The TANSTAAFL Principle

THE MOTIVATION BEHIND FWPS

Why do people provide free webpages?

To understand the motivation behind free webpages, we have to look at the institutions that run FWPs. Are they businesses (for-profit) or individuals and organizations (non-profit)?

Put simply, businesses want to make money from providing free services. It may seem paradoxical that they make money by giving away services. But what is the definition of "free"? Free of monetary charge, or free of other costs? Therein lies the TANSTAAFL Principle: even though free webpages don't cost any money, users pay for them in other ways.

How is money made from providing free webpages or other services? Here are some examples:

• Advertising revenue. This is where most of the dough comes from. Users of FWPs create content, which attracts visitors. Those visitors see -- and maybe click on -- advertisements placed on the page (inserted ad banners, required links, pop-up windows, etc.). In addition, many of those ads can be targetted based on the topic of the page. For instace, a company that sells 'widgets' would pay more to have their ads shown on a website about 'widgets'. Free wepbages provide an excellent environment for targetted advertising. The one caveat, however, is that the FWP has limited control on the content of its pages. A sponsor would be leery about advertising on a page that might be critical of it. (Ask yourself, would GeoCities want to sponsor this site?) Nevertheless, advertising is a significant portion of the income derived from providing free webpages (not to mention other services like email, CGI scripts, real-time stock quotes, guestbooks, message boards, etc.)

• "Try Before You Buy" approach. Some companies that host paid websites offer a freebie service. Users of the free service are "encouraged" to upgrade to the paid service. "Our $9.95/month service has all the great features of the free service with no advertising and your own domain name," is a possible advertising pitch they would use. Digiweb is an example. GeoCities, Tripod, and Hypermart also use this strategy, but to a lesser extent. For instance, GeoCities encourages homesteaders to upgrade to GeoPlus ($4.95/month), which is billed as an "ad-free zone"*. While GeoPlus doesn't provide as much money for GeoCities as advertising, it is still a lucrative product.

  *Footnote: GeoPlus members still have the Watermark on their pages accessed with the "long" address. GeoMark, the GeoCities Advertising Forum moderator, has said that the Watermark is "not an advertisement."

• Promoting other products. In addition to offering a paid hosting service, some FWPs offer other non-free products. Xoom, for instance, offers clip art libraries, which it advertises to users periodically through email. TaoTree requires its users to sign up with its TrafficX banner exchange program. TrafficX is free, but TaoTree makes money when users pay for more banner exposures. This kind of thing is called "leveraging" -- using a free product to get people to buy a non-free product.

• Selling personal information. When users sign up for free webpages, they give out quite a lot of personal information which can include their name, email and snail mail address, phone number, age, gender, occupation, and more. Most businesses consider this detailed information to be a goldmine.

  The article Web publishers expect juicy revenues by selling user lists in the April 1997 Advertising Age describes GeoCities' plans to sell its personal information database to marketers. Some excerpts:

  Major web site publishers are making plans to sell their strongest assets--their users' names, e-mail addresses and home addresses.
  [...]
  GeoCities will soon finalize a deal to let CMG Information Services handle its list sales. CMG President David Wetherell said his company is actively seeking new Web publishing clients and that he expects to sell combinations of names, e-mail addresses and traditional addresses from the GeoCities database for 10 cents to 15 cents apiece.
  [...]
  GeoCities expects to generate between $500,000 and $1.5 million in list sale revenue during the remaining months of 1997, Mr. DeBraccio said. GeoCities generated $913,000 in ad revenue last year [1996], according to Jupiter Communications' AdSpend.

  With some FWPs having millions of members, 10-15 cents apiece can add up to a nice fortune.

  GeoCities, however, violated privacy rights in providing this personal information without the knowledge of its users (especially children). On August 13, 1998, the FTC required GeoCities to rewrite and publicize its privacy policy. GeoCities must now obtain parental consent to collect information from users under age 13. Jodie Bernstein, director of the Bureau of Consumer Protection at the FTC, said that "GeoCities misled it customers" by not making its privacy policy clear (or rather, its lack of privacy policy).

  Some FWPs only sell aggregate demographics information (i.e. "55% of our users are male"). And some only use the information internally so it can better target its own advertising.

• Portals and Brand Recognition. This latest craze has been over portals. Marketing weasels want Net users (especially beginners) to congregate at portal sites -- perferably their portal site. Portals by themselves often have little content, they merely combine content from other sites on to one convenient page. Search engines have already become portals. Now FWPs are jockeying for the sacred portal position.

  To achive "portaldom", a company must have good brand recognition. They want users to know who they are, what they offer, and (most of all) visit again. As the Beverly Hillbillies said, "Y'all come back now, y'here!" Brand recognition is accomplished in conjunction with advertising. For instance, the GeoCities pop-ups (or the GeoGuide) that appear on every page have the GeoCities logo on them. The GeoCities Watermark (and previously the required link) is another attempt at brand recognition, similar to the icons TV networks use. Finally, every free webpage has the name of its provider in its address.

  Once a company has achieved strong brand recognition, users will want to come back to their site or even make it their default homepage. The more people who visit, the more ad revenue the FWP makes.

  Brand recognition = Portal site
  Portal site = Lots of traffic
  Traffic = Lots of money
  

  Some portal sites are adding free webpages as one of their services. AOL, for instance, has plans to offer free homepages to the public. Microsoft could, conceivable, 'acquire' a FWP as an addition to its Microsoft Network, Internet Start, and Hotmail services to create a mega-portal site.

Unlike businesses, individuals or non-profit organizations offer free webpages for altruistic reasons. Money to run the FWP may come from ad revenue, but no profit is made. Therefore, The TANSTAAFL Principle does not apply to most non-profit FWPs. Non-profit organizations can offer free services without the need to have strings attached. Business, on the other hand, are bound by their need to make money and therefore can't offer a truly free service.

What drives individuals or organizations to offer free webpages or other free services? Here's some examples:

Well, maybe not. This section is still being tinkered with...