Ad-based Economies

May 11, 2008 11:04 AM

Are there industries that are as dependent on advertising revenue as The Media and (Free) Web Apps?

I can't shake a prejudice I've acquired recently of thinking of ad-based revenue as "fake revenue".

It was precipitated by looking at the Adsense reports for a firm and realizing that they were basically running on nothing. If they'd spent as much time writing random blogs as they had making technology they'd probably have higher revenues (if their plan is just to slap on AdSense.)

(I realize that a lot of these firms roll out speculative sites/applications rather than safely profitable ventures just to see what catches on, and that doing custom ad sales can be better than using automated ad networks.)

But I still feel that unless you're pulling in 'customer money' or real affiliate money somewhere in the flow you're heavily dependent on something that's pretty shaky (advertising budgets: whimsical because of how they flow in and out of particular media, and ebb according to the macroeconomic context.)

Is pulling money from showing banner ads just as 'solid' as pulling money from customer pockets in terms of what firms outside of the internet sector do? (Or, Do you know of any resources I could read to explore the idea of Ad/Sponsorship-based Economics?)

posted by Non Prosequitur to work & money (7 comments total)

Neither television nor magazine publishing could sustain itself without ad revenue. Just think about what a 200 page glossy magazine must cost to print, let alone distribute.

Noisy, empty blogs and websites do indeed do well with AdSense, but that's a window that slowly closing as Google gets better at detecting such things.
posted by rokusan at 11:17 AM on May 11

You're right that it's not especially solid -- the decline in advertising revenue as agencies switch to the internet is absolutely killing newspapers, but don't think that it's not real money. All the newspaper publishing fortunes you know of are made almost entirely on advertising sales. Virtually none of it comes from the cover price.
posted by bonaldi at 11:31 AM on May 11

thanks rokusan.

I didn't want to stuff multiple-questions into the thing but in case it helps clarify the line I'm contemplating, the first question I thought of when considering this issue is: are technology sites and media companies basically in the same market then? (Capturing eyeballs to deliver to advertisers.) In other words, if you own MyCuteDog.com do you need to aggressively move into MyDogBlog(s), editorial content, Dog Events in your city, Dog Owner of the Day—if your revenue source is the same as that of Dogowner's Monthly, does your competition automatically become Dogowner's Monthly?
posted by Non Prosequitur at 11:32 AM on May 11

To answer that -- most emphatically yes. Craigslist is killing certain newspapers dead.
posted by bonaldi at 11:35 AM on May 11

if you own MyCuteDog.com do you need to aggressively move into MyDogBlog(s), editorial content, Dog Events in your city...

No.

You could just as easily move into MyCuteCat, YourCuteDog, MyUglyDog, or any other directions if you wished to expand your content. You're also welcome to stay in the narrow specialty (?) of your cute dog, and your cute dog alone. Nobody's pushing.


If your revenue source is the same as that of Dogowner's Monthly, does your competition automatically become Dogowner's Monthly?

Yes.

In other words, the latest Pixar cartoon or Eddie Murphy movie is indeed competing for the same movie-going-dollars as Road to Guantanamo. The maker's intent or anticipated audience doesn't define the market. It's still the same market.
posted by rokusan at 11:39 AM on May 11

Obviously, nobody is as dependent on ad money as the multibillion dollar international advertising industry.
posted by box at 12:15 PM on May 11

If your revenue source is the same as that of Dogowner's Monthly, does your competition automatically become Dogowner's Monthly?

That's really the wrong way to look at it. Two media companies do not share a "revenue source." Their revenue sources are the highest-paying advertisers they can get at any given time. The question is, do they share the same readership?

If you are a small special-interest website that covers the same general subjects as a long-standing widely-distributed print publication, that means that you probably have a certain overlap in your readership. But does your site get the same number of readers as the print publication? If it gets fewer, then there is probably something specific you can say about those particular readers...why do they read your site, as well as the magazine? Are they younger/hipper/more progressive? You can then use that difference to position the value of advertising on your site.

Also, it's commonly stated in media trade pubs these days that print ads plus online ads are an effective combination. So if Dogowner's Monthly doesn't have a website, or they do, but it's crap compared to yours, then it might make perfect sense for advertisers to run on your site and in the print magazine at the same time. In fact, you might even want to make cross-promotional deals with Dogowner's Monthly. They might become a client of yours, running ads for their magazine on your site. This is not "competition" in the Highlander sense; there can be more than one media company serving similar or overlapping demographic and psychographic markets.
posted by bingo at 7:17 PM on May 11