You can already see it, but the free ride is coming to an end. Up until now most Internet presence, content, and software has been subsidized by angels and venture capitalists, advertisers, or revenue from non-Internet sources. Some recent articles suggest that the venture money is drying up. This means that companies that were providing free rides (such as facebook) have to start building up other revenue streams. For facebook and others advertising is the first place to look.
We already have seen facebook adding advertising options such as posts in its mobile app and their sponsored posts feature. They have also creatively partnered with local merchants to allow people to send real gifts through facebook and they let people buy virtual items in their online games with facebook currency. There are two ways to make advertising more effective: be relevant or be intrusive. Google bets on relevant while facebook seems to be moving towards intrusive. We also see shadows of what is to come in the recent Instagram controversy where facebook asserted its interest in using user photos in advertising. Unless facebook finds less intrusive ways to monetize its user base, I predict its changes will lead to a decline in its use.
Similarly twitter has instituted limits on third party API access. Presumably this is to steer users towards the official twitter site and applications where it can more easily sell advertising. Twitter has a tough tightrope to walk here. Many of its power users swear by third-party clients like Tweetbot. Since many of these clients already cost money the most sensible move for twitter to make would be to charge developers for API access per user and then let the company pass that cost along to the user via the app purchase. If twitter does not do this, I predict they will phase out third party clients completely.
Advertising is a diverging field. Companies like the New York Times report that their advertising revenue is declining. In contrast the cost of programmatic advertising from companies like Google is increasing. It is important to note that New York Times print advertising revenue dropped 11% while online advertising revenue only dropped 2.2%. Technology news upstart The Verge, which survives on ads sold directly to premium brands, reported it had a profitable first year. I think we will see an increase in digital ads and decrease in print ads because people are moving online. You can see the difference in the following slide from Mary Meeker’s presentation:
Another thing you will see more of is paying for content directly. When the New York Times decided to institute a pay wall there was lots of outrage. I was a heavy user of their website and was disappointed at having to pay, but I gave in and signed up. Lots of other people followed my lead. Now these digital subscriptions make up a substantial portion of their revenue while print subscriptions are in a decline. The Hartford Courant is lagging here since they still have a substantial online only audience that is getting a free ride. Since the New York Times hybrid paywall model is successful it will probably be adopted by other players like the Hartford Courant.
Design and substance are growing in popularity. This is evidenced by the rise of apps like Instapaper and the popularity of the Snow Fall feature article in the New York Times. Even meme properties like BuzzFeed are moving towards generating more long form material. Pocket, a competitor to Instapaper, notes in its infographic that 240 million things were saved to its service this year; the most popular was a long form profile of President Obama from Vanity Fair. We will see more of this kind of content in 2013.
Competition, scale via app stores, and lack of demo versions has pushed the price of software down to free in many categories but we may see a rebound. The New York Times notes that it is difficult for many independent developers to make a living by selling apps. Zynga, which supports its mobile apps through advertising, has not been doing so well. Their intrusive sending of notifications and placement of other advertising has certainly not endeared them to me. Companies like AgileBits, maker of 1Password, are reverting to the old model of charging for new updates to their software (though not without criticism). The New York Times endured similar criticism when they put up their paywall but ultimately giving away software for free is not sustainable, and the mobile advertising in the apps degrades the user experience. So you’ll pay more for applications but they will be of better quality.
Overall you will probably enjoy the Internet and your mobile device more in 2013. However you will pay more for that experience. For better or worse, our free ride is coming to an end.