Media companies longing to bring a paid-for culture to the Internet might just get what they want if they pay more attention to the smartphone revolution that is changing the way people access the Web.
Huge numbers now use mobile phones instead of desktop computers to get online — a development that has spawned whole new business models in China, the world’s biggest Internet market.
Paying to read content on the Web, an outlandish idea as recently as a year ago, is slowly but surely establishing itself as the next business model in the Western media mainstream, spearheaded by Rupert Murdoch’s News Corp (NWSA.O).
But meantime, sales of smartphones — part of a telecoms economy very different from the PC Web — are set to outpace sales of desktop computers by 2012, IT research firm Gartner said this week. Some believe it could be as early as this year.
And in China — which has more Internet users than any other nation — paid content is a non-starter, says Kai-Fu Lee, a former head of Microsoft’s (MSFT.O) and then Google’s (GOOG.O) China operations who recently quit to run his own company.
“Chinese consumers have a stronger conviction that things should be free, so efforts to charge for premium content have basically completely failed,” Lee said at the Abu Dhabi Media Summit this week.
Traditional publishing groups like News Corp, the New York Times (NYT.N) and Axel Springer (SPRGn.DE) have decided recently to take the plunge and start charging for news online, risking smaller audiences for potential gains in subscription revenues.
Their decisions, taken after much agonising, are as yet largely untested on consumers, but a consensus is growing that there is no alternative because advertising revenues that were devastated in the recession will not return to previous levels.
“We certainly believe there needs to be dual income-stream business models — both advertising and subscription,” said Jon Miller, head of digital media at News Corp.
Publishers argue that they need consumers to rethink their presumption that Web content must be free in order to fund the creation of high-quality news and entertainment.
Lee, on the other hand, said the qualities of the Internet itself rather than the needs of media companies would drive how content was delivered and paid for. He cited in particular the Web’s ability to offer both marketing and sales at one click.
Asked about the feasibility of generating subscription alongside advertising revenues, he said: “It’s not the single or multiple that really matters to me but whether the model leverages the growth of the Internet and the strengths of the Internet.”
“It can have either premium subscription or advertising or app store or other kinds of business models.”
In China, more than half the nation’s Internet users — who totalled 384 million by the end of last year — are already accessing the Web from a mobile device, and Lee told Reuters that would grow to 800 million in five years.
China’s largest online retailer Taobao, part of leading e-commerce group Alibaba (1688.HK), plans to launch mobile phones preloaded with applications this year to bring more users to its online shops.
And, unlike its U.S. counterpart eBay (EBAY.O), it does not charge sellers to list items for sale, but funds operations through advertising — although advertising will not be the answer to everything.
Lee also gave the example of a Chinese browser, gaining in popularity, that removes all visuals and advertising from Web pages to cut the bandwidth needed by cost-conscious consumers.
“These kinds of unusual aberrations will happen as a result of specific things that happen in each country, so if you want to develop your content for the whole world it’s important not to assume that the whole world is the same,” he said.
FIFTY BILLION CONNECTED DEVICES
App stores — online shops for small software applications that run anything from games to dictation tools to fitness aids on phones — have proliferated since Apple (AAPL.O) launched the original App Store for the iPhone in 2008.
In the 18 months to January, consumers downloaded more than 3 billion iPhone applications, most of them free and the rest typically costing less than $1 each.
Despite the low price, high volumes mean the market will grow to $6.8 billion (4.5 billion pounds) in 2010, IT research firm Gartner predicts. The software creators, whether newspaper publishers or geeks in their garage at home, get a 70 percent revenue share from Apple.
Sales of smartphones like the iPhone are forecast to grow by about 50 percent this year to 250 million units, compared with 20 percent growth to 366 million units for PCs.
New mobile connected devices like Amazon’s (AMZN.O) Kindle e-reader and the soon-to-be-launched Apple iPad tablet computer, aimed at a market somewhere between laptops and smartphones, will also increase the scale of the opportunity.
E-readers, still a nascent business, so far offer terms that publishers find friendlier than advertising-funded models.
Hans Vestberg, chief executive of mobile equipment maker Ericsson (ERICb.ST), repeated his prediction this week that there will be 50 billion connected devices by 2020.
“Mobile Web adoption is growing eight times faster than the first wave of PC Internet adoption,” Google’s CEO Eric Schmidt told the conference this week. “There may be some limits, but we’re not anywhere near them.”