Debra Goldman’s Consumer Republic

It’s a good time for the “I told you so” brigade. As the dot-com corpses pile up, the finger-waggers who cried “Tulip mania!” as the IPOs soared are vindicated. Schadenfreude sweeps the land as yesterday’s dot-com millionaires-in-waiting become today’s unemployed, while conventional wisdom such as profits matter, economies are cyclical and what goes up must come down is now cutting-edge.

But dot-com staffers and investors with tech-heavy portfolios aren’t the only ones undergoing a reality check. Consumers are also relearning a few eternal truths. To wit: “There’s no such thing as a free lunch” and “You can’t get something for nothing.”

Not that you can blame us for trying. There’s been a lot of stuff given away during the great digital boom boom. By the end of the ’90s, the MBA syllabi were bursting with case studies of digital economy companies that had made fortunes by giving their products to consumers for nothing. It was the New Economy way, and it was embraced like religion by the digerati. Internet entrepreneurs besieged consumers, vying to give stuff away or provide it cheaply—even pay them to use it.

I began to suspect this was getting out of hand last winter when a subway car sported no less than three dot-com ads offering something free! One, I dimly recall, was the free Internet service provider WorldSpy, whose ad confessed something like, “Our accountant is very upset with us.”

With good reason. These days, WorldSpy’s accountant is out of a job, along with the rest of its staff. Like FreeWWWeb, WorldShare and mValue, all free-of-charge or pay-to-surf sites, it’s out of business. Meanwhile, AllAdvantage, the high-flying free ISP that used to pay customers for signing up their friends—it recently switched to a less expensive sweepstakes gambit—laid off 150 employees in mid-November. That’s its third staff trim in five months.

These aren’t the only signs that the free ride is ending. Earlier this month, ZapMe, which supplied free computers and Internet access to 2,000 schools (in exchange for delivering advertising), announced it was getting out of the computer give-away business. It took Virgin Entertainment six months to pull the plug on its Internet Appliance Network program, which offered a free Web-surfing device to consumers in exchange for permission to track their surfing habits.

Webhouse, Priceline’s name-your-own-price grocery shopping service, collapsed, although not before burning through hundreds of millions of dollars. Those 50 percent discounts on bestselling books on History. And then there’s the killer-app of something-for-nothing consumption: Napster, the free peer-to-peer music exchange, is now on the brink of legal extinction.

The business models for these enterprises—and the reasons for their disappearance—are varied. But from the consumers’ vantage, they all sent the same message about the New Economy: It’s free! In a sense, we’ve all been the beneficiaries of the venture capitalists and over-enthusiastic investors who obligingly stoked this bonfire of cash.

For now, the good news is the Internet remains a great deal. I am continually astounded by how much great stuff is available at no cost, even without selling my personal profile. The Web is still chock full of information that can be accessed, saved and passed around without charge. Yet I suspect these happy days are numbered.

After all, television used to be free. Thus far, advertisers, the most generous patrons of the people since the emperor of Rome, are underwhelmed by the effectiveness of banner ads. They are skeptical of the cost-effectiveness of data-mining.

Finally, as all those pay-to-surf sites can testify, they are not enthusiastic about prospects who demand money in exchange for their attention. And the only thing worse for consumers than an advertiser-inundated Internet is one without any advertisers at all.

At the same time, content providers, led by the spooked music industry, are trying to figure out how they can profit from digital distribution. They’re sure to succeed. Once they’ve mastered the economics and perfected the technology, it will be easy to incrementally control consumers’ “ownership” of content they pay for. The doctrine of Fair Use will not survive the digital age.

Up to now, consumers have reveled in great deals for things we used to pay for. But before the Internet revolution is over, we’ll likely be paying for stuff we used to get for free.