November 1, 2010
What We Can Learn From The Paywalls

We are starting to get data about the paywalls, and a familiar pattern is emerging. The pattern being that you can only cash-in on about 1% of your traffic.

The Times used to claim they had about 20 million visitors per month, but after putting up the paywall that number has dropped to an ~~est. 362,000 subscribers (or 1.8%)~~ 105,000 subscribers (0.5%). The Financial Times have about 11 million visitors per month, of those 180,000 subscribe (1.6%). Gigaom launched a Pro services about a year ago, they have an estimated three million visitors of which 10,000 subscribe (0.3%).

Update: News International have finally released the official numbers. They have 105,000 subscribers. "Around half of these are monthly subscribers. These include subscribers to the digital sites as well as subscribers to The Times iPad app and Kindle edition. Many of the rest are either single copy or pay-as-you-go customers." This drops the traffic to subscription rate to only 0.5%

These are all slightly different numbers, but the pattern is clear. It is easy to get visitors when you give away your content for free, but only about 1% provide a return of investment. The rest is people who merely stop by. They are not interested in committing themselves to your brand or product.

BTW: We see the same traffic vs. effect rate with advertising. The average click-through rate is about 1.2%.

Two important points:

1. Freebies = traffic; it does not equal value

It is really easy to grow and show off fantastic traffic numbers, when you give away everything for free. Traffic based on free content is like a cleaning company saying, we will clean your entire house for free, and you don't even have to think about it.

People would really like that, but it is a terrible business model.

2. Growing is much harder than cutting (obviously)

Growing is the key to success, not cutting. It is easy to convert 0.5% of your visitors into paying subscribers, because they are already on your site. It's like inviting people to a party, and then when they have been there for a while, tell them they have to pay $50 for the drinks. Most people would leave, but a few will always stick around.

That is not a business model. You are not actually accomplishing anything.

On the other hand, if you create a party, and tell beforehand that they have to pay $50 for the drinks, then you also have to focus on making a good experience. You have to accomplish something.

The Times cut their traffic, and are now stuck with the leftovers. Nielsen found that their subscribers are older, richer, and traditional newspaper readers (as in all the laggards who do not embrace the fast moving social news streams). There is nothing impressive about that, they have accomplished nothing. Sure they might be earning more money online than what they used to, but it is at the cost of reaching an audience that never change.

In comparison, Gigaom are growing. They are adding services and trying to convince people to buy into it. Every single subscriber is the result of successfully creating additional value.

It is a lot harder to grow an audience than it is to cut it, just look at the graphs above. But, you don't have to be Nostradamus to know which of the two strategies is most likely to succeed in the long run.

You need to look past the distracting traffic numbers of the freebies, and focus on how to grow and monetize your real audience. That is the only way to turn digital publishing into a long term business model.

You have to match value with value, instead of matching freebies with traffic.