A Web Start-Up Counting on Ad Sales? Good Luck(bits.blogs.nytimes.com)
bits.blogs.nytimes.com
A Web Start-Up Counting on Ad Sales? Good Luck
http://bits.blogs.nytimes.com/2008/12/08/are-free-ad-supported-web-sites-over/
6 comments
It is, sadly, a little content-free.
>> Web start-ups struggle with the question of whether to sacrifice revenue for several years, build a huge audience and then sell them ads, as YouTube did >>
Hmm, my recollection was that Youtube built up a huge audience and then got acquired by Google, which runs them as, essentially, public utility. (They spend more on costs than they recoup from ads but they get the cross-subsidy from AdWords like, well, every other Google property.)
For those folks who can't cross on perpetual cross-subsidization and don't want to play the "get acquired before we are destroyed by the economics of hosting terabytes of content that we don't own the copyrights to" game, could I suggest, say, charging money for value? Its a business model for all seasons.
>> Web start-ups struggle with the question of whether to sacrifice revenue for several years, build a huge audience and then sell them ads, as YouTube did >>
Hmm, my recollection was that Youtube built up a huge audience and then got acquired by Google, which runs them as, essentially, public utility. (They spend more on costs than they recoup from ads but they get the cross-subsidy from AdWords like, well, every other Google property.)
For those folks who can't cross on perpetual cross-subsidization and don't want to play the "get acquired before we are destroyed by the economics of hosting terabytes of content that we don't own the copyrights to" game, could I suggest, say, charging money for value? Its a business model for all seasons.
I thought this was a poorly researched article. Our CPMs are up year over are, as are most other AdSense supported sites that I'm aware of. The latest numbers that I've seen, including those recently referenced by the Economist, show online advertising growing again in 2009.
It's print advertising that's falling off the cliff.
Of course multiple revenue streams is preferred. But we'll certainly continue to see ad supported business models get funded.
It's print advertising that's falling off the cliff.
Of course multiple revenue streams is preferred. But we'll certainly continue to see ad supported business models get funded.
I think that the article is a bit naive. While the growth of ad revenues is undoubtedly decreasing and most likely spending will greatly dip as the "panic" continues, this doesn't mean that a web businesses cannot be successful on ad revenue.
Newspapers succeeded during the Great Depression as did radio and other ad-based businesses.
But this time, newspapers are going out of business because people are getting their news from the web (the classic Innovator's Dilemma pattern). Indeed, with the recession, people will have even more time to surf the web so web traffic and the importance of the web will continue to increase.
Where the eyeballs are, ads must go especially during a downturn. In the next 2-3 years, especially after we move away from "panic" and back to recovery, it seems to me, web ad spending will start growing again.
I should also mention that I currently work at an start up that depends on web-based ad sales. I've had opportunities to move somewhere else but my gut feeling is that a lean business with a high quality product is the place to be right now, even if it depends on ad sales for its profitability.
Newspapers succeeded during the Great Depression as did radio and other ad-based businesses.
But this time, newspapers are going out of business because people are getting their news from the web (the classic Innovator's Dilemma pattern). Indeed, with the recession, people will have even more time to surf the web so web traffic and the importance of the web will continue to increase.
Where the eyeballs are, ads must go especially during a downturn. In the next 2-3 years, especially after we move away from "panic" and back to recovery, it seems to me, web ad spending will start growing again.
I should also mention that I currently work at an start up that depends on web-based ad sales. I've had opportunities to move somewhere else but my gut feeling is that a lean business with a high quality product is the place to be right now, even if it depends on ad sales for its profitability.
Online ad spend is continuing to grow year-over-year and accountable channels like search and performance/affiliate marketing will be the largest drivers of that growth.
The brand dollars are the ones that get thrown out of the window in an economic downturn. But companies still have to acquire new customers when the economy is bad and they are very likely to double down by spending their ad dollars on accountable media channels to hit their numbers.
