13 thoughts on “The Online Advertising Quandry”

  1. Pingback: broadstuff
  2. Om

    I completely agree with you. This trend is giving too many startups a false sense of security which is making them rush into launch without a proper business model. It reminds me a lot of 96, when people depended solely on ad revenue with no alternative revenue model. On a similar note, look out for netus.com in the next few months. We have an interesting approach to advertising that could prove to be a very interesting revenue model in the long run. Great post!

  3. Being part of a startup right now, I 100% agree with what you are saying. By depending on advertising to generate revenue, it shows that people did not learn from the last .com craze. The main priority for our venture was to develop a proven model that will generate revenue not based on advertising. You can be more successful by having a proven business model rather than just pure advertising.

  4. The increase in ad spending is a metric for whether there is any profitable business model that can be applied to Web 2.0, not that it should be the only part of a business model. In Web 1.0, may firms did not focus on profitability until a forecasted point many years in the future. In Web 2.0, though ad spending is not going to support many firms, the ability to bring in some revenue from it demonstrates that everyone has faced the reality that some revenue is better than Zero revenue. (from Kevin at TasteTV,(http://www.TasteTV.com). Video Ads just started running on our site last week. Will they make us gazillionnaires? Unlikely. But we like having them available.

  5. I would add AOL, MSN, Fox, and CNET to that calculation and you’ve got the majority of advertising going to the big companies.

    If you add back the traffic acquisition numbers you took out the majority of advertising flows through the big Internet companies.

    As time goes on this will get even more pronounced because small companies will not even try and sell their ads–they’ll outsource it (you wouldn’t know about that right 🙂

    Big advertisers want big audience… they go for scale. So, Web 2.0 companies–aka startups–shouldn’t expect this advertising shift to just show up at their door. The big get bigger, and the little guy gets squeezed–that’s the way of the world.

    In terms of the distance between eyeballs and revenue you’re winning that argument ever since Google backed up the truck for MySpace’s and YouTube’s search inventory.

    Anyway, let’s take that second graph I did and extend it out five and ten years… if it’s within 15% of the line dinner and cigars are on you, it’s it’s below by more than 15% dinner and cigars on me.

  6. Even if the total ad dollars remain flat, there sure seem to a big shift from all other media to Online. A recent AAF study reports that ad executives expect a significant portion of broadcast and cable TV ad dollars to shift to online video by 2010, with 33% predicting that switch will be between 10% and 19%.

  7. If everyone could see what you see the world would obviously be a different place. The reality is that, most people regradless of position react to the wisdom of the day. Visionaries provide entertainment value, but final decisions are still made based on past success. If anyone examined the root causation of social networks and saw that they serve to address our basic human need to be acknowledged, then “registered users” wouldn’t drive acquisitions like MySpace. But that’s not what happens, and I suspect that is not what’s going to happen in the future. For people who can see past the hype, the best we can do is play along and leverage our vision when failure makes decision makers open to next ideas…

  8. @ Jason re Big Internet Advertising Co’s getting bigger

    Surely this is only true so long as (i) they can better identify the relevance of an online Ad to a potential customer and (ii) the cost of Ad production is high enough to force “big batch” Ad distribution?

    One can imagine a world where there are a lot of vertical plays much more in tune with customers, and where it is possible to create tailored Ad media very quickly and cheaply for them.

    Lower the setup cost of Ad production and you lower the batch size, allowing you to tailor the product to user far more.

  9. great stuff – is anyone aware of numbers such as eyeballs = revenue? or a valuation for eyeball aquisition – i remember reading something like $36 per eyeball – but have never really seen anything for ad revenue per eyeball…

    i also would second what alan wrote about vertacles becoming more relevant to where the dollars go in the future – this is the real lure for advertisers.

  10. Could it be that that false sense of security on the part of many start-ups is partly because many of their owners are literally too young to remember the lessons of the last internet bust? Meanwhile there are older heads who are new to the game but likewise don’t carry scars or memories from the bust.

    Here’s hoping that history doesn’t repeat itself–not like that anyway.

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