.” After listing various ways in which his company could break a five, he explained how money is made. “The answer is simple: volume.”

More than 20 years later, I wonder if some digital entrepreneurs think the same. “Simple: we’ll make money on volume of traffic, at some future date,” they promise, even if the math doesn’t add up right now. Despite a knee-deep recession, the idea of giving away something for free and charging for something else later is bigger than ever. But is “free” selling?

Although not the inventor, the chief evangelist of the “free” world is author and Wired editor Chris Anderson. Last year, before the recession hit, Anderson outlined his upcoming book in a cover story titled “Free! Why $0.00 Is the Future of Business.” A year and a half later, the final subtitle was changed to a less pretentious “The Future of a Radical Price,” “mostly because ‘why X is the future of business’ is now a cliche,” Anderson tells me.

The gist of his book: “People are making lots of money and charging nothing,” he writes (via the LA Times). In fairness, though, the idea of “Free” is a little misleading, since someone has to part with money so someone else can profit. “For most customers in the marketplace, the product is really free,” Anderson clarifies in an email. “The difference is who the paying customers are: advertisers or ‘premium’ users,” which effectively summarizes Anderson’s thesis.

The only problem? It’s difficult to cite thriving examples of either ad-sponsored or paid upgrades taking place online, at least when compared with the disproportionate amounts of money still being exchanged for offline goods and services. Google is the glaring exception, a web darling Anderson is quick to reference in his book. But even the search giant isn’t perfect — YouTube is a money pit, as part-time critic and full-time intellectual Malcom Gladwell notes in his dissenting review of “Free” for the New Yorker.

Obviously, Anderson is glamorizing a little with his endorsement of “Free.” His hardcover retails for $27. A subscription to Wired will still set you back $12 per year. And his Geek Dad blog, an admitted labor of love, is hardly capable of piquing investor interest (at least not yet), despite Anderson’s suggestion that the site is another successful example of the “Free” model.

But Anderson isn’t the only wordsmith endorsing a “Free” future. Well-read business author Seth Godin tells me, “There are 100 great companies that are using generosity as a scalable business.” He didn’t name names, but I’m sure success stories exist. Nevertheless, Godin isn’t as hasty to call “Free” the next big thing. “It is a future business model, not the future,” he emphasizes. “It’s so easy to misunderstand Anderson’s point.” Indeed.

So if “Free” is one way to skin a cat, does “paid” have an online future? For example, how about charging RSS subscribers, who enjoy instant delivery of trusted content to their “doorstep” without having to go out of their way to find it elsewhere? Anderson says no. “I doubt content companies can charge for RSS. Your content has to be incredibly unique and valuable, which may describe Bloomberg but not the average media site.”

Godin also balks at the idea, calling it shortsighted. “It’s like charging someone to go on a date. If your goal is to get married, why on Earth would you do that?”

I was unable to find working of examples of paid RSS subscriptions for this story. But there has been a cottage industry of paid newsletters since email was popularized in the ’90s. And the capitalist pig in me can’t help but think how much a 3 percent to 5 percent conversion of paid subscribers might yield. If only someone were willing to jeopardize their subscribers and try it.

Perhaps my suspicions of “Free” would have been obviated had that living, breathing economy decided not to exhale. But exhale it did, and here we are wondering what can be done to exploit the growing popularity of the Internet during times of uncertainty, amid a myriad of nascent, sometimes under-performing business models.

So until products like Facebook, Twitter and YouTube start operating on earned income instead of venture capital, the Internet might need to move to a paid system, especially if we hope to sustain intellectual property and original content produced by reporters, artists and entertainers. We might even be able to do it the old-fashioned way — you know, enticing a prospective customer into your “store” with an incredibly compelling product. Then selling it to them. Like cable TV.