Charging Does Help Yahoo Make A Profit

Meshach writes "The globe and mail has an article about how yahoo is starting to charge for their email service. Payment is not mandatory but if you don't pay you have many restrictions on your accont. It says that while many are angry about the change enough people are paying that it is helping Yahoo rebound from their slump. This seems like a recent trend in e-business." The conventional wisdom around web stuff that's been free, but converts to pay is that "they die off, no one wants to use it anymore etc etc", but I think what people fail to realize is that for many businesses, less people is *just fine*, if those people are paying.

Comments

Privacy Policy?

[Psx29]

I hope that yahoo! does not have the same lax privacy policy for paying customers as for non-paying customers

Re:Privacy Policy?

[grumpygrodyguy]

I hope that yahoo! does not have the same lax privacy policy for paying customers as for non-paying customers


The really interesting part of all of this is that when Yahoo first started, thier service was exemplary. They were effecient, thoughtful, smart, and they implemented a host of useful resources.

Then, like the vast majority of the dot-com companies, the VCs and big-business types pulled the wool over the eyes of the original founders(people like Jerry Yang). Or, put another way, the original founders sold out. After that happened(about 1 year before the dot-com crash) Yahoo's service has continually degraded. That's about 2 years of constant monotonic degradation of service. Now they're insisting on customers paying for a service that was taken for granted 2 years ago?

Understandably the dot-com business model has all but evaporated in the face of diminished advertising revenue. (Ad companies are paying 1/10th what they used to per ad). This coupled with the fact that the stock inflators have all left town or gone broke, pretty much means that Yahoo has very little to go on. This of course is true of almost all the .com's, as the majority of them relied on advertising for revenue. (except sites like e-bay, etc. who are doing fine in this kind of environment).

It's very unlikely that any of this will change, as consumers are more and more fervently seeking out products that will block advertisments. The latest batch of "pop-up" style advertising techniques has pretty much buried any respect the advertising industry ever had in the mind of the consumer. Said another way, advertisers are paying less and less per ad because they percieve how ofter those ads are being avoided. In turn they insist on "eyeball time" and make even more hostile ads. This in turn increases the consumers anger, and the customer finds even more effective ways to block out all advertisements. It's a cycle that bears very little hope for the advertisement based web-business model.

I would suggest that there is a light at the end of the tunnel. But it requires the vast majority of us to embrace 2 distinct technologies. Wireless broadband, and Peer-To-Peer file-sharing, HTTP, and computing.

Those are big hurdles, but in conjunction they appear to be within our grasp:

1) Wireless broadband means buying a dedicated commodity unit for ~$150(before prices drop) that will provide 10Mbps 24/7(does your telco/cable co offer this?). Most importantly, there is no monthly cost...goodbye $50/month to Bell X.

2) P2P transfer of not only files, but also dynamic content like webpages. This would involve a dramatic paradigm shift away from the current client-server model. But with > 100 10Mbps nodes per square-mile in urban areas, and intelligent caching, there's every reason to suggest this is possible.

The client-server model that the "old internet" has relied on is broken. The ad-revenue cycle is destroying quality of service, shutting down many good sites permanently, and we're losing vast quantities of content in the process.

Currently 99% of the server load is on 1% of the connected machines. Leaving the other 99% of the client base Idle. A small investment of ~$150(about the price of a 2nd harddrive, or a new soundcard) could change all of this. Then those 99% idle client boxes could become very powerful P2P nodes.

This is not the distant future folks, it just takes a catalytic moment to get everyone to buy that 802.11X card. It happened to CD-ROM drives, sound-cards, etc. sooner or later a new standard component is adopted. Then the folks at Dell etc. will include one in every standard box they sell. Hopefully this will happen sooner rather than later. Then the OSS/private sector can build HTTP over P2P(challenging, but not impossible within this infrastructure).

I'm sincerely hoping all of this happens soon, because many great web-sites are going down, and we're losing a lot of good content. There's less and less in that Google cache every day, and we need to change that.

Thats right!

[Anonymous Coward]

" but I think what people fail to realize is that for many business, less people is *just fine*, if those people are paying. "

Yes, thats the number one thing the dot-com business men and women must understand. You need paying customers in the dot-com industry just like everyone else, volume doesn't help one bit if no one pays anyway.

Email important? Just get your own domain.

[RobertB-DC]

I was very concerned about my email address... I had robertb@geocities.com from way before Yahoo! bought out Geocities. But as the spam increased more and more, the geocities.com/yahoo.com address became more and more worthless. The kicker was when some b*stard used my email address as the reply-to on a spam message... first my inbox filled with bounce messages, then with angry messages from recipients and sysadmins.

I changed my reply-to address to the email on my own domain, dixie-chicks.com, and after a few months, all mail from people I cared to hear from was coming to an email address I controlled. The economics are there:

* 12 euros/year (< us$15 even on a bad day) for a domain name from Gandi.net. If all you need is email forwarding, stop here -- they have it.

* 6 bucks/month for a web host like the one I use. Includes no-ad no-popup web space and unlimited web-based email addresses. Not meaning to plug, but they are reliable and cheap.

