Creating a free market for digital information

Charging per click:

TV in the '50s, the 'Net in the 90s;
three examples of real-world clicking
and why per click will work with The Clickshare System

By Bill Densmore
Clickshare Corp.

The WWW is where television was in its infancy where there was no way to make a subscriber association between a television viewer and the programming source. And therefore it was thought that the only way to fund television programming was with advertising. That worked really well throughout the '60s and even into the '70s, until a little idea born as a technology solution to a technological problem -- cable -- forced a new paradigm on television.

Cable got its start in little towns in America, far out from metropolitan areas, where viewers wanted to be able to receive a better television signal and were willing to pay for it. As cable began to wire the big cities, and satellite technology advanced, smart programmers realized they could charge cable operators for programming and that if the programming was compelling enough, the operators could charge their subscribers for a premium channel.

That was the start of the market segmentation of television. Broadcast television remains very profitable, but it is now strictly a mass-market medium. And broadcast television will suffer in the era of disaggregated content that we are entering as "fat pipes" allow point to point communication. Television started as a sponsored model and has evolved to a hybrid model that is both sponsored and subscription.

Examing the growth of television, voice telephony and grocery purchase offers insights into the likely success of Rper-itemS purchase as the Internet matures. It shows how technology appears inevitably to result in greater consumer choice through product disaggregation.

Now it is also possible to buy programming on a pay per view, "per click" basis both from your cable company, if it has a programmable system, and by going to the neighbor videocassette store and renting a movie. Now who would have predicted in the '60s that somebody would pay $2.50 to rent a movie for one night when they could get it seemingly for free on television? The answer is that what you pay $2.50 to view at a video store, because of the economics of the marketplace, is now typically more recent or higher quality entertainment than what you can view on advertising sponsored broadcast television. And the viewing of it can be personalized to your schedule. And that's why people are willing to pay for it whether it is delivered digitally by your cable company direct to your home or whether you have to physically pickup a cassette tape.

In the telephone industry, much earlier, it was a universal billing settlement system which allowed us to make a call from a phone connected to AT&T to another phone connected to MCI or Sprint and have the connection go through in a few milliseconds. Most of us are old enough to remember when making a long distance call even 15 miles or so would involve an intercept operator coming on the line and saying, "Your number please?" The technology was too primitive to allow the background transfer of your number for billing purposes. Now we even have universal Caller ID, for better or worse. Look at how casually we now pick up the phone and make a long distance call for which we are billed "by the bite" or "by the touch." All the charging is buy the minute in background, even though you as the consumer may pay for it with a variety of calling plans, some of them involving a flat monthly payment.

When you go to the supermarket, you don't purchase your groceries by subscription because you don't have to. Modern food distribution has made it possible for you to pick items one at a time and pay for them individually. In the 18th century, you bought in bulk and pretty much the same thing the farm family down the road bought if you didn't grow it yourself. Imagine if you went into a grocery store and went to a counter where a clerk said: RHere is your bag of groceries, it has the same contents as every other bag and the cost is $20, take it or leave it.S That is the choice consumers must make today with physical publishing. They can take The New York Times or leave it; they have no option to modify it. It is axiomatic that once the technology makes "a la carte" purchasing easy and cheap, some segment of the consuming public will demand it. Some others will still perhaps prefer to buy in bulk.

This sort of paradigm shift can be expressed with a chart that we call the hourglass vs. the cylinder.

In the 20th Century, information has moved as if through an hourglass. No matter how many information providers or users, there was always a technological pinch point that forced for economic reasons an editing process -- the speed of a modem, cost of adding pages, or limited hours in the broadcast day. And a natural force -- call it "gravity" -- made it difficult for the consumer to send information back up the hourglass to the information provider.

In the next century, information will move about as if in a cylinder. Now bandwidth -- the "fat pipe" -- is no longer the most significant constraint. The real constraint is peoples' ability to digest the huge volume of information coming down the pipe. So users have to join more than ever with editors in deciding which information they will receive.

Actually, the cylinder should be displayed on its side. Because there is no longer any reason to depict the information provider as "higher" than the information consumer. In fact it won't be at all clear much of the time who is the consumer and who is the provider, since those roles can reverse as easily as they do during a present-day voice telephone conversation.

y If you look around, you can see the everything free, subscription only and pay-per-click business models already operating in electronic-information delivery.

The free model is what's most evident on the WWW right now. With vast free information from -- by Steve Outings' latest count -- 800 or more newspapers up in the last year, only now are some papers gathering the resolve to figure out how to start charging for it.

