My Problem Online Advertising – Part 2

I got quite a response from my previous post about my issues with online advertising. I was actually quite surprised at people rushing to the defense of using advertising as a primary revenue source. Personally, I think it goes to show just how much “brainwashing” web entrepreneurs of the web2.0/Google AdSense generation have been subjected to. I will never ever say that advertising is a bad way to monetize a site, but I will also never ever say that it’s a good business model to solely rely on advertising revenue for your business (unless you’re a traditional business like magazine, newspaper, and tv…although they even have other revenue models like subscriptions).

ANYWAY, I wanted to bring the Elevator Pitch column from the October 2007 issue of Inc. Magazine to everyone’s attention. Elevator Pitch is one of the many columns that makes Inc. (in my opinion) the best business magazine out there. They give you pertinent info for a company – year founded, employees, 2006 revenue, 2007 projected revenue, location, ownership, how much money they need to grow, etc – and then the founders give a one paragraph “elevator pitch” to three venture capitalists. The venture capitalists then react and give their opinions about the company and the money they are trying to raise.

This month the company way 55-Alive, a social network for baby boomers. By most measures, the new company has been a success: they have been featured on CNBC and other television stations, and in July had 600,000 page views. That is NOT easy to do. However, they rely on advertising for revenue. Despite all of their success, they made $4,000 in 2006 and are only projecting $30,000 in 2007. Nice cash, but for a web success that’s not even enough for one person to live off of. And you’ve got to figure they have at least $10k in expenses (pr, advertising, servers, programmers)…maybe more depending on their marketing.

How hard will it be for them to scale to make money on advertising? Listen to what Jeff Bussgang from IDG Ventures in Boston says:

The Lantzes need about $20 million to get 55-Alive! to the point where it can make real money through advertising. Major advertisers want scale. Anything under a million unique visitors per month doesn’t attract them.

It’s like saying you’re going to start playing basketball and you’re banking on making it to the NBA. The numbers are not in your favor. The sooner young business owners realize this, the faster they’ll build sustainable businesses that have a legitimate chance for success. Now, if 55-Alive ALSO sold products for baby boomers, or offered premium services (maybe align themselves with financial planners specializing in retirement), then an extra $30k from advertising would be fantastic.

2 comments on My Problem Online Advertising – Part 2

  1. Adam,

    I agree and would like to add that regardless of whether its online advertising or something else, your new business should have multiple sources of income.

    With my new startup I’ve initially chosen online advertising because it was the easiest to get going. However, I know that to start making real money there are a few other avenues I can (and will) go down.

    “The more the merrier!” =D

  2. […] think in previous posts I’ve proven my point that advertising should never be the sole source of revenue for an […]

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