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Loosely Coupled weblog

Wednesday, October 6, 2004

Amazon to charge for services

No one has yet established a successful model of charging for on-demand services. Amazon aims to change all that, it seems, with the launch next year of Alexa Web Information Service (AWIS), which it announced in beta this week: "AWIS will be offered at no charge during the beta phase. Prices for the service will be announced when AWIS is officially launched," says the press release.

I'm surprised this little nugget hasn't caused more of a stir. Am I the only person around here who keeps wondering So how do we make money? from on-demand services? Can it be that, in all the excitement about Web 2.0, the harsh financial lessons of Web 1.0 have been completely forgotten?

The unveiling of the AWIS charging model may finally reveal the missing ingredient that I highlighted right after the launch of the Amazon API:

"There's still a vital ingredient missing before this new wave of service component providers can become a sustainable model. How are they going to make money? ... Google and Amazon have both introduced their APIs as limited-use free trials precisely because no-one has a clue how they will charge for them once they decide they need to."

But somehow I doubt that AWIS will deliver all the answers, even if Amazon really does grasp the nettle of consumption-based charging (ie charging for actual usage rather than some kind of flat-rate suscription model). I think most people assume that the likes of iTunes, BitPass and PayPal have proven that micropayments work, but charging for slugs of content isn't the same as charging for units of functionality — for a start, you have to determine what those units are going to be, which isn't at all self-evident right now. It's going to be fascinating to see what Amazon rolls out as its billing architecture and charging model for AWIS, but given the lack of experimentation and actual experience to date, it's inevitably going to be a shot in the dark, and there's lots of scope for things to go horribly wrong.

The prize for getting it right, though, is enormous. I'd been wondering how Amazon was going to monetize its investment in Alexa (the advertising alone was never going to be enough). Everyone else who's ever invested in on-demand functionality (search, RSS, personalization, etc) has been wondering much the same thing about their own initiatives. Selling those capabilities as services is the obvious way to earn the investment back — another interesting nugget in that press release, by the way, is that has now rolled all its on-demand services efforts into a separate corporate entity, Amazon Services Inc, which presumably is tasked with proving it can be a profitable business in its own right: "Amazon Services is a subsidiary of, Inc. that makes the technology and services that power available to third-parties." Whoever manages to crack this problem of how to charge and bill for services will hold the key to the monetization of everyone's investments in web-based services, and that's going to be an incredibly valuable proposition.

posted by Phil Wainewright 12:10 PM (GMT) | comments | link

Assembling on-demand services to automate business, commerce, and the sharing of knowledge

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