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Originally published November 16, 2009 at 12:09 AM | Page modified November 16, 2009 at 12:04 PM

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Brier Dudley

Online freebies won't be as free

Enjoy the free Wi-Fi that Google, Microsoft and Yahoo are providing at airports and hotels this holiday season. It may be the last hurrah after five years of generous Web giveaways.

Seattle Times staff columnist

Enjoy the free Wi-Fi that Google, Microsoft and Yahoo are providing at airports and hotels this holiday season.

It may be the last hurrah after five years of generous Web giveaways.

That's my prediction for 2010: The year will mark the end of the online gravy train.

"Free" will no longer be presumed for online services and content. You'll need to take out your credit card more often to consume services that are expensive to supply.

There still will be free Web services supported by targeted advertising, but companies are dialing down how much they give away, especially media companies choking on the "free" Kool-Aid.

Major TV networks apparently will sell subscriptions to Hulu.com, their currently free video-sharing site, and newspaper Web sites are gearing up to use a new standardized payment system developed by a venture called Journalism Online.

Media tycoon Rupert Murdoch is talking about blocking Google from indexing his online sites after he rolls out a pay plan sometime after June.

Meanwhile, people running Web startups are already tinkering with their business models to increase the proportion of paying customers and rely less on ad revenue.

"It feels we are entering kind of a new world, where people are more cost-conscious; they care about charging for stuff. It's no longer a time you can get away with doing a startup and be cavalier about not having a revenue model," said Jonathan Sposato, chief executive of Picnik, a Seattle venture providing free online photo-editing software.

A rebalancing was inevitable. What's surprising is how long it took media companies to realize that no matter how much content they sacrificed on the altar of the search gods, the Web wouldn't rain money. At least not enough for them to survive.

Maybe they were swayed by record companies caterwauling about online file-sharing as they fought illegal downloads and cast about for a digital strategy.

That, and a chorus of bloggers reinforcing the "free or bust" message, may have convinced content owners that the next generation of Web users expects everything to be free online.

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But it turns out younger Web users have more perspective on the true cost of living in the digital world and know quality goods don't come cheap. They're paying $1,000 a year for smartphone data plans, $60 for video games and $1 to send virtual cupcakes to Facebook pals.

Web users, in general, also will have to come to terms with free being a relative term when they're trading personal information and attention span for ad-supported services. This question will be raised anew in 2010 as those Web services proliferate in new realms such as phones and TVs.

Even mighty Google has had a change of heart, deciding that free services supported by Web ads isn't enough of a business model.

Chief Executive Eric Schmidt admitted this shift in thinking in April, telling "Googled" author Ken Auletta that his "current view of the world is you end up with advertising and micropayments and big payments," depending on the size of the audience — at least for media companies.

Google's generosity prompted the latest frenzy of free services, starting with its 2004 offer of vast, free online storage to users of its e-mail service.

Indirectly, Google encouraged the trend with a "build it and they will come" promise to Web sites using its ad system, and its success inspired a generation of entrepreneurs to build great free services and hope for the best.

This snowballed to the point Google bid on wireless spectrum and dabbled in free wireless Internet access. It built a free Wi-Fi network in its hometown of Mountain View, Calif., and New York's Bryant Park, but plans for a bigger network in San Francisco fizzled.

That was before the bubble burst. The free airport Wi-Fi offer, announced last week, is a nice gift to travelers, but it shows how Google is putting new limits on giveaways.

It's not a new, perpetually free service backed by ads; it's a two-month holiday promotion that includes a pitch to install Google products on your computer. No wonder Google declined to join Sprint, Comcast and others last week in investing more in Clearwire's 4G network.

The gravy-train engineer is tapping the brake.

Surviving Web startups have gone through the same reset, according to Picnik's Sposato. The veteran of Microsoft and Google knew it was coming.

"From the beginning we were skeptical of the 'put everything on the free side and just make money off ads' strategy,' " Sposato said. "We thought, in fact, we were better served being good at figuring out which premium services are really valuable."

Picnik, which has been cash-flow positive since January, made two key moves in the past year. It hired a person to sell ads directly, instead of relying only on networks like Google.

It also created a tiered payment plan offering premium service for $5 a month or $19 for six months, in addition to a $25 yearly subscription. That provided smaller steps for people moving from free to paid.

"The net effect of giving people options is more people opt in," he explained.

In other words, people may be ready for the changes coming in 2010 and are willing to pay for stuff on the Web after all.

Brier Dudley's column appears Mondays. Reach him at 206-515-5687 or bdudley@seattletimes.com.

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About Brier Dudley

Brier Dudley offers a critical look at technology and business issues affecting the Northwest.
bdudley@seattletimes.com | 206-515-5687

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