Look, I'm not greedy. I'm willing, if not eager, to pay a reasonable amount for something I want. But when I walk into a restaurant for lunch, I shouldn't be handed a check for the lobster plate before I even sit down--especially when I just want a salad. That's how the recent rush to charge for everything on the Web feels. Classmates Online Inc. Chief Executive Michael Schutzler, for instance, admits that he warned nonpaying members of a coming fee hike early last year largely to goad them into signing up. It worked, raising the paying members to 1.2 million--and saving the company from going under, he says. Well, congratulations. But threats aren't exactly the stuff of a sustainable business model.
It's not just dot-coms employing brute-force techniques, either. Consumer Reports' Web site has been a great success, with more than 560,000 paid subscribers, but even it has let some opportunities slip. Anthea Stratigos, president of information-industry market researcher Outsell Inc., recently wanted to buy a Consumer Reports article on washers and dryers. But all she could find on its site was a $24 annual subscription. Instead, it got zero dollars from her. Likewise, my bank has the gall to charge me for online bill-paying, even though the bank saves money. If it offered the service free, the bank could save way more than its $5 monthly fee by cementing my loyalty--and keep me from looking at Citibank, which does offer it free. "Consumers who do online bill payment are even more likely to stay with that bank," says Forrester Research Inc. analyst Ron Shevlin. "It's a huge retention tool."
What many of these online businesses fail to understand is something their customers already know: A Web site isn't just a cash register. It's also a research center for uncertain customers. It's a brand builder. A focus group. A showroom to attract new customers. A tool to forge individual relationships with existing ones. And a way to drive them to new services or other products in stores.
None of those missions involves prying open customers' wallets and purses from the get-go. Yet they all have tangible value to companies. Too many online businesses have forgotten that free samples and loss leaders have always worked well to gain and keep customers. Online, they can provide a foundation to profit from the Web site's many other functions.
Even when sites do charge, smarter pricing would help a lot. To their credit, Classmates.com execs are planning to offer single services, such as e-mailing or reunion list management, for less than the full annual fee. Similarly, to reach people who don't want to subscribe, Consumer Reports in June teamed with Yahoo! Inc. to offer pay-per-view product reports on the Web portal for $2.95 each.
The key, of course, is to offer something that's not available a click away. But as companies cut staff in these dark days of e-commerce, it will get much tougher for them to create unique content and services. Look at me: To skirt the fee at Classmates.com, I just did a search on Google.com and found my friend's e-mail address for free. Now living in Hawaii, he says he's doing well. Which is more than I can say for a lot of the sites that keep asking me for money. By Robert D. Hof