Typical Web 2.0 business plan:
- Create free site for millions of people to use.
- Places ads on site for them to click on.
- Get rich.
That’s how it works right? Well that’s what the tendency is today when creating a web application. I don’t know when and why this started, but I wonder when will the companies that have a variety of revenue streams start to appear? For all the shit and praise 37signals receives you have to tip your hat at the fact that they make the majority of their money through subscription services. Yes there is some advertising revenue thrown in there, but when has diversity been a bad thing? It’s even been argued that if free competitors sprout up it won’t put a dent in their bottomline. Hell, now they even have a job board that is pulling in some nice scratch for them.
37signals’ Revenue Model:
- Consulting / Workshops
- Subscription services
- Ad Network
- Job board
Potentially 5 different sources of revenue. Very nice position to be in.
Advertising still works and therefore companies will continue to purchase ad space to gain awareness of their products and services so I don’t believe that we should ignore advertising altogether. However, how effective can an ad on a photo-sharing site be when people are there to look at photos and not a text ad pertaining to the cat pictures they are viewing? You almost have to blame Google for this whole mess because they made placing relevant ads too easy and by default that is the first ad unit most new sites reach for.
The problem is that these sites start to fall into a cycle that only makes things worse. You see that a couple of clicks earn you $X so if you can increase the amount of clicks, usually by increasing pageviews or blinding your audience with your ads, you can increase your revenues. For this to occur however more resources are usually required and your new revenue doesn’t match the costs of those resources.
From the beginning we knew that advertising would be a piece of our revenue pie, but we also made sure to sketch out planes for other forms of revenue and the only thing keeping us from them is execution. I don’t want to think that another bubble burst will occur and companies start pulling the plug on their advertising budgets leaving many websites high and dry. Of course there is no need to worry about a bubble bursting when there are so many advertisers who can’t figure out how to advertise on Web 2.0 sites.
My belief is that if you can create a great site or service there is bound to be ways to monetize it alongside advertising. I just don’t like to see us building up infrastructures where the base depends on the advertising economy because as history shows that base does not remain stable forever. I think many companies know this and that’s why they are trying to sellout even quicker because there is no other future for them.