There’s been some talk about how difficult it is to make money with online advertising. Jeremy Liew of Lightspeed started it by discussing ways to build an online media business to $50 million in revenue, the New York Times picked up on it, and then Scott Karp of Publishing 2.0 added a thought-provoking post that concludes by saying that advertising just doesn’t scale for the long tail.
I think first we need to figure out what we’re talking about here. As a venture capitalist, Jeremy is really only interested in companies that are going to be getting near that $50m in revenue number. That’s really few and far between on the web, and there are hordes of successful web companies and entrepreneurs out there making great livings with advertising as their primary revenue stream that aren’t sniffing $50m in revenue. So is Jeremy right?
As he adds in a follow up post, it’s estimated that 92% of online ad revenues run through the big four of Google, Yahoo, MSN, and AOL. That’s a sobering number, however we can’t forget that a large chunk of all that money is actually filtering down to web publishers through Google’s Adsense program, Yahoo’s Publisher Network, and AOL’s Advertising.com. So, it is a bit hard in this day and age to ramp up a site that has enough traffic, a valuable audience, and a sales force that can sell enough direct advertising to hit $50m in revenue. But when exactly has that been easy in any publishing medium? I’d argue it’s far easier on the web than in magazines, newspapers, television, or radio.
As to Scott’s point about advertising not scaling out to the long tail, that’s again a mixed answer. For the very far out end of the tail, those sites aren’t going to make much. Take this blog for instance, it’s pretty far down the tail and it doesn’t make much from advertising, but with such low traffic levels should it be making me a bunch of money? I think somewhere along the way there is this notion that if you blog or publish a site that advertising riches follow. That just really isn’t true.
However, if we look at the middle of the tail, I can tell you from lots of personal and work experience that there are A LOT of companies and entrepreneurs making great livings off of advertising. Some are sites that work primarily with ad networks and use tools like RMX Direct. Some are bloggers who use a number of different ad services to equal a nice monthly income. And some run a number of forum sites that can equal $600k from one ad network alone.
The examples are really too many to name, but the common thread for the publishers down the tail that make it work are the following:
- Focused on monetizing their site
- Not afraid to monetize their site
- Decent to good traffic levels
- A niche focused audience
- Hard work
It’s not that tricky, it boils down to being smart, learning from others, and just working hard.