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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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This entry was posted on Sunday, March 7th, 2010 at 9:48 am by bretpiatt and is filed under Business, Technology. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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  • http://www.astramatch.com/blog pemo

    Thanks for this post Bret. I am surprised these days that most web based businesses fall back on advertising model. Because I too believe that we need to get with the new program. The new program demands Creativity and breaking new ground. Web 2.0 pioneers are required obviously. I was also shocked by all the whining about ad blocking on HN recently so thanks for educating me as to what had prompted this. It is fair warning that people want to block ads and also that there are ways to block ads to help us understand what consumers want or in this case don't want. Google being such a leader & so called disruptive force should also take the hint and rethink their reliance on ads rather than creating even more ways to advertise to people by invading their privacy further. The only constant in life is CHANGE so we really need to pay attention & get CREATIVE about business models.

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    The CPM model for online advertising is at the route of all these problems. It is fine for user generated content websites as the content costs nothing or very little to produce. For high quality content websites – which pay professionals to do a professional job – the CPM model is simply crippling. I 100% agree that in magazines like Vogue – the ads are fabulous and part of the problem with online display ads – skyscrapers, leaderboards and the like – don't have the impact of a full page or DPS as running along side good editorial content – they are in your peripheral vision and a lot of agencies creating content for these small compact spaces simply don't have the 'space' to create something as alluring as a glossy magazine ad or a 30sec TV commercial. We can all moan about ad blockers and users not willing to pay subscriptions for online content but the absolute core of all this is that the 'standard' online display ad options simply aren't good enough or engaging enough. We need to go back to the drawing board and start from scratch.

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  • coco1212

    Advertising is the oldest business model for website. I've been monetizing sites since 2002 and back then it was much more difficult. One of my first clients was blair rewards complaints and in order to sell their products I had to basically send tens of emails and sign collaboration contracts with affiliates. Adwords changed the game by giving an accessible solution to anybody willing to monetize their website.

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  • Barbaragabogrecan

    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.  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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