Don't use Ads as your Business Model

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BY F3FUNDIT

If you’re basing your entire business model on advertising, bin it, it will get you nowhere. Especially if your business falls within the boundaries of a mobile / web business. Why?

How shall we count the ways.

Supply & Demand – With the prevalence of Google’s AdSense on even your grandma’s blog, advertisers are just not willing to pay big bucks for most keywords. Sure you can get a list of high paying ones and try to develop a site for that, but your target market will also be so miniscule that your traffic will make a blip on the radar, and then how much fun can it be to write about “Mesothelioma Lawyers in San Diego” or “Endowment Selling”. Remember, in the web world – Quality Content is King. It’s the differentiating factor between a site that grows and a site that stays stagnant. Same that goes AdSense goes for AdMob, except that on Mobile devices people are even less likely to click through, due to the basic nature of phones. People use apps for one specific task, then close them. i.e. I’m not signing up to flickr when translating something from Catalan to English.

Savvy Individuals – Perhaps savvy is the wrong word here, but do you yourself click on ads when visiting websites, or do you simply pass over them as if they were empty space? Reckon it’s the latter, and just like you, so’s the rest of the wider internet community. And while in a perfect world we’d like to think the opposite, it’s just not the case, even when it comes to mobile applications, see above ref.

Dedicated Ad-Space – Sites that typically rank in the 1000+ range on Alexa can charge between €30-40 CPM. Mind you these guys tend to have dedicated sales teams going after advertisers, and have information on their users that goes far and beyond what you can access with Analytics -Age, Sex, Annual Income, all the stuff that warrants a high CPM. If you want to star playing with the big boys get your traffic to their level 1st, and if you can, by all means best of luck.

It’s InefficientChris Anderson editor-in-chief of Wired Magazine wrote in the WSJ said this better than I ever could. “The standard business model for Web companies that don’t actually have a business model is advertising. A popular service will have lots of users, and a few ads on the side will pay the bills. Two problems have emerged with that model: the price of online ads and click-through rates. Facebook is an amazingly popular service, but it also an amazingly ineffective advertising platform. Even if you could figure out what the right ad to serve next to a high-school girl’s party pictures might be, she and her friends probably won’t click on it. No wonder Facebook applications get less than $1 per 1,000 views (compared to around $20 on big media Web sites).You can read the article here.

Notwithstanding there are some things that you can do to augment your income from online advertising revenues, such as placement, colour coding, etc… etc… and as a supplementary revenue channel it can cover some operational costs but don’t bet your bottom dollar on it, and don’t try and raise money with it as your main revenue source. You need to have a value proposition that is actually viable, mobile or net, or for that matter with any business.

Think we missed something? Let us know.

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