All together, it's worth $15 a year + $6 a month for a better deal and better service than I'd ever get from Yahoo!.

Free as a bad business model...

[FearUncertaintyDoubt]

People have remarked that changing the terms from free to pay will piss off their existing potential customers. While this comparison may not be perfect, it reminds me of a friend who owns a laundromat. Like any consumer retail-type business, you have to be very concerned about the store environment. One of the fads in the business was "free dry." The dryers are free, and you mark up the washers enough to compensate. The free dry is supposed to attract customers -- in retail marketing terms, a loss leader.

However, the catch is that free dry attracts the lowlifes. What happens is that seriously selfish moocher-types come in and split up their wash among 10 dryers at once. Other people get pissed off, some possibly because they wanted to pull the same stunt. Sometimes people even get into fights over this. Now the average guy who just wants to do a wash and dry and go home is thinking, screw this place. And he's the customer that the laundromat wanted all along, but now it's left with the worst customers.

So my friend, said, no way am I putting in free dry. The fact is, the lowlifes drive out the good customers. And businesses are very much concerned about keeping the lowlifes away while catering to the paying customers while staying friendly to the honest-but-not-yet-committed customer. It's a delicate balancing act, and businesses that try to extend themselves to attract customers (e.g., free e-mail) can get abused by the moochers, which can seriously affect costs and threaten the business. So when someone says, "you're going to piss off the people who are getting it for free," the answer will be, "if they were just trying to leech off me, then screw 'em. If they're a good customer, they will be willing to pay a reasonable price."

It doesn't have to be this way!

[FreeUser]

Yahoo is right to do this. They provide a service at some expense and have to recoup their costs.

This is true of anyone offering a service. Now, perhaps the costs (e.g. for my own web page, http://expressivefreedom.org) is low enough that the cost is simply donated, but in that sense that cost is recouped from my day job.

The current client server architecture of the web (which BTW stands in start contrast to the underlying peer-to-peer architecture of the internet itself) places almost all of the cost burden on the publisher. The more popular a web site (or email service, or IRC server, or IM servcie, or what have you) the more bandwidth they need to buy, the more servers they need to cluster together, etc. They have no choice but to recoup their costs or stop offering the service, and if advertising is no longer sufficient (costs have outstripped that line of revinue), then customers will start to have to pony up.

But what is often ignored is that there are architectures where the costs are shared and distributed.

USENET was an early implimentation of this (still costly, because ALL the data is copied to ALL of the distributed servers), where everyone doesn't go to ONE server, they go to ONE of THOUSANDS. USENET still carries more data than any single website (even groups.google.com, which is merely an archive, not a stream of information).

FreeNet is a better implimentation, where data which is in demand is replicated to caches closer (in terms of routing metrics) to those wishing to see the data. The originating site bears only the cost of making the inforamtion available (and providing a small portion of their local drive and bandwidth to cache other unrelated data) ... the more popular the data becomes, the more widedly it is distributed, the more available it becomes, all the while adding no additional cost to the providor. The cost instead is shared in tiny increments by everyone, in a barter system of essentially perfect effeciency.

Restructure the web on a P2P basis, as FreeNet is doing, and you don't just get the Anonymouty and Uncensorability it was originally designed for, you get the scalability and low cost (regardless of popularity) of participation which the web in its current, client server form, will never enjoy.

FreeNet does dump old information no longer in demand (least popular, oldest first), a la USENET, but that is easily corrected by the one intersted in providing said information ... for there is nothing preventing a static copy being preserved on your own system, to be reloaded into the net when the old copy expires.

Were Yahoo running on such an architecture, it is likely that their add revinues alone would be more than enough to cover all their costs, and there would be no need to begin charging for their other free services. They might choose to anyway ... greed seems to know no reasonable bounds these days, now that we've elevated it to diety status ... but the bar would be very low for hobbiests and enthusiasts to step in and offer a free alternative. Adopting such an architecture would go a long way in keeping the net free, in both senses of the word.

Unfortunately, there are powerful media interests who do not want to see a world of peers exchanging information, they want to see a new channel by which they can dump their dreck into our minds, while keeping us placidly on the couch where we belong. So, if such a change is going to occur (and with the release of FreeNet 0.5 the software is certainly available and usable), it will have to be because people like us, at the grass roots level, prefer an even playing field to the centralized, "read what we tell you" architecture cable companies, media cartels, Microsoft, and large content providors are tryig to foist upon us instead.

Customers

[buss_error]

but I think what people fail to realize is that for many businesses, less people is *just fine*, if those people are paying.

I once fired 7 customers... and my billable hours went up 35%. Now I was doing about the same amount of work, but was getting 1/3 more money.

Some customers are too expensive to keep if they keep getting a free ride. The 7 in question here kept turning in call backs on things outside the scope of work, and demanding that these items be "fixed" before they would pay for the previous work. Since it's my policy not to bill for work the customer doesn't accept, it was getting too expenseive to let these keep sucking on the tit. So it was Bubh bye for them.

One kept calling back, wanting more work done, and I finally told him that I felt that my competitor could better serve their needs. "But they won't come out to us anymore!" they said. "I won't anymore myself", I said.