Web 2.0 advertising revenue model can work… sometimes

I’ve been reading a lot lately about the never ending debate on monetizing Web 2.0 products with an advertising based revenue model. There are quite a lot of skeptics out there. Why is that? Web 2.0 is after all just another media channel for advertisers along with print, TV, etc. So why would it not get its “fair” share of advertising budgets in proportion of the audience it attracts? Why would the current eRPM ratio of 1 to 25-30* between TV and social networks remain in the medium term?

Some say there are targeting issues. Others argue that advertisers are afraid of putting their brand beside content they can’t control. Another argument is the traditional media large reach. These are maybe fair points today but TV relies mostly on socio-demographics targeting – a technique that Web 2.0 companies can be very good at. In addition, given media consumption trends, there will be quite a few Web 2.0 products with large reach.

This not to say that all Web 2.0 products will be successful with advertising. Indeed, media channels successful with advertising have a common characteristic: an excellent fit between content format, advertising format and user’s purpose/values. In a fashion magazine, a Channel ad fits naturally with the content and the audience’s reason of reading it. At Google, content is a list of links, ads’ format is also a list of links and the users are there to search for links.

It is true that Facebook or MySpace have an issue of putting together these three elements at this point in time. However, other Web 2.0 sites could find this fit between the three dimensions. For example, a recent idea (read here and here) on having paid songs included in online radio could be a good candidate (though a right balance must be kept in order not to contravene to the user’s purpose). Professional networking sites are also well positioned with certain type of advertising. Xing – a publicly listed competitor of LinkedIn in Europe – manages to obtain USD ~7-8 eRPM from advertising only (including job listings). It’s not yet traditional media levels but it’s already quite good.

In other words, there are no inherent properties in Web 2.0 preventing monetization from advertising. Those companies that have a good fit between content format, ad format and user’s purpose/values will be able to generate revenue from advertising.

* Source : USD 13-15 for TV from comScore report “Online is the New Primetime” vs. USD ~0.50 for social networks from PubMatic figures assuming 2 ads per page

Comments

[stetoscope]

Hi Mr.Wallen,
I like your post. It remembers me the JC Decaux case! In the early eighties, prints ads were treated like a promotional media just because of its poor appearance. TV had already takes all. But JC Decaux decided to create what they called the "Mobilier Urbain" they designed great bus-stop and cared a lot about prints places. Eventually Decaux ad-places were really valued.

[Wallen's]

Thanks Stetoscope for this comparison to other media sectors. We tend to forget in web 2.0 that we can learn a few thinks by looking at "old" media. In this case, JC Decaux really created an ad format from scratch... just as current or future web 2.0 companies will do.