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Web Advertising Models are Brutal

October 26th, 2009 · 2 Comments

My quick advice to entrepreneurs trying to make money off of banner advertising is to stop. I recently got an analyst report that puts the average remnant CPM at around 35 cents. To put that into practical terms, your average web-page with an ad-sense banner page only earns $100 for every 286,000 impressions. Boy that’s tough!

 

But wait, can’t you make money off of targeted advertising? Well, maybe. The same report listed Premium CPMs at $15. But to earn those higher CPMs you have to do one of two things

1.       Get enough impressions to justify joining a specialized ad network / yield builder. Pubmatic won’t talk to you unless you generate at least 100 million impressions a month. On the other extreme TribalFusion requires just 5000 uniques a day [but good luck trying to get a $15 CPM].

2.       Hire your own ad sales rep. Assuming that you earn the $15, and pay the rep around $80K (+ 50% for benefits), you have to be sell around 670K units a month to break even on the rep.

Scarily, that premium CPM has been dropping like a rock, and will be even lower next year, making this an even harder business to play in. You can compensate for the lower CPMs by adding even more advertising to your site like TechCrunch which crams 20 ads into a single story.

 

So what is a website owner to do? In my view you have a few choices to get out of this brutal game:

·         Charge for access to your content. The WSJ has been doing it for years and openly encourages everyone else to do so.

·         Make your content a lot cheaper, and by cheaper I mean practically free. YouTube does it splendidly.

·         Stop charging CPMs and start earning CPAs. Zynga makes a lot of money doing just that. Just be sure to be ethical and transparent about it.

 

Some folks will make a lot of money with advertising on their pages, and my hat goes off to them. It’s just a very tough business to succeed at.

Tags: Entrepreneurship · Venture Capital · advertising · musings

2 responses so far ↓

  • 1 Chris Treadaway // Dec 8, 2009 at 6:31 pm

    I think you’re part correct here. Every advertising model, even impression-based advertising, has underlying economic value. CPMs are low & falling because people largely ignore banners and other dumb impression-based ads.

    There will always be a market (and a revenue opportunity) for any web publisher or technology provider who can effectively scale the delivery of ads that people use. It’s a hard racket but some people are beginning to figure it out — and none of it looks like banners.

  • 2 Greedradio // Jan 27, 2010 at 10:14 am

    I love the fact you are one of the very, very few websites I see without junky ads — it’s your space and that’s great. It’s clean and simple. I know what you are about, and your readers aren’t confused by the flashing clutter. Wonderful illustration in action.

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