There are two models for any online business, either the user pays or someone else does…
We conducted a survey at Web 2.0 expo earlier this month, and here are the findings:
* 78 percent of respondents believed the freemium model will weather the economic downturn, compared to 27 percent who put their faith in subscription-based models.
* 90 percent of respondents believe partnerships will be a driving factor for Web 2.0 innovation over the next year.
* 46 percent of respondents saw strategic partnerships as the fastest route to profitability; 42 percent believe its only subscription-based services, while only 39 percent believed it was advertising.
* Only 8 percent believed online auction sites will grow this year.
* 97 percent of respondents use Web 2.0 tools (Facebook, Twitter, LinkedIn, etc.) to establish an online persona.
The survey, promoted through Twitter, was conducted both online and at the Yola booth.
Most startups are evaluating their options right now. Ad revenue has dropped – not so much in aggregate spend, but more in aggregate price – some estimates are that CPM’s are down 80%? Anyone wonder why?
Contrary to the popular belief of most startup founders, advertisers are not interested in just buying advertising because they have money to spend and you have eyeballs. Google AdSense is not just a cash printing machine. Advertising needs to translate into real ROI for the advertisers or sooner or later they will abandon you. With consumer spending down (along with conversion rates), advertisers are getting smart and pulling advertising from sites that don’t convert, and increasing it on sites that do convert. This does not bode well for websites that cannot drive value for advertisers. What most people don’t realize is that Search is not like traditional advertising – you’re BUYING customers. There are too many business models out there that rely on advertisers to support the business, but do not drive positive ROI for the advertiser. These businesses are headed for rocky times (in fact, it’s already upon them!).
So, I’m not saying that you shouldn’t build great websites that people want to use – just be prepared to start charging for it if your traffic is not targeted or qualified for advertisers. Twitter is a great example – if they decide to monetize via advertising, they need to deliver customers to advertisers; if they can’t and the traffic doesn’t convert, then their business model will be to charge users for the service. Someone needs to pay to keep the lights on.
At the end of the day, the cost of inventory is the issue – the market prices will gravitate toward real value in order to improve the ROI’s for advertisers – but that really places your business model at the mercy of your advertisers and their budgets (and their ability to convert your users into customers). I’d rather be offering additional value added services that a small % of users would pay for on a regular basis, rather than try to monetize solely via advertising – and I’d advise other startups to start looking into that too…
The online advertising goldrush is over – time to start building real business that deliver real value…
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Comments On This Post
April 17, 2009 at 7:47 am
Nice post Vin!
We're seeing advertisers in SA also starting to want transparency and measureable ROI in their online marketing spend. The distinction between creating brand exposure and lead generation is becoming clearer and I think traditional media-buying is going to take a serious knock soon.
Advertisers are not able to just spend money without some indication of a return anymore.
April 17, 2009 at 3:12 pm
well said. there has been a continuous gravitation towards more measurable means of reaching out to customers. You can see it in the transition from CPM to CPC networks over recent years. Gotta be able to quantify RIO at a granular level. casue, if you can measure, it you can make it better.
April 20, 2009 at 4:40 am
Where is your Google Friend Connect at, Vinny?
LOL
April 20, 2009 at 10:19 am
As an advertiser I am happy to pay for rubbish traffic.. I offer a reasonable amount for this traffic. My bids start at $0.01 and then the publishers are smart priced.
If this does not work I resort to your proposed method and I exclude the site from my advertising.
April 21, 2009 at 7:05 am
with the US online ad spend declining this year and search staying stable, the spend is going to have to come out of display advertising. andrew chen had some interesting best practises about how to structure your freemium business here;
http://andrewchenblog.com/2009/04/20/3-key-ideas-...
April 23, 2009 at 7:59 am
Well said Vinny. Old school form of revenue is over. Time to present a bullet proof product and a real service to clients. I must say i really enjoyed reading this article. Thanks and keep up the inspiration.
