For Consumers Free Ride On The Web May Be Over Soon

For a long time, consumers have been getting a free ride on the Web. The vast majority of Web-based information and services are available at no cost. Consumers probably don’t even think about the fact that they pay nothing to get the search capabilities of Google, the video serving capabilities of YouTube, the social networking capabilities of Facebook, or the instant communication capabilities of Twitter.

The consulting firm McKinsey has just released research that puts a value on all of the Web services available to consumers – about $200 billion.

McKinsey says consumers pay about $40 billion for paid services, such as gaming sites and music subscriptions. The firm also estimates that about $26 billion can be assigned to Web advertising and perceived data privacy risks; in other words, consumers would pay this amount to “avoid further clutter and privacy concerns.” The remaining $134 billion, says McKinsey, represents the “consumer surplus,” and the firm projects that could almost double in value by 2015.

Jacques Bughin, a Director at McKinsey, says:

“…this is a large parcel of value to leave on the table. … One reason for this seeming largesse may be that once a Web service is created, the cost of distributing it is very low, and most Web companies are satisfied covering their basic costs with advertising. In the off-line world, things are different, of course: the surplus is more evenly divided between consumers and suppliers, since in many markets – books, movies, or cable TV, for example – consumers pay for content.”

According to McKinsey’s analysis, four services – e-mail, search, social networks, and instant messaging – generate over half (52 percent) of the “consumer surplus” created on the Web. Bughin suggests that the time may be coming when “Web players may try to recapture some of this large, growing source of value.” The three areas in which this is likely to happen, says Bughin, will be service costs that go up, an increase in Web advertising, and “monetization by other means,” such as paywalls.

Bughin points out that “only recently has the consumer surplus swelled with the rise of blockbusters such as Facebook and always-on connectivity.” He says anyone doing business on the Web “should be planning for major change and preparing their strategies accordingly.”

If you believe Bughin’s assessment is correct, it would probably make sense to ask yourself these basic questions:

  • Can I get higher fees for the Web services I provide?
  • Can I find innovative ways to increase advertising revenue (branded content promotions, for example)?
  • Can I take advantage of new monetization opportunities?

Viewing a portion of the Web’s value as a “consumer surplus” is a fascinating way of looking at the Web’s huge business potential going forward. From this perspective, it suggests there is a lot of opportunity for revenue growth for Web providers who know how to structure a strong value proposition.

About Barry Silverstein

Barry Silverstein is a freelance writer/marketing consultant. In addition to writing for ReveNews, he is a contributing writer to Brandchannel.com, the world’s leading online branding forum. He is the author of three marketing books, The Breakaway Brand (co-author, McGraw-Hill, 2005), Business-to-Business Internet Marketing (Maximum Press, 2003) and Internet Marketing for Technology Companies (Maximum Press, 2003). Barry ran his own Internet and direct marketing agency for twenty years. You can find Barry on Twitter @bdsilv.

4 Responses to For Consumers Free Ride On The Web May Be Over Soon

  1. michael webster says:

    Barry, if you are a credit card user who pays their card on time, you get the benefits of a very expensive platform for no cost. Why should the net platform being different?

  2. tim engel says:

    You can't monetized something people are used to getting for free. If you push for revenue too hard, there will be others who offer the same thing for free, with less ads, etc. All with hopes of hitting a big market share and selling out later for millions or billions.

    Google, Facebook, Twitter,etc, would never have gotten big (or even off the ground) if they started out with a fee or loaded with ads.

  3. We could say that this is the modern advertising and it is directed to added value for the customers.

  4. raul says:

    Remains me the problems many companies have to understand the FOSS bussines model, sometimes give something for free is not the same than having no revenue from it, as tim engel has already said if some companies " try to recapture some of this large, growing source of value." they will actually destroy it´s value.