Jakob Nielsen's Alertbox, December 23, 2001:

User Payments: Predictions for 2001
Revisited

     Summary:
     Advertising-supported websites will soon be a thing of the past. As
I predicted a
     year ago, sites began charging for services in 2001. Although most
sites are still
     not handling payments right, two innovative European projects hold
much hope for
     2002.

Rarely have my predictions for a new year been as accurate as my
Alertbox for Christmas Eve
2000, entitled The Web in 2001: Paying Customers: "2001 will be the year
that website
operators come to their collective senses and start charging customers
for service."

Every week during 2001, websites launched new for-pay services. A
special website, The End of
Free, offered a running chronicle of the myriad formerly free services
that began charging users
this year.

Advertising: Wrong

Venture capitalists will now laugh you out of their office so hard that
you'll tumble across Sand
Hill Road if you present a business plan that relies on Web advertising
revenues.

Since 1997, I've said that advertising doesn't work on the Web because
it's contrary to the
fundamental nature of the user experience: goal-driven navigation. (The
exceptions are
search-engine ads and classified ads; these support users' goals instead
of thwarting them.)

Some advertising executives are still in denial and think that ever more
intrusive and annoying
ads will be the Web's salvation. Wrong. If a website degrades the user
experience too
much, people will simply stay away. There are already several sites I am
reluctant to visit
because they pollute my screen with pop-ups.

Subscriptions: Wrong

The current fashion in for-pay services is to charge users a
subscription fee. Typically, these
are $10-25 per year, though some are more expensive. As I have said
since 1997,
subscriptions are also a bad idea because they violate another
fundamental web principle:
freedom of movement and discovery.

Although a few sites can succeed with subscriptions, users simply cannot
afford to pay such
fees for all the Internet services they're likely to benefit from. Five
or six $20 subscriptions add
up to real money for most people, and yet that doesn't even begin to
scratch the surface of the
websites, music downloads, and other services people want to use.

At the recent annual Online News Association conference, Travis Smith,
editor of Variety
described how the site is making money from subscriptions. Fine, but
Variety is a highly
targeted trade publication. A given set of people in the entertainment
industry needs the
information it provides and will subscribe. On the other hand, Smith
also lamented that other
websites have stopped linking to Variety. Very understandable, since an
author would not
want to give readers a hyperlink that only a tiny minority could use.

Subscriptions kill links and undermine the usefulness of search engines
-- the two main ways
users explore and find a richer Web beyond the sites they've bookmarked.

Micropayments: OK (If Done Right)

Micropayments are the answer. They provide a revenue stream to websites,
and yet don't
interfere with the freedom of linking and navigation.

Unfortunately, there are many misconceptions about micropayments,
especially that they
require users to stop and think about every link.

A true micropayment system would operate invisibly and simply accumulate
charges on the
user's monthly bill without an explicit confirmation for every click.
That's exactly how electricity
bills and long-distance telephone bills work. True, people wouldn't make
many long-distance
calls if they first had to discuss the fee with an operator (though we
certainly made calls back
when we had to talk to a long-distance operator and acknowledge charges
for each call). In any
case, telephone companies now simply add up the calls and put them all
on a single bill.
Intellectually, you know that it costs money to use the phone and turn
on a light, but if you want
to talk to somebody, you pick up the phone. And if the room is too dark,
you switch on the light.
You don't go out to the meter every few minutes to check on your
electricity bill.

The point is, micropayments are so small that they are not worth a user
interface. They
just happen. One cent here, one cent there. At the end of the month,
your bill is maybe $20, but
you got 2,000 articles for your money.

In addition to true micro-payments, some sites might have midi-payments
ranging from 20 cents
to a dollar, and perhaps even maxi-payments of several dollars. After
all, some content and
services are very valuable to users and can command a higher fee. For
such payments, the
browser will have to display a warning, and users can set their
individual threshold for the
amount of money they feel comfortable spending without an explicit
confirmation.

2002: Slow Progress

Unfortunately, micropayments require a ubiquitous infrastructure to
work. All users must have a
payment service installed, or websites won't be able to collect their
money. It's a well-established
fact that Web users don't want to download special software just to
access an individual website.
Pre-installed, or no cigar.

Given this, we are not going to get true micropayments in 2002. I do
predict many more
services that rely on user payments, but the payments will be bigger
than I like and clunky to
collect since there is no infrastructure to rely on. Many sites will
implement their own
payment schemes, which is a doomed idea except for big service
conglomerations like Yahoo
and AOL.

In Europe, Denmark and Sweden have announced plans to implement
countrywide
micropayment schemes that use a single standard supported by all of the
important websites in
each country. This approach obviously only works in small countries, but
it will be interesting to
see what types of new services flourish once these payment schemes are
operational. Denmark
and Sweden could well become the Web's micro-laboratory and show us what
ideas will work
when payment for services is finally possible.