Startups that are building targetable/monetizable audiences will be just as likely to make an ad supported model work now as they would have been able to a year from now. Startups who believe that they will be able to just grow a really big general audience and magically monetize it with high price CPM ads from big brands are the ones that are in trouble.
The brand dollars are the ones that get thrown out of the window in an economic downturn. But companies still have to acquire new customers when the economy is bad and they are very likely to double down by spending their ad dollars on accountable media channels to hit their numbers.
Startups that are building targetable/monetizable audiences will be just as likely to make an ad supported model work now as they would have been able to a year from now. Startups who believe that they will be able to just grow a really big general audience and magically monetize it with high price CPM ads from big brands are the ones that are in trouble.
I don't know that anyone really counts on ad sales from the beginning. I think most startups just subscribe to the "get users now, figure out how to monetize later" lunacy, and that usually means advertising.
I don't think it's lunacy if your startup is cheap enough to run. If you can support a million users on $100/month, why not... It's worth that just to put it on your resume, or just for the knowledge learned from scaling. Then you just have to figure out how to make $0.0001 per user/month and you're into profit.
I do agree about the ones that take a ton of funding and have a ridiculous burn rate though.
I do agree about the ones that take a ton of funding and have a ridiculous burn rate though.
If there's scaling involved, you're spending a lot more than $100 per month. The only websites I can think of that could get high traffic for low cost are blogs, since they can just run on TypePad or something, but I don't really consider them startups generally. TechCrunch and HuffPo maybe.
There's almost nothing that's profitable at a fraction of a cent per user per month. The net is cheap, but it isn't that cheap.
There's almost nothing that's profitable at a fraction of a cent per user per month. The net is cheap, but it isn't that cheap.
It's not a typical case, but e.g. Talkinator is cheap to run and potentially reaching millions of people.
http://mailinator.blogspot.com/2008/08/benchmarking-talkinat...
"In my benchmarks now, on my quad-core desktop the talkinator server can push about 39000 messages per second. Keep in mind this is processed messages as in decoded, packaged, and queued for particular recipients."
The typical architecture for web applications is pretty inefficient.
http://mailinator.blogspot.com/2008/08/benchmarking-talkinat...
"In my benchmarks now, on my quad-core desktop the talkinator server can push about 39000 messages per second. Keep in mind this is processed messages as in decoded, packaged, and queued for particular recipients."
The typical architecture for web applications is pretty inefficient.
You're definitely spending more than $100/month in terms of time, but in terms of servers/bandwidth, you can support a million users pretty well on $100 if you don't use the standard web frameworks etc which are woefully inefficient.
Well, at $100 per month there's no real scaling. You're running everything on one inexpensive server. Scaling would be just getting a better one. (Can you even get a dedicated for that low?)
I guess maybe you and I define scaling differently. I'm thinking like adding in web servers, load balancing, replicating db. You may be just talking optimizing code and caching or something.
Curiously, can you serve even some simple dynamic content like a Wordpress blog to a million somewhat frequent users a month?
I guess maybe you and I define scaling differently. I'm thinking like adding in web servers, load balancing, replicating db. You may be just talking optimizing code and caching or something.
Curiously, can you serve even some simple dynamic content like a Wordpress blog to a million somewhat frequent users a month?
That's the issue though... you don't need a dedicated server to serve 1m users, and you don't need to add web servers, load balancing, replicating etc etc
VPS servers are so cheap and more than enough. The current web stacks are just ridiculously lousy.
VPS servers are so cheap and more than enough. The current web stacks are just ridiculously lousy.
Newspapers Counting on Ad Sales? Good Luck!
They've been in trouble for quite a while thanks to Craigslist and the web in general. Plus didn't news get out today about the NYT mortgaging their HQ to alleviate the hit they've taken from falling ad sales themselves? If I recall, a few other papers filed for bankruptcy or went up for sale.
Regardless, I was surprised by that Economist article posted last week that pointed out that online ad sales were, in fact, still growing, but at a lower rate than previously projected.