The business model used by web-based email service providers has evolved a great deal over the last two decades. People who used web-based email services in the earliest days will agree with this assertion. It is actually safe to say that the webmail service providers have had to use a trial and error approach over the years, as they tried to come up with a business model that works.
In the earlier years, most of the email service providers seemed to be in favor of a business model where email services would be paid for directly by the users, through subscription fees. Over the years, that seems to have changed — in favor of a system where the users of webmail don’t pay directly for the service, but rather, where the service is paid for by advertisers. Under this system, the end users of email services don’t have to pay any form of subscription fees for the service. They get the service free of charge. But then they have to put up with all sorts of ads – for it is the owners of the ads who finance the supposedly ‘free’ email service.
The rationale behind the earlier webmail business model
While trying to understand the rationale behind the earlier (subscription fee-based) webmail business model, we have to appreciate that in those earlier days, email wasn’t as widely used as today. Indeed, in the mid to late 90s, there were very few people using email services. Apparently, in those days, the numbers weren’t huge enough to sustain a model based on advertising revenues. And furthermore, in those early days, the number of businesses keen on advertising online was small. Therefore, the users of email services in those early years had to pay for the service directly, through subscription fees.
The rationale behind the modern webmail business model
In order to understand the rationale behind the modern (advertising revenue-based) webmail business model, we have to appreciate how the numbers of people who use email services have grown over the years. Today, there are hundreds of millions, possibly more than a billion people who use email services regularly. We also have to appreciate how the number of businesses that are keen on advertising online has grown over the years. The end result has been a scenario where webmail services can be financed entirely using advertising revenues: meaning that the end users of the services no longer have to pay subscription fees for the services.
Of course, the fact that the email service is largely offered free of charge nowadays attracts even more users, which translates into even higher advertising revenues for the webmail service providers.
The vestigial role of subscription fees
It is worth noting that webmail service providers do still charge subscription fees to people who are keen on accessing premium services. These include people who want certain advanced features, or people who wish to have ad-free email. The numbers of people who are willing to pay for these services are small, but the amounts of money raised are substantial — especially when you take into consideration the fact that it doesn’t really cost lots of money to provide email services. For the most part though, one gets the impression that web-based email services are largely (and sustainably) paid for through the advertising revenues.