Online Subscriptions: A Dying Business Model?

Since the early days of the web, the online subscription model has existed. For many companies it was a primary source of revenue, and as subscribers increased, so did profits.

Now, with so many free services popping up during the web 2.0 phase of the internet, it seems that fewer and fewer people are willing to pay anything for content online. More and more companies are ditching the subscription model in favor of other methods.

Is it just me or are their other people who are weary of signing up for pay-services on the web that charge on an ongoing basis?

The Evidence

Ten years ago, AOL was on top of its game with over 10 million paying subscribers and a ranking as the most used website at home and 3rd most used at work. Now, fast forward to 2007, and the company is struggling to transform its entire business model, which once relied primarily on member subscriptions, into one that focuses on advertising.

This strategy began over a year ago for the company that was the highlight of web 1.0 and the most popular ISP. Does anyone even think of AOL as an ISP anymore? Probably not, and this is mostly because Advertising.com has become AOL's fastest growing unit, while web-access subscribers have been on the decline.

Just last month, Netflix had not-so-good news when it announced that its quarterly user subscription rates had gone down for the first time ever, even though they had enacted price cuts some of their plans. This caused their stock to drop 16%, although the drop in users from 6.8 million to 6.74 million was quite small.

In a recent episode of the GigaOM Show, Om Malik discussed how Google's recent decision to merely provide small Google Checkout gift certificates as a consolation for shutting down Google Video would have a consumer backlash. It would make online shoppers more weary of purchasing something that they may not be able to keep. I mean, think about all those people who must be upset after paying for videos on Google Video, only to have them taken away. Of course, Google has now apologized and offered full refunds to prevent a negative impact on it's image.

Then, I heard Hitline #2 from the show which read "Everybody's An Ad Network." Om criticized both VideoEgg and Heavy.com for their forays into advertising. This was the final straw that made me realize that people expect to receive free services on the web, and that in order to provide this, companies have been turning to another revenue-generating idea.

So, What is the Solution?

With online service subscribers dwindling away at most web-based companies, advertising looks to be the next best option.

Maybe this is the reason why the Wall Street Journal is considering offering its entire website free-of-charge, instead of offering short previews and requiring $79 a year to read further. CNN already made a similar move back in May, when it announced that CNN Pipeline would be offered for free, rather than the $25 per year price tag it had previously carried.

"Industry experts are quoted as saying that the U.S. online ad market is roughly $17 billion this year. They have set forward estimates at somewhere between $26 and $30 billion annually by the year 2011."

YouTube is trying in-video advertisements, but this has already sparked the tempers of some bloggers.

Conclusion

It is going to be interesting to see how businesses work their way around this obstacle. If you ask me, it is going to take some hard work to come up with an advertising solution that does not irritate web users and cause viewers to leave websites.

The public has spoken and they no longer want to pay for premium services online or be forced to put up with in-your-face advertising everywhere they go. Where is web 3.0 when you need it?