Should Your New Web Business be Ad-Supported?

Contrary to popular belief, the ad-supported model for a web business is very, very hard to succeed at. I've underestimated the difficulty of living on ads a couple of times in the my investment career. Wouldn't want you to do the same either as an investor or an entrepreneur.

Google, of course, is advertising-supported and is a huge success; that's bad news for you - and Yahoo and Microsoft. Google is consuming most of the free oxygen in the ad-supported cave. If someone wants to buy keyword-driven ad inventory, they go to Google. Why should they bother going anywhere else, especially to a startup very few page views? If you want ads on your service, you'll have to sell them or get them from someone else who is selling them. No matter how neat your self-help ad engine is, no one except maybe your mother will try using it UNLESS you open the way to a significant new market AND can prove that.

OK, you say, people won't by ads from me but they'll buy them from Google. I'll create the page views with my wonderful new service and Google'll put the ads there. Google'll put ads anywhere. Yeah, but. Google will put ads on your pages; some people will click on these ads (Google charges for and pays for clicks in case you've been living on Mars and missed that). You will get a small stream of revenue; it won't bring you anywhere near breakeven. It won't impress potential investors. In fact, the trickle of revenue you get from Google might even convince potential investors that you CAN'T make a living with ads; no ads and no revenue might leave them easier to convince.

Google ads are fine for harvesting ADDITIONAL revenue. Bloggers run them because any revenue is nice; but most bloggers aren't trying to make a living from their blog or attract investors to it. If your website sells something, it makes all kinds of sense to sell additional related somethings through Google ads or Amazon ads (which you can better aim at your customers). If your website has some spare space, Google ads are something people are used to looking at and they'll make some spare change for you. But they won't make your business model.

Maybe there's a counter-example (if so, please post it). In theory, I thought, since Google does such a good job of keyword targeting and increasingly good job of geo-targeting, a well-defined site that viewers come to for well-defined reasons (not an eclectic site like Fractals of Change) ought to be able to induce the Google bot to send just the right ads to attract many clicks at a high price per click. But I haven't seen it happen that way.

Besides Google there are ad networks which will actually sell your site to advertisers. Professional blogs do get a great deal of their advertising from networks like Federated Media (FOC is a small blog using FM). But it's tough to get the attention of a good ad network if you don't already have good demographics AND high viewership. Even if a network takes you on, their salesmen aren't going to be able to do much for you unless you have numbers big enough to get their attention and the attention of the advertisers and agencies they sell to. If your content is powerful enough, you might make a living with agency ads – but it's a long shot if you're not BoingBoing.

Whether it's Google or an ad network, whoever sells your ads is going to have to keep a lot of the revenue to pay the selling expense. It's highly unlikely that they'll be enough left for you to run your business on.

The bottom line is that you have to have way to sell ads if you're going to support a service on advertising revenue. Sell as in actually convince somebody to buy something, not just take orders. Selling ads nationally means having existing contacts with people who buy ads nationally AND having such a hot property that they'll pay attention to you. Selling locally means feet on the street walking into stores and helping to build local campaigns. Radio stations know how to do that; you probably don't and probably can't afford to hire someone who does. The easy local ads were the classifieds because the newspapers didn't sell them, they just took orders. Craig and his List jumped quickly into that huge niche. Almost inconceivable that you'll make money there.

If you have a better way to sell ads, then maybe you should start an ad-supported service. If you just have a better service, you probably can't support it on ad revenue alone.