Does Web Advertising Work?

Do Web Ads work? Does the vaunted Freemium model actually produce meaningful revenues for anyone but the largest services and content sites? How should Web 2.0 be monetized?

Many Perspectives

There has been a lot of discussion about these and related questions in the past few days among the Techmeme crowd. Here is a cross-section of perspectives from some of the thought leaders in this discussion:

• Unsurprisingly, this discussion was kicked off by Tim O'Reilly, the same ultra-smart observer, blogger and publisher, who originally coined (or at least, evangelized) the term "Web 2.0".
• The Financial Times ran an article provocatively titled: Web 2.0 fails to produce cash , in which the authors question whether popular Web 2.0 companies have actually produced any revenue, and predict a big shake-out in the next year or two.
• The always-interesting Robert Scoble led a widespread discussion, referring to posts by Om Malik and Dare Obsanjo, on whether Twitter (that highly popular micro-blogging service, and train-crash-currently-under-way) should be charging super-users like him, while continuing to keep the core service free for most casual users
• Alexander van Elsas has a wonderful post, referring to an earlier post by Scott Karp of Publishing 2.0, explaining how advertising does not usually provide the user with any value; van Elsas feels that the real value should be created outside the network.
• Coming up on May 30th is a discussion on this topic at TiECON East: "Web 2.0: Viable Business Model or Bursting Bubble?". The discussion includes two prolific and highly popular bloggers among its participants, both of whom have (inevitably) blogged about it - Fred Wilson (Discussing Web 2.0 ) and Don Dodge (Web 2.0 = Bubble 2.0? ).

When Ads Attack!

Clearly, web ads do work under certain circumstances. The poster child, of course, is Google - in addition to ads on its own search results page, Google commands revenues from millions of long-tail publishers via AdSense. Although most of the small publishers in this group actually make very little money, the total revenue in the aggregate for Google is very high.

Web Ads work better in certain situations than in others. At a VLAB event last week, Bill Reichert, Managing Director of Garage Technology Ventures, summed up perfectly the virtuous cycle of content and advertising:
    "If the paid content enhances the product, as in the case of Google, then that attracts more users to the site, which in turn enables more income, which allows the site to further enhance its content. Thus, the ad content should fit the users' actions to be effective; otherwise, as is the case with Facebook, the ads just get in the way."

Monetization Options

Once a web site or service gains traction and gets a sizeable following, there are potentially many creative models for monetization. In a much older post, Fred Wilson wrote about the The Long Tail Of Business Models , working off an initial post on Media Business Models by Chris Anderson (and I've added my take ).

Web 2.0 monetization works especially well in specific situations, and it's likely that totally new models will emerge in the future. One such model is advertisers who create meaningful content for web users, a by-product of which is to drive sales; this type of content can include informative articles, useful services or immersive experiences. Examples of this type of model are:

• Pharmaceutical companies that educate doctors on how to utilize new types of medical devices
• Lawyers who explain the law or provide status updates on government activities
• Home improvement stores that sponsor how-to seminars and then provide discounts on materials

Clearly, the web is a different medium, and simply transposing print ads to the web will not work; the big winners of the future will be those companies that can take some of these radical new models for monetization and make those work for their own use cases.

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Comments

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[Jonathan]

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