The evolution of web advertising - Part III

December 22nd, 2006

webadvertisinglast

Since this is the last part of the article, I’ll try to be short. The contextual ads (for example the ones that Google uses) are created in such a simple manner than everyone can use them as long as they comply to the terms of use. Adsense is by far the quickest and easiest way to make money with your website. Google caches the page, scans for information and provides relevant-to-context ads. The targeting is therefore 100% user driven. Until now, this is the only web advertising method I’ve tried and I can tell you it works 100%. Why am I telling you that? Since it’s so simple and accessible to everyone, even unexperienced users make the benefit of it, and most of them since they lack the experience, they think it could be a scam. Have no fear, Adsense is near ;)

Anyway, I’ve been asking myself about the web advertising. How bad could it get?Here’s a relevant example I found while browsing the web. Let’s create a hypothetical Web company and use it as an example. The company is called XYZ, and it is a small, successful content site. Here are some of its parameters:
* The company has 1,000,000 visitors a month who read, on average, eight pages per visit. So there are 8,000,000 page impressions per month.
* The company has 10 employees, with an average pay of $40,000 per year. Some make more, some make less, and $40,000 is about the middle. That means payroll is about $36,000 per month (when you add in the 8% employer match for Social Security and medical).
* Benefits per employee run $400 per month, or $4,000 total per month.
* Office rent is $4,000 per month.
* Equipment leasing and bandwidth to run the Web site is $4,000 per month.
* Other costs include phone lines, power, office furniture and computers, legal/accounting fees, travel, advertising, coffee, subscriptions, blah, blah, blah. Let’s say it averages $20,000 per month in “other costs.”

XYZ therefore spends $68,000 per month.

If XYZ places banner ads on its 8,000,000 pages per month and gets 50 cents per thousand impressions, it makes $4,000 per month. Obviously, that isn’t going to cut it — $4,000 per month does not even cover one person, or the bandwidth and equipment.

If XYZ is able to sell floating ads or Unicast ads at $30 per 1,000 visitors (not page impressions — visitors), then the site’s 1,000,000 visitors per month can generate $30,000 per month. That, plus the banner ads, gets the company to $34,000 per month. You can see that there is still a problem — XYZ is only halfway to breaking even. But $34,000 is much better than the $4,000 that banner ads alone would generate.

Keep in mind that there is no guarantee that XYZ will be able to sell all of its ad inventory. It would take a very good sales person (or sales force) to find companies to sign contracts and pay for all of that inventory (8,000,000 banner ad impressions per month, 1,000,000 Unicast impressions per month). There is no guarantee, for example, that XYZ can find companies to pay $30 per 1,000 impressions for 1,000,000 floating ads or Unicast ads. If XYZ is able to sell ALL of its inventory, it is extremely lucky, so getting to $34,000 per month every month is a long shot.

XYZ therefore needs to find other ways to make money. If XYZ now:
* adds in sidebar ads
* adds in 250×250 ads in the middle of articles
* adds in pop-under ads
* adds in one or two other ad features
…then the company might be able to bring in another $15,000 per month, and it is getting close to its goal of breaking even.

That kind of math is exactly why you see so many ads on Web sites today. It’s either:
* Lots of ads
* Switch over to subscriptions (and hope that you can get 50,000 people to subscribe — no easy task)
* Go out of business

A Web site is a business, and it must cover its expenses to survive, and I provided you with the evolution of web advertising.