The Cole Digest, May 3, 1995

For the last couple of weeks, we've devoted this space to some thoughts from Chris Gulker, the San Francisco Examiner executive who created The Electric Examiner, the paper's World-Wide Web site.

Gulker, who is now with Apple Computer, has addressed the history of the Internet and the Web and has looked at the downside of a newspaper affliating with a commercial on-line service.

Here he looks at the Web and a business model:

The upside of offering content free on the Internet is:

The paper doesn't have to invent technology or support users. They're out there now, and, for the most part, they're computer experts already.

The Internet comes with a base of millions of users, including people in the paper's traditional market.

Financial risk is minimized. The Internet may represent the lowest cost of publishing, in real terms, in the history of civilization.

Cross-promotion promotes the growth of both entities.

Sound familiar? One difference on the Internet is that, until recently, no fast-talking teams of well-dressed reps were likely to show up with a multimedia demo in hand. Another difference is that no one can be said to have figured out how to make any money by putting a newspaper on the Internet.

Fees for Internet service are paid separately, to service companies who see no reason to divvy them up with newspapers who happen to want to be on the 'Net. Indeed, those same companies are happy to charge newspapers money to be on the 'Net (see "well-dressed rep," above).

So why pay someone to give your product away free? This would be a difficult question if it weren't for some mitigating circumstances.

While no newspaper may be making money from the Internet, some businesses are. Sun Microsystems conducts virtually all of its business with customers and suppliers on the Internet. Sun's growth and profitability should be instructive for those oriented toward the bottom line.

Giving things away free on the Internet has been a successful strategy for a number of companies, mainly software producers. Companies spend money to promote products, which results in sales. In effect, the companies have to buy customers. The lower the cost of promotion-per-sale, the more customers the company can buy for a given budget.

The Internet represents an unheard-of, low-cost way to promote a product. For example, the makers of the Doom computer game built a user base of hundreds of thousands by giving away the first installment of the game free on the Internet. Paying customers lined up to buy the second installment, as well as tip books, support, et al.

For the Examiner, the cost is low and the potential audience is large. The Electric Examiner has a staff of one, and has had as many as 93,000 accesses in a single day. Compared with the usual on-line formula, the cost per user is very low.

At the same time, a user is a user: advertising should sell for the same premium on the Internet as on-line, albeit at a much lower cost to the publisher.

The door is open to make The Electric Examiner whatever its owners want. Since the World-Wide Web allows rich text and graphics, newspapers are free to create whatever personality they choose.

While currently more limited than PostScript, HTML supports links to video and audio as well as pictures and text, and is far richer than any current on-line service. In addition, computer-produced content like graphics readily converts to use on the Web.

A BUSINESS MODEL Some feel that the World-Wide Web has the potential to be a business like cable television.

Although the WWW market tends to be global, newspapers should be able to learn to court companies interested in low-cost access to computer users. The demographics of the Internet (mainly well-to-do, computer-literate people) represent the kind of focused niche in search of which advertisers have deserted general-circulation media.

As the Internet base grows in demographic breadth, it will come to resemble newspapers' traditional market and, presumably, marketing expertise.

The real potential probably will be realized when (or if) newspapers learn to take advantage of the new medium. Agent services and on-demand information retrieval probably offer the best short-term opportunities for newspapers to garner an enduring user base analogous to their current subscribers.

Thanks for the thoughts, Chris.

Onward.

\dmc

[THE COLE DIGEST is written by consultant David M. Cole, editor and publisher of the industry newsletter THE COLE PAPERS. The DIGEST is made available to PressLink members every Wednesday at no extra charge. Send comments by e-mail to cole@plink.geis.com. The COLE DIGEST is the property of The Cole Group, a California sole proprietorship. Reproduction in whole or in part without the written permission of The Cole Group is prohibited. Copyright (C) 1995, The Cole Group. Opinions expressed are those of The Cole Group, unless otherwise noted. [THE COLE PAPERS is a monthly newsletter devoting itself to technology, journalism and publishing. Subscriptions are $117 for 12 issues ($135 outside the U.S.). MasterCard, Visa and American Express cards are accepted. For more information, e-mail cole@plink.geis.com, call (415) 673-2424, fax (415) 673-2449 or write The Cole Group, 2590 Greenwich St., Ste. 9, San Francisco USA 94123-3333.]