1. Unless you are a ridiculously huge consumer internet site, you have to build up your revenues through brand advertising sales. It’s very hard to just use ad networks like Google AdSense to sustain yourself: just do the math using 10 to 25 cent CPMs and you’ll quickly see why.
2. The users of your website are not really your customers. Your actual customers are the ad agencies and advertisers. Your Web 2.0 consumer startup is actually a B2B that sells inventory to brand advertisers.
3. How to avoid this: directly monetize your users by coming up with something so compelling people will pay for it through subscriptions, virtual goods, or other E-commerce models.
>> " just do the math using 10 to 25 cent CPMs and you’ll quickly see why."
If you're only getting 10-25c CPM, you're pretty much at the lowest bound. To get a good CPM you have to spend time and effort on monetization, or happen to be in a good niche.
Bingo. If you're reaching, say, executives with buying power in a niche industry (and have a solid ad sales team), you can literally get 500x that amount.
I always enjoy reading Andrew's posts, but I didn't get much out of this one. Calling ad supported sites a B2B is just a unique way of looking at the situation--simply a different way to look at it, if you will. The fact remains that this "inventory" that is being sold to brand advertisers is worth very little in the marketplace (which he does eventually conclude in this article).
The problem is that there are so many sites reaching the same broad demographics of consumers that the ad space is totally commoditized.
But if you run a site for well-off cat owners, there's no reason you can't command a higher CPM for expensive cat-related products, it just may take the efforts of a dedicated in-house ad sales staff.
Anyway, the trend is to move away from CPM ad sales altogether anyway. Ad agencies and big marketing departments want CPL. They would much rather pay you $XX per qualified person who fills out a contact/download form, rather than CPM. That way the pressure is on you to deliver.
This is true, particularly for direct marketing agencies, but many traditional agencies are focused more on brand-building than CPA/CPL.
Selling to direct marketers is much easier than traditional agencies for this reason. There's a million people banging on the traditional agencies' doors with some pitch or another, and so long as selection is not based on concrete performance data, the media buys are based more on perceived brand credibility and agency connections. I know from experience that this approach has a frustratingly long sales cycle (i.e. >12 months) and involves a lot of politics between brand managers, agency people, sub-agency people, outside consultants, product managers, ad nauseam, any single one of whom can tank a deal if they want.
Direct marketers however are much more willing to try something out and see if it works.
Very good point, though I think that even brand building is going to start to move towards real metrics (be they "clicks to learn more" or something else).
But sure, there's always going to be a cachet with having a really strong brand that advertisers want to associate with.
1. Unless you are a ridiculously huge consumer internet site, you have to build up your revenues through brand advertising sales. It’s very hard to just use ad networks like Google AdSense to sustain yourself: just do the math using 10 to 25 cent CPMs and you’ll quickly see why.
2. The users of your website are not really your customers. Your actual customers are the ad agencies and advertisers. Your Web 2.0 consumer startup is actually a B2B that sells inventory to brand advertisers.
3. How to avoid this: directly monetize your users by coming up with something so compelling people will pay for it through subscriptions, virtual goods, or other E-commerce models.