Ampers & Dot

If you came to this blog looking for ways to make money with your web 2.0 product, you’d probably better leave now because this post will only confuse and annoy you.  Also, if you’ve got a web 2.0 product, you probably shouldn’t be Googling “how to make money with web 2.0″ anyway, you probably should have thought about this a while ago.

But, if you’re like me and you’re fascinated by all the startups out there without business plans, then keep reading because we’re gonna have some fun and hopefully help me understand some things.

One of the biggest problems with the “web 2.0″ world right now (aside from an abundance of blogs that make fun of web 2.0) is that there is an abundance of money flowing into startups that will have trouble turning a profit.  This is eerily familiar to the dot com boom, that basically happened due to crazy over-valuations of websites that couldn’t actually make money.

So how do companies make money online right now?  A) Advertising B) The “Freemium” model or C) Selling T-Shirts.  Honestly, that’s pretty much it.  So as an exclusive three part blog post (yes, this easily could be one long blog post, but I’m cheaply splitting it into three sections (first for time, secondly because I really need to shorten my posts…)

So today we’ll be talking about the first market for making money online: Advertising.

Advertising
This is by far and away the biggest revenue stream online.  Google built an empire out of advertising and as ads become increasingly targeted based on all the info you’ve put out on the web (yes, it’s going to get creepy very, very soon - and no, Facebook’s Beacon wasn’t that horrible of an idea, it just came around too soon), we will become inundated with more advertising than we can stand.

But I also don’t think it’s very effective.  Right now there are fundamentally two advertising models; one where advertisers pay when you click on links and other model that charges for every thousand or so times an ad gets displayed on a page.

This model has been successful because it’s easily measurable the way no advertising has been before.  In the print world advertisers would pay insane amounts of money for physical ad space, but have little understanding of their return.  Now with click throughs or pay-per-impression, marketers can know immediately how many people actually clicked on a link, or exactly how many thousands of people saw their banner.

Four problems with this: 1) as the culture becomes more web-savvy (and not that stupid “digital savvy” person who downloads ringtones and watches lots of NFL) we will become increasingly able to avoid paid links.  We’ll be able to see through the ads and get only the content we want- I mean seriously, when was the last time you saw a Google ad along a blog’s sidebar and decided to click on it? Basically this ends up becoming a battle of trying to trick readers into clicking on links- and what does that achieve?  High bounce-rate, that’s all.  Especially for Web 2.0 companies that target the digital crowd- we are less likely to click on links.

Problem 2) We don’t really look at banner ads.  In print media a full page ad might be interesting; it might be artistically cool or have some model in it or something to catch the eye.  But banner ads?  Not interesting.  Maybe they are flashy or have some annoyingly enticing mini-golf game, but again- they’re trying to trick you into clicking, not actually advertise to you.

Problem 3) I’m not looking at your ad.  Yes, I just mentioned the mini-golf one, but aside from that I have completely trained my eyes to avoid ads.  I skim over them at an astoundingly impressive rate.  Maybe this is my superhuman skill, but I think most of the public is able to avoid looking at these ads.  So yes, 1,000,00 people visited a page that had your banner up, but how many actually saw it?

Problem 4) It’s not that much money unless you’re a huge player in the market with millions of page views- you won’t make that much money on it anyway.  This model really only works for a small amount of the web and NOT for small startups with Web 2.0 products.  Building a company and expecting to be ad supported will take a LONG time to reach profitability.

To end my rant on online advertising I’ll throw a twist in: I’m all for better targeted advertising.

If I’m in the market to buy something, let’s say a 2GB SD card, I could go to my favorite places (TigerDirect or NewEgg) or, what I’ll likely do is ask the Google.  And here’s where things get awesome: while writing this I decided to actually Google “2GB SD Card” and low and behold: TigerDirect is the top ad supported option and NewEgg is the Google shopping choice (plus that price is pretty good, should you actually be in the market).

Good work, Google.  I’m actually ok with that.  Did Google know that I like those places? No… but I’d be ok with it if they did.  Strangely enough, better targeted advertising would make online shopping a breeze.

Is it invasive? Yeah, maybe.  But if it helps save you money, would you be all that worried?  Ok, next post (likely Monday) will cover the problems with the “Freemium” model.  Oh, and just so you don’t have to spend the weekend researching, I’ll also explain what that is.  Happy weekend, all!