Here Comes the iTunes of News


By Sarah Lacy When Web users wanted to carve up CDs and pay by the song, the music industry initially balked. But now that Netizens want the same thing from newspapers, magazines, and research reports, Web publishers are only too happy to oblige.

A big step toward this goal was taken on June 16, when Yahoo! (YHOO) struck a deal with a smattering of publishers giving the portal permission to go beyond searching the free areas of their Web sites and into protected zones where readers would need to pay to access content. As a result, a search for, say "Microsoft news" could turn up a Wall Street Journal article or a Forrester Research report that's unavailable to the nonpaying public.

Rival search company Google (GOOG) already does this on a handful of sites. But Yahoo has signed up a broader set of partners, including The Wall Street Journal Online, LexisNexis, Consumer Reports, and Forrester Research.

SPECIAL SEARCH. If Yahoo and Google can continue to persuade Web publishers to open their vaults, they could finally crack open the so-called "deep Web," or sites previously walled off to everyone but paying customers. Today, 67% of Internet users stop at Yahoo, Google, or Microsoft's (MSFT) MSN for information before traveling to other destinations.

Until now, they've mostly received search options to free Web sites. But if search companies can roam the Web on deeper levels, they can offer more complete results, which could entice even greater numbers of people to the fee-based sites.

That's still a ways off. Today, Yahoo's new partnerships are limited. Searchers have to request that the subscription sites be searched along with free Web pages. And they still have to pay to see the content, although most of the sites are offering articles and reports "à la carte" for as little as $2.

Still, experts are excited about the possibilities. They envision a day when articles from many fee-based sites can be provided for a small charge, just like the songs on Apple's (AAPL) iTunes music service. Just as iTunes charges 99 cents per song, instead of $15 for a whole CD, Yahoo could charge a few dollars or a few cents for everything from a major cover story to a single chart.

INFO CHUNKS. Breaking up the pieces opens up a whole new audience -- think of a college student writing a term paper or an independent consultant working on a project. "It's becoming a way, not even to buy articles, but facts and pieces. The chunks are getting smaller and smaller," says Chuck Richard, vice-president and lead analyst of Outsell, a research firm focusing on Web publishing. "It's not going to be here this year or next year, but we do see it coming, and this is a step in that direction."

It may be scary to some, but smart publishers realize they don't have much choice. The fact is, readers are changing their news-gathering habits. People who get their news online are increasingly getting it in chunks, rather than reading one paper or magazine cover-to-cover.

"Even if Factiva had a different point of view, the customer and the marketplace will drive what makes sense," says Clare Hart, chief executive of Factiva, a joint venture between Dow Jones (DJ) and Reuters (RTRSY) that aggregates articles from thousands of sources. "People vote with their feet -- or hands, in this case. iTunes is a great example of where the market decided how it was going to work, and the record industry had to respond."

DIFFERENT NEEDS. If this trend evolves, it could lay the groundwork for something some Web watchers have talked about since the dawn of the commercial Internet -- the age of micropayments. The idea is to have an automatic payment system in place so that as someone surfs the Web, automatic charges for fee-based articles and links are recorded and sent as a bill at the end of the month -- just as mobile-phone companies tack charges for ring tones and games onto your monthly service bill.

Yahoo already features micropayments for games and music on its site. "This is a first step -- and a big deal for us," says Eckart Walther, vice-president for product management at Yahoo Search. "We already have the micropayment infrastructure and the user registration data. All the pieces are right there."

And almost all the companies involved in the Yahoo deal have already chopped their pricey subscriptions into pay-as-you-go segments, with little fear of cannibalizing their core revenues. "It's a substantially different kind of need. I suspect there are some smaller customers [who will cancel subscriptions in favor of à la carte access], and that's fine," says Elizabeth Rector, senior vice-president at LexisNexis.

DATA SHARING. To make this work smoothly, publishers will need to figure out how much consumers are willing to pay for a single story, table, or chart. Unlike the 99-cent-per-song charge that the music industry settled on, publishing has no real pricing model.

"We're open to everything, but no one has come up with a clear currency in the content world," says Brian Carden, chief strategy officer for Forrester Research. "What's a Forrester article worth vs. an article from The New York Times? A song is a song, and a movie is a movie, [but standards for articles] need to develop."

That will take time. Meanwhile, search companies will likely up the ante in their race for content.

VALUE FOR MONEY? The Yahoo deal isn't an exclusive, and publishers are eager for their results to be opened up to Google and Microsoft as well. "This has a lot of potential," says Factiva's Hart.

If Yahoo's pilot goes well, Web searchers will be one step closer to more complete results. And publishers and search engines are betting that will be something worth paying for.

Lacy is a reporter for BusinessWeek Online in the Silicon Valley bureau


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