E-commerce success story: People pay to get in touch
By Lisa M. Bowman
Staff Writer, CNET News.com
September 4, 2002, 4:00 a.m. PT
Before she came across Classmates.com, Heather Keys had a policy about forking over dough for Web content: She never paid for anything online.
But two months ago, she pulled out her credit card and charged the $36 annual fee to contact some long-lost classmates from Fremont High School's class of 1998.
"I figured I might as well," the Vista, Calif., resident said. "I couldn't get ahold of them any other way."
Web site operators have beenfor years for that elusive formula to attract paying subscribers, experimenting with an alphabet soup of business relationships such as B2B (business-to-business), B2C (business-to-consumer) and P2P (peer-to-peer). Now it seems that a few crafty companies have found a winning formula in M2Y, as in "me-to-you."
Such success runs counter to the struggle of nearly every other e-commerce site and the growing number of formerly free sites experimenting with new, which so far have provided no guarantee of survival in a troubled economy.
What separates connection sites from other online businesses is a matter of basic economics. Many e-commerce sites offer what people have always been able to find outside their front doors: pet food, magazines, toys and groceries. Successful community sites sell something that only the Internet can provide: the power to find people who would otherwise be out of reach.
"There isn't a secret sauce here," Classmates.com Chief Executive Michael Schutzler said. "People need to connect. The Internet does just that. It's really that simple."
The trend has grown out of the community concepts that have helped the Internet flourish from its earliest days. The Internet allowed people to link up in a way they hadn't been able to before: E-mail became the killer app, and bulletin boards overflowed with posters seeking fellow aficionados of rock-climbing, reggae or rowing.
Today, the Web is getting back to its roots.
"Of course, turning subscription services into a long-term, expanding business is still a," said David Card, senior analyst at Jupiter Research.
Ancestry.com earned $34 million in revenue in 2001, while Classmates.com brought in $36 million and Match.com saw $49.2 million. Those numbers may seem small, but they are growing--even in the faltering economy--and all three sites claim to be profitable.
However, a recent Jupiter Research survey on paid content found that 69 percent of respondents said they wouldn't shell out money for Web services, and the top subscription sites attract just a tiny fraction of the estimated 553 million people who have online access.
But people are starting to open their wallets. Consumers spent $675 million onlast year, nearly double the amount they spent in 2000, according to a study by research firm ComScore Networks. And the pace is accelerating this year. In the first quarter of 2002, consumers paid $300 million for online content, an increase of 155 percent over the same quarter last year.
"I think there's a discovery that this stuff costs," Esther Dyson, longtime Internet trend watcher and chair of venture capital firm EDventure Holdings. "It's a change that I personally think is good. Companies are beginning to value what they provide."
The trick to attracting paying subscribers, experts say, is providing exclusive material that can't be found for free elsewhere and offering a vast amount of information stored on large, searchable databases. It helps to find something that people are passionate about, said Craig Sherman, chief marketing officer of Ancestry.com operator MyFamily.
"There are lots of sites out there offering medicine. The way you get people to pay is to offer a drug," Sherman said. Ancestry.com offers a cure for the "fundamental need to discover where you came from and how you're connected to the world," he added.
The site started out as a center for genealogy research, which entails tracking down deceased family members. But employees soon noticed that people were using it to connect to the living and to do legwork such as contacting people who might know about their family or help them find long-lost living relatives. Its chat rooms became its second most-popular feature after its search tool.
Experts say people are gradually warming up tofor Web services and content, in much the same way they did with online shopping. And as the advertising market continues to sour, companies are becoming more subscriptions.
Trish McDermott, vice president of romance at Match.com, thinks people who are serious aboutoften prefer a paid site. "It gets rid of the crackpots," she said. "People who are subscribing are much more dedicated to their search."
Ronald Rice, chair of the department of communications at Rutgers University, said paying a subscription fee guarantees longer-term contact than posting to a newsgroup can. "People are paying to ensure they'll have a continuing relationship with people like themselves," he said.
What's more, his studies have found that people who use the Internet are actually more outgoing, connected to others, and likely to participate in activities such as politics than those who do not use the Web. That's something companies might want to keep in mind when looking for subscribers.
"We're social animals," Rice said. "We like to communicate. That's very rewarding and encouraging."