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The Problem with the Ad-Supported Startup Model

July 17, 2008

vcmike

No shock here: the legions of consumer Internet startups plan to build a huge audience, then to monetize the audience by putting ads in front of them (and/or flip the company to a portal to let them monetize).

There are two problems I am seeing with this mindset.

First, actually making an ad supported media business work is hard, and more often than not the entrepreneurs who are able to build web properties that attract large audiences don’t have a clue how to build a media business.

Over breakfast this morning with my friend Michael Dearing, we discussed a second negative that is probably more problematic in the long run: the perception amongst web entrepreneurs that you can just slap an advertising model on top of a web property, sprinkle water, and have a real business, has led many to spend much less time and energy thinking about how to make money. While advertising surely is a real opportunity for many web properties, in many cases that is just one slice of the business opportunity, and I think the emergence of more robust web businesses has been stunted by the general presumption that advertising is the cure for all web business models.

8 Comments

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  1. July 17, 2008

    Finally, someone confronting reality as it is, not as everyone wants it to be.

    Well done.

    Peter

  2. Barry #
    July 19, 2008

    I couldn’t agree more, Mike. It just so happens I have recently completed a business plan for a new Internet company I am starting that will introduce an entirely new approach to web advertising; one that may render site adverstising completely unnecessary on my site.

    However, I know that a business needs to be diversified in order to minimize overall business risk, and therefore will I have built into the business multiple revenue models on top of my innovative advertising model. Anyone who believes site advertising alone can generate the revenue needed to create a profitable web-based business I feel is mistaken. It is a good supplement to other revenue channels, but should never be used as the sole revenue model in my opinion.

    – Barry

  3. July 21, 2008

    Great, thoughtful article.

    The other thing that I think many startups miss is the introduction of a third party into the software-user relationship: the advertiser.

    “Classic” software businesses are often solving purely for the user (i.e. how do I help the user get a certain job done). In advertising-based businesses, there are two customers: the user and the advertiser. And, they usually don’t always have the same interests.

  4. October 1, 2009

    What little experience I’ve had with online advertising wasn’t good.
    The problem for me was always relevancy of the ads to the business and the appearance the ads create

  5. January 27, 2010

    I always say follow the 6 month rule of any internet venture and do not be too keen on the results for a few months, SEO does take a while- research for a few months while building links and you will start to see patterns of what really works and what doesn’t-

  6. Julia Hakkinen #
    September 20, 2010

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  7. October 25, 2010

    This is often a wonderful blog page. I have been back many times within the last few days and wish to register for your rss using Google but can’t find out the way to do it exactly. Do you know of any guides?

  8. May 18, 2011

    Very true which is why there have been so many failures. More recently we have see that many of the large media giants have decided the advertising model is just not working for them and have gone back to paid subscriptions to their sites only.

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