April 23, 2009 at 8:13 am
Vinny, you are right in the current conditions and your advice is sound. Advertising is a cyclical business however, and there will be a new batch of ill-informed, poorly monitored marketers along in 18 months time.
April 24, 2009 at 8:08 pm
i really enjoyed this article… that's superb great…..
The distinction between creating brand exposure and lead generation is becoming clearer and I think traditional media-buying is going to take a serious knock soon.
April 26, 2009 at 1:18 am
The Internet is constantly mutating like an eco-system at an early stage. Offering quality content and services should remain a safe route though as you say.
May 12, 2009 at 9:52 am
The distinction between creating brand exposure and lead generation is becoming clearer.you are right in the current conditions and your advice is sound.
May 18, 2009 at 9:14 am
this is very true.
It is not easy to convince your traffic to pay though so naturally most sites look to monetizing from advertisers.
May 28, 2009 at 10:23 am
I think Google is the best advertising tool.
May 31, 2009 at 1:13 pm
HI looks very interesting! bookmarked your blog. john brightman
June 1, 2009 at 3:32 pm
I think the freemium models will definitely do better but you never know, some ad places will want to slim down on costs and if they are smart they will keep it in online places, but who knows. i think that people like free things and will cherish them more if they don't have a lot of money to spend.
June 5, 2009 at 10:38 pm
CPM's are down 80%? Wow, I have not heard that stat before. I do agree freemium's will prosper, but it will be the smaller sites. Large sites that get large investors need a real return for their investors. Smaller sites/businesses that do not rely on investors will be able to weather the storm.
June 6, 2009 at 1:04 am
so how much has yola made – I mean real money not money from investers? Does it make enough to pay it its staff or is it still running on investment funding??
June 13, 2009 at 2:24 pm
Vinny, obviously the internet is always… The current economic state of the US is making a huge impact on the way people do business – many are switching to new forms of advertising (online) to keep their business going (some out of desperation), interesting survey – thanks for sharing.
June 13, 2009 at 4:06 pm
If twitter starts to charge then its the end of the world
June 18, 2009 at 1:41 pm
It will be good start, we are watching that going
June 18, 2009 at 11:11 pm
I'm still wondering how much yola made excluding investors. Great post regardless thank you
June 20, 2009 at 4:59 am
We'll see this changes from time to time. Ready to pay for everything. Great post and advice..
June 20, 2009 at 5:58 am
I totally agree, the advertising goldrush is way over and done with. Though sites like Twitter you can't go wrong if they want to monetize, their site blew up and they will continue to grow since they have low competition.
June 20, 2009 at 8:59 am
Great post , thank you .The Internet is constantly mutating like an eco-system at an early stage.
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June 20, 2009 at 9:05 am
well said. there has been a continuous gravitation towards more measurable means of reaching out to customers. You can see it in the transition from CPM to CPC networks over recent years.
http://www.teethwhiteninginstructions.com
June 20, 2009 at 12:18 pm
yeah, you got a good start….
Good Luck again (y)
June 22, 2009 at 6:26 am
Google AdSense is not just a cash printing machine.
Home Teeth Whitening
June 22, 2009 at 2:11 pm
Great way to put it the internet is a crazy eco-system
June 23, 2009 at 11:01 pm
Thank you for sharing and information …
June 29, 2009 at 11:57 am
i agree that online business trend has changed. We need innovation to survive.
June 30, 2009 at 5:10 pm
I think google is the best tool for advertisement
July 2, 2009 at 12:50 pm
I agree, ultimately it comes down to having quality content and codes, and without those two fundamentals, getting a sucessful website is a very challenging, and ulimately unsustainable imperative.
July 4, 2009 at 9:10 pm
Honestly I think google is probably the best tool out there for advertisement compared to others.
July 6, 2009 at 7:44 am
Yeah you are right about that.
