In “Ad Revenue on the Web? No Sure Bet,” published in the May 27 New York Times, Claire Cain Miller finds increasing evidence of the need for multiple revenue sources to support online businesses. Talking about the music industry, today’s Times says “…startups have come to realize they cannot rely on Web ads to support themselves.” I’m hearing this refrain more and more, in the blogs and in consultations with SCORE clients.
Ad Revenues Decline
Miller observes that advertisers have reduced online spending, just as they have scaled back on print, TV and other ads. (Part recession and part decline of old media, I presume.) Nevertheless, she cites EMarketer stats on online ad revenues growth of 10.6% last year. Expectations for 2009 are 4.5%. So online ad revenues are still growing, but at a slower rate.
Unfortunately it’s hard for online businesses, especially startups, to attain the page views needed to generate significant revenues from ads. (My clients can attest to that.) Miller reports that the online business Wetpaint found large advertisers upping their requirement for unique visitors from “a few hundred thousand” to five million, with rates for leftover ad space dropping from $1 to $.25.
Some online businesses avoid ads altogether. Miller quotes Xobni chief executive Jeff Bonforte as saying: “Ads are an inefficient business model, making indirect revenues as a result of behavior, and advertising to people who don’t want to see them or for whom they’re irrelevant.”
Online Businesses Diversity
Web startups that were solely ad-based now are looking for additional revenue sources. And VCs are demanding that new startups show multiple revenue streams to diversify risks.
Here are revenue streams that the businesses featured in Miller’s article are tapping:
Open Table (restaurant reservations) sells software, charges transaction fees for bookings
Wet Paint (website creation) sell ads, charges fees for extra services like promotion and forum moderation, fees to run an ad-free site. Planned: fees for additional storage and personalized domains.
Pandora (online radio)sells ads, offers optional subscriptions
Xobni (tool to search MS Outlook email)plans to sell paid premium version of the software
World Golf Tour (online game) sells ads (1/3 of revenues) and virtual goods like “putters” and “tournament fees” (2/3 of revenues)
Tonic (online magazine) sells products like T-shirts and bracelets. No ads
These businesses are experimenting with a wide variety of revenue sources, some more appropriate to certain businesses than others.
I’ve been tracking revenue streams and online business models, so see this link for the many alternatives that exist. If you’ve got a good link that I missed, please let me know.
What do you think about the longevity of the advertising model to support an online business? Please leave comment.
Update: See also Website Ads Are Not a Revenue Stream for Startups
Related Posts On Social Network Business Models
See also this page of related posts on social network business models.