The consumer online services have for years built a user base -- although in two out of three cases arguably with no operating profits -- charging a subscription and delivering "all-you-can-eat" service up to some hourly minimum. Of AOL, Prodigy and Compuserve the one which has shown undeniable profits was the one which had a hybrid subscription and per- item charging model -- Compuserve.

The third model, also a hybrid, is skewered toward "charge-per-click" and has been very successful for the proprietary, business-information data aggregators such as Dialog-Knight Ridder Information Services, DataTimes, Dow Jones News Retrieval, West Publishing, Lexis-Nexis, Information Access Co. and a half-dozen or so others. So there is plenty of evidence that consumers will pay for things "by the click" if they want them badly enough.

The perception is that consumers won't pay by the click on the Internet and the reason for that perception is that so much of the information on the Internet is largely undifferentiated. You can find wire-service reports at dozens of sites; you can find national news at maybe hundreds of sites; you can find government information all over the place. But what you won't find is some of the specialized information that's been sold routinely for years by the proprietary aggregators. And the reason you won't find it is there has been no adequate business model for charging for it.

That's changing. As of perhaps six to eight months ago, pioneered by such enterprises as First Virtual Holdings Inc., Netscape Communications Corp., Open Market Inc. and a handful of other vendors, you can now establish a web site where you can readily subscribe your users and at the very least charge them a flat-monthly rate and vend them information, keeping track of what the user views and when. Increasingly in the more sophisticated web-site management programs you can aggregate a-la-carte, per-click charges to individual pieces of information and charge those periodically to a credit card or other credit facility.

So the WWW business model has been advanced to the stage of what the traditional telephone market would look like if each of the Baby Bells and independent telcos had their own billing systems that didn't interoperate with each other. You can imagine how you would feel about that if you had your service from the State Long Distance Telephone Co. in Elkhorn, Wis., and couldn't call 40 miles to Milwaukee without opening up a second account with Wisconsin Bell. But that's where things stand today on the Internet. What's needed is a one- bill, one password system that works across multiple, independent Internet publishers that allows those publishers to share users and information easily and profitably.

WeUve tried to lay out in a general way the technological and business challenges of the World Wide Web as we enter the next century. Clickshare Corp. has funded development of the Clickshare Access and Payment System because we think what's needed is a distributed user-management system which authenticates users and enables subscriptions or micropayments down to 10 cents across multiple Internet servers.

Here's a graphical depiction of how Clickshare works:

Think of Publisher A as an Atlanta newspaper and Publisher B as a Boston newspaper. And imagine for a moment that both of these papers have web sites and that in each case they enroll users for $5 a month and allow their own users "all-you-can-eat" access to basic news resources for that price. Now lets suppose a baseball fanatic in Atlanta wants to read a Red Sox pregame workup and finds a link to the Boston newspaper's story at the Atlanta web site. Click . . . the reader goes to the Boston site. But here the Boston server, in the present world, says "Sorry, access prohibited -- please subscribe." The user, faced with paying $5 for one article and starting a second ongoing $5-a-month relationship just skips the article and the Boston paper loses a "single-copy" sale.

Now consider if both newspapers were running Clickshare Web Server Software and were Clickshare Publishing Members. Repeat the scenario. Now the Atlanta readers request goes out with a digital calling card. And that card, read by the Boston server, says, "This user is a Clickshare-enabled user and has an account at the Atlanta Clickshare member." The Boston paper sells the article for, say, 10 cents at wholesale. The reader gets his article with no additional password or challenge. At settlement time, Clickshare Corp. applies a 10 cent charge to the Atlanta newspaper's clearing account and pays the Boston newspaper 8 cents, keeping 2 cents as a transaction fee. The Atlanta newspaper to charge its user whatever it wishes. It could pass along the 10 cents, apply a 20% retail markup to 12 cents, or bundle the Boston story as part of a premium subscription package. Clickshare does not set pricing at the user level because it doesn't own the user -- the home-base publisher does.

We think our system, up and running with two trial publishers, provides three essential requisites for jump- starting Internet information commerce:

This, by the way, does not mean that the site that's selling information has to know the name or any private demographic information about that user. It only needs an anonymous ID number of the purchasing user. And that's the way our Clickshare service is set up -- to respect user privacy and store the user's name only at the user's home-base publisher, not with any central database which we control.



Clickshare is a service mark of Clickshare Corp.

Copyright, 1996, Clickshare Corp. All rights reserved.

Clickshare Corp. Corp.
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