Advertising isn’t the only business model for websites

People pick advertising because it doesn't require selling and selling is hard.

A post by Ken Fisher at Ars Technica stirred up quite the hornet’s nest.  Brian Carper replied that, “Advertising is devastating to my well-being”.  Rob Sayre chimed in on the Mozilla Blog about, “Why Ad Blockers Work”.  All three of these were picked up by Hacker News and became some of the most commented threads of the week.

I’m not going to rehash anything said in those posts — I’m instead going to look at the different business models in the print and broadcast media markets and ask the Internet site operators why they aren’t trying to monetize in those ways?

In print media publications exist that are 100% advertising supported.  You’ll find them in the magazine racks by the exit of your local supermarket or in between the exterior door and interior door of a coffee shop like Denny’s.  These publications have marginal quality content — not good enough I’d be willing to pay for it but good enough that if I want something to read while I eat my Grand Slam I might pick it up and thumb through it.  If you operate a website and you try to support it 100% through advertising you’re telling me, “My content is marginal so I only believe I can monetize it through advertising because you wouldn’t be willing to pay me for it.”

Moving to broadcast media the days of 100% advertising supported is nearly gone.  As of this study from December, 2008, nearly 90% of US households receive their television through a subscription based service.  We’ve seen a decade or more of whining from the major networks that they can’t continue to provide the quality we’re used to while viewership continues to decline.  None of the networks provide 24×7 original content, after 11:00PM on most you get 6 hours of infomercials until the early morning news shows.  The whining by website operators that users block their ads sounds a lot like the major networks crying the same thing with DVRs (a DVR is the functional equivalent to an Ad Blocker in your browser as long as you skip the commercials with it) and/or the fact we have more selection now due to competition from companies with other models.

Most content today is published under a hybrid model of pay for content (either through one time purchase or a subscription) plus advertising revenue.  This is model is used by magazines, newspapers, and cable TV channels.  Because they have a hybrid model they can produce content that doesn’t require as large of an audience to generate a profit.  Ars Technica comes close to using this model on the Internet except when you subscribe there all they do is stop showing ads — they aren’t getting the model right.  I pay a monthly subscriber fee to TNT or ESPN and they still show me advertising.  If you’re going to have a subscription service on a website give the users access to premium content — don’t just turn off ads.  I’ll pay for premium content and I won’t pay to have ads turned off when I can turn them off for free with an ad blocker.

The final model is 100% pay for content with no advertising.  In the print business this applies to very few publications — mostly academic journals.  With broadcast media many “premium channels” exist such as HBO, Showtime, Cinemax, and Starz that generate all of their revenue from pay for content.  Ars Technica is jumping from the 100% advertising model to the 100% pay for content model but they’re giving away the exact same content.  Many HBO subscribers would be willing to watch their favorite series with commercials for free each month instead of paying the $10 subscription fee — but HBO doesn’t give you that choice — it is subscribe or don’t get access.  For you to be successful with this model you have to have premium quality content that will attract more people willing to pay than your cost to produce.

Most of the Internet today is running in the first business model and because of that you get “weekly circular” quality content surrounded by tons of flashy advertising.  Very few websites have been able to successfully use a hybrid model.  The NY Times and WSJ are a couple of examples.  I’m not certain if their web divisions are profitable or not — that doesn’t have as much to do with the inability to run a hybrid model web property as it does that they have a mostly print based company still with costs a pure Internet business would not have.

We’re still very early in the days of media moving to the Internet.  Based on some 2009 estimates Internet advertising amounted to ~$21B whereas newspapers still brought in ~$31B, television at ~$36B, and magazines at ~$16B — these numbers are just advertising revenue, purchase/subscription numbers not included.  As revenue continues to shift to Internet publishing formats you’ll see all models emerge and as a publisher you’ll need to figure out which category you want to be in.  If you don’t view your content as “local circular” quality then perhaps you should start looking at a new business model today.

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