Richard Macmanus discusses how Web 2.0 and a lot of the new sites/applications/tools seem to be relying on page views and the advertising dollars they generate as their business model.
He is right that this is one step better than the dot-com bubble because then most companies were hoping the page views alone would lead to an IPO or acquisition. At least now there is advertising revenue attached.
I think we should be questioning the validity of new tools and applications aimed at relying on advertising alone. Don’t get me wrong, I work in advertising and think it has a strong future, but it also means you’re often putting your company’s livelihood on the line for something that you don’t necessarily control and can be cyclical.
My advice to startups would be to make advertising a strong piece of the puzzle, but to build something good enough that you could potentially charge for it or have other ways of earning revenue to build from.
I think the critical issue here is how close do advertising revenues come to expenses? For a site like YouTube which presumably makes less on advertising than on their bandwidth costs this is already a bad business model. YouTube might be able to get away with it through a buy out, but your average low profile bandwidth hog won’t.
For some sites the expenses don’t even come remotely close to touching the revenues. Even if there is a downturn in the ad market they will do just fine.
Of course, we also have to look where the ad dollars are coming from. Vonage being the top online spender is not a pretty picture for the future. In an economic pullback those kind of dollars could disappear very fast.
I think right now everyone wants to be big and have influence. They’ve figured out that its a lot easier to do so if your content is all open and free. That doesn’t mean that these companies don’t have premium features planned.
Great points Andrew, and I hope that many of them do have some premium features planned. It’s just shocking how few have actually released any if they do have them planned.
And beyond having them planned, are users going to pay for them?
Obviously it’s a case by case answer, but I do know there are very few that provide a valuable enough service for me that I’d pay for them.
Interesting post, but as the founder of a new start up, I continue to be amazed how few start ups are working on changing the underlying advertising model and making that be their value proposition rather than using advertising as a necessary evil.
If you are interested, you can see what we are up to at Jellyfish.com and read a post on why I think advertising is way behind technology here:
http://www.jellyfish.com/blog/2006/05/17/first-quarter-score-online-advertising-7-technology-28/
Hi Mark,
Thanks for the comment, I’d like to hear about your plans. They sound interesting.
Interesting. I wrote something very much along those lines at http://blog.simpy.com/blojsom/blog/2006/06/13/Mike-Arringtons-Business-Model.html.
It’s about profit = revenue – expenses, and expenses(blogging)