July 6, 2009 at 12:34 pm
I think google is the best tool for advertisement
July 8, 2009 at 12:55 pm
Im definitly with the 78 percent of respondents believed the freemium model will weather the economic downturn!
I also agree that google is best for advertising especially in this current climate.
July 8, 2009 at 7:38 pm
It might be but it's very expensive too.
July 10, 2009 at 12:50 am
It is not easy to convince your traffic to pay though so naturally most sites look to monetizing from advertisers.
July 13, 2009 at 7:23 am
cant imagine twitter charging its users
July 14, 2009 at 2:12 pm
http://www.keskin41.tr.gg
July 17, 2009 at 7:08 am
I think google will always be the best, but Twitter is getting suprisingly good, if you know how to use it correctly, you can make a fortune with twitter.
July 17, 2009 at 4:58 pm
You have a great article..
THank's For Share..
July 18, 2009 at 2:28 am
"97 percent of respondents use Web 2.0 tools (Facebook, Twitter, LinkedIn, etc.) to establish an online persona."
I can't help but smile at this particular info. Should these networking sites charge a premium when businesses use them?
July 22, 2009 at 2:05 am
If twitter starts to charge then its the end of the world
July 22, 2009 at 8:59 am
Great post , thank you. We're seeing advertisers in SA also starting to want transparency and measureable ROI in their online marketing spend. The distinction between creating brand exposure and lead generation is becoming clearer and I think traditional media-buying is going to take a serious knock soon.
July 22, 2009 at 9:04 am
I think google is probably the best tool out there for advertisement compared to others. It is not easy to convince your traffic to pay though so naturally most sites look to monetizing from advertisers.
July 22, 2009 at 1:51 pm
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July 26, 2009 at 9:06 pm
Google AdSense is not just a cash printing machine.
Really a good and interactive post.
July 27, 2009 at 7:52 am
Great post! I agree google is the best tool for advertisement.
July 28, 2009 at 5:13 pm
Advertising, whether online or offline has always and will always continue to change and the reasons why will vary. Economic conditions of course play a large role in changes that are made, who is to say what is going to happen in 3-5 years when the economy is hopefully a little better. Advertising methods created or adopted during a downturn may still be in play but you can bet that new ideas will emerge during an upturn.
July 29, 2009 at 5:30 pm
Google for now is the best tool but who knows what bing might bring to the table, but definitely agree that google is best
July 29, 2009 at 8:40 pm
Google is the big G for all…
July 30, 2009 at 5:33 pm
I like Google, it's a big site.
August 2, 2009 at 2:14 am
good start
August 2, 2009 at 10:01 am
good…thanks…
August 2, 2009 at 4:38 pm
really great article to increase my knowledge
August 3, 2009 at 7:08 am
http://www.trlmodels.com
August 4, 2009 at 12:14 am
thanks for your great post…
August 6, 2009 at 6:08 pm
Freemium alone is not enough to sustain a business in the long run. Probably adding products to augment freemium will be a better idea.
August 6, 2009 at 9:52 pm
really great post. thanks for your sharing…
August 13, 2009 at 5:47 pm
Oww thanks very loll..a
August 15, 2009 at 1:46 pm
Thank youu very muchh….
August 16, 2009 at 3:24 pm
good post
August 19, 2009 at 11:08 pm
thanks for the great post…
August 21, 2009 at 11:47 am
Twitter is the most popular
August 22, 2009 at 2:25 am
i like most twins models which confused to know them i am very interesting about them i like their nature to change their attraction
August 27, 2009 at 11:25 am
twitter is more powerfull
September 8, 2009 at 6:10 am
I’d never thought about Twitter and monetisation until you mentioned that, don’t know why, just never crossed my mind for some reason. Friends Reunited charged and when Facebook was free, they lost a lot of their users.
September 16, 2009 at 3:14 am
if they decide to monetize via advertising, they need to deliver customers to advertisers
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