At times the world of online commerce can seem like a mirrorworld. It appears to operate a totally different set of economic laws, twisting the old rules of traditional media and marketing inside out. They've already coined a term for this new paradigm - "webonomics". And one of the main features of the Web's bitbased economy is the freebie. Just three years ago, many Internet service providers (ISPs) would charge you several hundred pounds for a basic email account. But this year one of the surprise commercial successes on the Web has been Hotmail. It has given away millions of Webbased email accounts for free - in order to create a major audience for advertisers.
Similarly, two years ago a tiny amount of Web space might cost you an arm and a leg; now companies such as Geocities give you several megabytes for your Web pages, again for free.
In webonomics, freebies rule. But most marketing and advertising departments are still stuck in the old "charge-them-piles" mindset.
When William Mitchell put his entire City of Bits book on the Web, most publishers thought his decision was mad. But Web users loved the online version, and the book became a best-seller.
This month Forrester Research predicted that the future of online ventures won't lie in the old subscription-based models. Even online gaming has fallen short of expectations, and Forrester reckons these sites will increasingly rely on advertising rather than membership fees. Several newspapers have charged subscriptions for their online versions, and had to discover webonomics the hard way; meanwhile their online readers migrated to free rivals. Take USA Today: in April 1995 it charged $13 a month for access to its online version; it only managed to attract some 1,000 subscribers.
Among the basic rules of webonomics are the following:
1. Cut out the middleman. As Dell keeps telling us, its Web site is now generating direct sales of $1 billion worth of PCs a year.
2. Always give something away - shareware, content, etc. If you charge, your site will deter most casual visitors. As Wired magazine recently put it, "users will treat information charges as damage, and route around them".
3. Instead, make users flock, and advertising or sponsorship will follow. In fact, give away your entire product if you have to (your browser software, or your Web space, or your Web-based email accounts) - market share is everything.
4. Make everyone else follow suite. Netscape is the classic example of the webonomic enterprise: from humble beginnings it dominated the browser market by giving away its Navigator software for free. When Microsoft muscled in, it had to adopt the same giveaway practice.
5. Combine and converge. Since the summer, several leading search engines and indexes such as Yahoo! and Excite have diversified into giving free email accounts. Other sites have also revamped themselves in an attempt to become significant "crossroads" for users.
6. Use users to attract other users. At a basic level, your free Web page/email message/listserv message becomes a walking advert for your product. And with models such as Geocities, the users themselves take on most of the promotional work.
Webonomics goes even one stage further again: rely on the unpaid labour of your users to become one of the world's leading content providers. The one million "homesteaders" on the Geocities site have created more than 463 million page views a month. Think about it: Geocities doesn't pay them a penny, for all that content.
7. Be personalised and permanent - unlike other sites, make sure users have to come back for more (to collect their mail, to chat, to edit their Web pages etc).
8. See the lite. Give away older or slightly watered down ("lite") versions of your software in their entirety - rather than boring "save-disabled" or time-nobbled demos. These freebies, on Web sites and magazine cover discs, are far better tasters of your product, and a significant proportion of users will eventually upgrade to the full version.
9. If in doubt, always make it Web-based. Turn previously standalone software into free Web-based applications (e.g. Web-based email interfaces and HTML editors).
10. Make the process of upgrading as smooth as possible. This is one of Hotmail's greatest strengths, despite its shaky start and an initially clunky interface. It doesn't need to invest in communications infrastructure as it grows, because it uses the public infrastructure of the Web. And since it is Web-based it can upgrade overnight without having to distribute new software to users (as one of its main rivals, Juno, has to do).
By Christmas Hotmail will probably have become the largest email provider in the world - proving that with webonomics, maybe there is such thing as a free lunch.
Michael Cunningham is at: mcunningham@irish-times.ie