One of the curious features of the meltdown in internet stocks since April last year is that the sector of the economy which is most directly affected by the internet has continued to thrive, with share prices sharply up over the past year.
The sector in question is professional information publishing: reference and current awareness services for heavy information users such as lawyers, doctors, researchers and bankers. During the period between January 2000 and January 2001, the average increase in share prices of the seven leading companies in the professional information sector (Thomson, Reed Elsevier, McGraw-Hill, Reuters, VNU, Wolters Kluwer and Dun & Bradstreet) has been 15.4%. Over the same period Nasdaq fell by 30.7%, and the media sector as a whole fell by 12.2%.
The internet grew out of the professional information sector. Research scientists needed to pursue information across databases held in different geographic locations from a single point of access, so they developed the protocols which made the internet happen. Searching for specific or related pieces of information remains the prime functionality of the internet: that it can be used to sell pet food or find buyers for unwanted holidays is a spin-off benefit.
But the most devastating aspect of the internet is that it removes all barriers to entry into the publishing market. With 1.5m pages published for free on the internet every day against 500,000 pages a day produced by the paid-for print publishing industry, information is now a commodity which people are extremely reluctant to pay for.
To make things worse for the major professional information publishers, there is also the threat of disintermediation. Most professional information publishers do not have unique access to the material they publish. They simply republish material produced by law courts, stock exchanges and research institutions. Much of this is now available for free from competing websites or through Napster-like peer-to-peer email networks.
So how have these companies, which have hitherto seen their content as their crown jewels, managed to flourish as this content has become a ubiquitous commodity?
They certainly had a few advantages over those trying to sell pet food or unwanted holidays. They did not have to buy traffic - they already had an established user base which could be switched to the new medium. They did not have to invent a market or a new business model like many of the more outlandish consumer web businesses.
Most importantly, they have redefined themselves. A close reading of their annual reports shows that most of them no longer see themselves as content-centred publishing businesses, but as customer-centred "information service" businesses.
It is an immensely important change of mindset.
Traditionally, publishers have looked for growth at the margins of their markets. They have made a colossal investment in intellectual property, then squeezed as much money as possible from this investment by selling the same content as many times as possible at different price points and in different formats. Newspaper publishers have cut prices, done bulk sales deals and recycled news into freesheets. Book publishers have put hardbacks into paperback. Film companies have released first run films on video.
Before the arrival of the internet, many professional information publishers were reaching the limit beyond which they could not increase prices without losing so many subscribers that the total takings would actually fall.
The arrival of the internet has enabled them to increase the service element of their content massively, through bundling together rafts of related products, interlinking them and making them cross-searchable.
The largest such project is Reed Elsevier's Science Direct which brings together 1,200 scientific journals in a single database. Butterworths Tolley, Croner, and Sweet & Maxwell have applied a similar approach to legal and regulatory publishing. The Oxford English Dictionary online is another example of a mature product which has been spiced up by added web functionality.
The major institutional libraries and the information managers in the law firms and banks appreciate the added functionality of these products and have been prepared to pay substantially more for them, either directly through price increases or through a greater commitment to renewal (subscriptions to databases such as Science Direct are an all or nothing commitment - you cannot remove the elements of the package you don't want and hope to reduce your subscription).
Peripheral customers have balked at the price rises or at the greater commitment to renewing subscriptions, but this is no great loss. The price-sensitive end of the market was always likely to fall for the attractions of free information elsewhere on the web.
Right now, with free content proliferating and ad-rates falling, this strategy of focusing on information services for the high-end customer looks like the only way any content owners are making money from the web.
Whether the strategy will continue to pay dividends in future will depend on whether the publishers can continue to add to the service element of their products faster than the internet commoditises them. It is a Sisyphean task.
In theory the demand for a higher level of service will always be there. Businesses will always want to be better informed than their competitors. The internet makes this more difficult because everyone has access to the same high level of information. However, it does not stop people being prepared to pay more in order to stay ahead of their competitors.
In practice, however, it may not be the publishers who meet this need. While people in the industry talk about products which are more precisely tailored to the needs of their individual customers, the day when they start producing publications which have a circulation of one copy may never come. Instead, it will be the consultancy firms - who are not shy of paying good salaries to people who can add value to information - who benefit at the expense of the more tight-fisted publishers.
The old slogan of the early days of internet was "information wants to be free". When the big money started to pour into the internet, this was dismissed as a hippy dream, but today it looks prophetically true. The only thing one can rely on is that people will always pay for people.
• This is an extract of a paper by Christopher Gasson given to the International Press Institute's 50th annual congress in New Delhi on January 29. Christopher Gasson is a publishing company broker with Bertoli Mitchell.
