Online Content Costs To Offset Low Access Costs

A type of inflation is moving to the Internet, in the form of increasing price for obtaining information — a trend that will wipe out decreases in Net access pricing, a new study predicts.

The "Internet Service Providers, Proprietary Content, and the Battle for Users’ Dollars" study, released by the University of Rochester’s William E. Simon Graduate School of Busi-ness Administration, calls the perception that consumers save money as competition increases and prices de-crease in the Internet access wars an "illusion."

The report claims information provi-ders who provide movie reviews, airline fares, stock market quotes and other content will stop providing access to such content for a low price or even for free.

"The Internet is fast becoming an amusement park that charges both for admission and for tickets to individual attractions," says Rajiv M. Dewan, assistant professor of computers and information systems at the Simon School. "As the cost of admission drops, more Internet attractions will charge higher fees with the consumer doing better, but not as well as some might expect."

The Simon School’s study is said to be the first to develop models that examine the economic link between Internet service providers (ISPs) and content providers. Companies providing content to Net surfers depend on ISPs to bring customers to their virtual doorstep, while access providers serve customers who are attracted to the Internet because of specific content offerings. Such a relationship is "symbiotic," and aspects affecting one side of the equation will also be felt on the other side, Dewan said.

Customers are arriving at a content provider’s Web site with more money in their wallets because of lower access costs, but the provider takes advantage of the situation by raising prices, the study said. "This trend is taking the emphasis off access, which offers less profit opportunity, and increasing the business focus on content where there is more money to be made," says Dewan.

The study cites America Online’s 1997 business deal, where AOL sold its access division to WorldCom, while absorbing Compuserve’s content and customers, as establishing this trend. "AOL’s shift in focus from access to content sent up a red flag about the future of the industry," the study said.

In addition, the days of free Internet content may be coming to an end: "People will also find themselves paying for information that was previously free of charge," Dewan said.

"Internet users will see an explosion of content available for a fee that parallels, if not exceeds, the 900 service on the telephone," Dewan added.

The Simon School’s Web site is at http://www.ssb.rochester.edu.

(Contacts: George Tomczyk, William E. Simon Graduate School of Business Administration, 716-275-8189; Courtney Knowles, Padilla Speer Beardsley, 212-752-8338)