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May 8, 2012, 3:26 p.m.
Business Models
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Ongo, an attempt at a pan-media paywalled aggregator, is closing

The year-old startup, backed by several newspaper industry heavy hitters, struggled to find a way to charge readers who have free alternatives.

Less than a year and a half after launch, the subscription aggregation startup Ongo — a newspaper-industry effort to create a pan-media subscription system — is shutting down. It’ll close its doors by month’s end, Ongo CEO Dan Haarmann confirmed to me, leaving about 25 people out of work.

Ongo was backed by The New York Times Co., The Washington Post Co., and Gannett (at a reported initial investment of $4 million each) and tried to combine the designed, multi-sourced reading experience of Flipboard or Zite with a paywall. It launched with about 20 publications; as it shuts down, it had deals with about 40 publishers and over 100 publications.

From the start, Ongo was hurt by a confusing pricing model. A basic Ongo subscription gave you access to content from The Washington Post and USA Today — but only “Top Stories” from Reuters, “Selected Content” from the Financial Times, and “Picks” from The New York Times. If you wanted to add more publications beyond the core offerings, those came at significantly varied prices — 99 cents a month for Slate, Salon, or Engadget; $3.99 for the Christian Science Monitor; $9.99 for the Chicago Tribune or The Miami Herald; either 99 cents or $14.99 a month for The Worcester Telegram & Gazette, depending on how much of it you wanted; and so on.

Add to that the fact that most of Ongo’s content was available for free on the web — and the fact that many of its news orgs have chosen to focus on building their own paywalls — and Ongo was an uphill struggle from the start.

Haarmann said that Ongo learned some lessons about modern news distribution the hard way. One was the importance of access to closed platforms — including the biggest of them all, Apple’s App Store.

“You have to be on a tablet platform to have success,” he said. “That’s where people are most willing to spend money, so for a paid product, you’re going to have to focus on the mobile side. Apple’s take, from a billing perspective, made it very difficult to succeed in a paid-product space from what we think the pricing should be.”

In other words, if news services want to give users the convenience of being able to buy their product on their iPhones and iPads through iTunes, they have to be willing to give Apple a 30 percent cut. Ongo’s iPad app doesn’t offer in-app purchasing — which means it doesn’t have to pay Apple’s cut, but also that it doesn’t get access to the App Store’s ease-of-payment.

Haarmann also said one thing Ongo learned, “in order to be successful at all in this business, is that social is absolutely critical.”

But it’s important to note that Ongo drew skepticism from media watchers from the start. Its business model rested on the belief that people would value an ad-free, curated experience enough to pay for it, despite both the availability of the (mostly) free web and other free apps like Flipboard. After Ongo’s January 2011 launch, GigaOm’s Matthew Ingram characterized the approach as “another Hail Mary pass aimed at trying to rewind the clock and impose scarcity on media content, and one that will likely fail just as quickly as others have.” (You can read our roundup of early response to the service here.)

In an interview with paidContent last year, Ongo founder Alex Kazim — formerly of eBay and PayPal —  said this of the approach: “We realized that users won’t pay for content — however, they will pay for a better user experience and that’s what we’re really offering.”

So did they?

Ongo tried a number of ways to optimize pricing, including free week and free month deals — even the first year for $1. The early price tag of $6.99 a month gave way to the final offering of $1.99. Haarmann says Ongo didn’t get to that price point “fast enough” to continue running. He wouldn’t immediately disclose the number of Ongo subscribers on Tuesday, but he says there was a strong enough base of supporters to make him believe in the model even after Ongo goes away — and that’s party because he wants it to exist.

“I hate advertising in my news,” Haarmann said. “I cannot stand people trying to send me a mortgage or a credit card. I’ve got two kids, so when a Dora [the Explorer] ad pops up on an article next to interest rates, it just kills me. Not only is it a waste of space but it’s a distraction. The way that interstitials and some of the advertising is pushing through reading experiences even on paid sites, I think, is egregious.”

Understandably, though, he has his doubts. Haarmann says he’d consider working for another news startup, but he might wait “a couple of years” until the industry has figured out “what the business model really is.”

“I do believe in the [Ongo] model,” he said. “Here’s where I’m losing a little faith. I think that it’s going to take a while for the industry to shift gears into the paid world. I think that in the interim they’re going to have to figure out how to balance a product that delivers revenue to help run their business, and one that satisfies a consumer’s need.”

An organization like the Financial Times, he says, is one to watch. Its abandonment of the App Store and move to an HTML5 app has saved them from Apple’s cut and attracted more than 2 million users. In Haarmann’s mind, there isn’t one way to do it that’s better than the other — but he says publishers have to “just take a path and get committed to it.”

“Just get committed to either being in the store and figuring out a business model that allows you to continue to operate, or be out of the store, and that’s not easy to do,” he said. “Apple takes up a lot of air in the room. They have a fantastic distribution platform. But the FT is having success off iTunes, and I think other people can do it, too.”

POSTED     May 8, 2012, 3:26 p.m.
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