DUAL REVENUE STREAMS? THINK AGAIN;STUDY SHOWS AD SUPPORT, NOT SUBSCRIBER INCOME, WILL DRIVE WEB GROWTH

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Online ad spending is expected to reach $37 million this year and hit $2.6 billion by 2000, according to a new study from Forrester Research.

Subscriber revenues, on the other hand, will account only for $1 million this year and most likely peak at $206 million by 2000.

The Cambridge, Mass.-based research company interviewed more than 30 media companies, including Associated Press, CBS and Time Warner, along with such advertising agencies as Chiat/Day and Young & Rubicam, and major online service providers including America Online, CompuServe and Microsoft Network.

The Forrester research shows the number of online consumers growing from 10 million in 1995 to 29 million in 2000.

About 56% of those surveyed currently sell advertising online, and another 34% plan to do so within the next year. Additionally, results indicate that by 1997 advertisers will spend $10 per online user, increasing to $100 by the end of the decade, compared with expenditures of $170 per TV consumer and $240 per print consumer.

"Unlike other types of advertising, online advertising is a controlled mini-world that can inform, entertain, record data and even engage the consumer in a transaction," said Josh Bernoff, senior analyst with Forrester. "Subscription fees won't work because channel surfing is a free form of activity. If you put a barrier in front of a surfer, they'll surf right around it."

According to the research, less than 1% of online users will pay subscription fees beyond the usual access charges in 1995. Forrester predicts by 2000 that number will grow to 12%. While the average subscriber spends $15 a year for premium online services in 1995, that figure will jump to $60 by 2000.

The Mercury Center, the Web site of the San Jose Mercury News (http://www.sjmercury.com), began charging its subscribers $4.95 a month in May. Although traffic has fallen 40% at the site since then-there are now 3,600 paid subscribers-the paper says it has already doubled its subscriber goal.

"So far it looks like people don't resent paying for real value on the Web," said Bob Ingle, VP-new media at Mercury Center. "I've always believed in a paid circulation newspaper which combines ad revenues with subscription. The advertiser is reaching a better audience when the consumer cares enough about the product to pay for it."

The Mercury Center has more than a dozen advertisers, including Ameritech, IBM Corp. and Del Monte Foods.

"We have revenue streams from advertising, subscribers, premium services and, soon-to-be, transactions," said Mr. Ingle. "I think the key to making money online will be to get a little from here and a little from there and hope that it all adds up."

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