There was a piece in the NY Times by Claire Cain Miller that ran this weekend about how online advertising is no longer a viable revenue source for many startups and how they’re looking at alternative business models to supplement online ad income:
For anyone with a crazy idea for a Web business, the way to make it pay was once obvious: get a lot of visitors and sell ads. Since 2004, venture investors have put $5.1 billion into 828 Web start-up companies, and most of them are supported by ads, according to the National Venture Capital Association. Now advertisers have cut back their online spending. So Web start-ups are searching for new ways to make money, like selling real, or virtual, goods or asking customers to buy subscriptions.
Here’s the thing, the Internet has damaged or undermined the “credibility” of many traditional media as advertising vehicles: newspapers, magazines, radio and TV (to a lesser degree). All have lost audiences and advertisers to the Internet. Yet the Internet still is embraced with some reservations. Take for example a recent CMO survey reported by AdWeek showing frustration about the complexities of online advertising.
The facile logic that went, “audiences are moving online so will all of advertising,” has not proven to be entirely correct. In addition, the idea that all online sites and services could be “free” and ad supported is also proving false. Online advertising will return as the economy returns to health but that won’t solve many of the problems and challenges that publishers and marketers face.
Ad budgets are migrating online to varying degrees but some of those dollars don’t show up as “advertising” per se. (Some go to website development and SEO, as well as “social media” efforts on Facebook and Twitter.)
We are witnessing a shrinking of the advertising economy and the creation of a consumer environment where it’s increasingly complex and difficult to reach people with ads. Yet advertising remains paradoxically one of the few ways marketers can notify interested consumers about new products, services and events — even as it adds more noise to the increasing marketing din.
Screenwerk 
May 26, 2009 at 1:58 pm
Greg,
Check out what a local paper in Burlington, Vermont is doing to stem the migration of ad dollars elsewhere:
Digital Consulting.
I’m curious to see how the model stands up in a saturated market, but it does show some new thinking.
Article – http://www.burlingtonfreepress.com/article/20090525/BUSINESS/905250303/Business+Monday++Free+Press+launches++191+College+
May 26, 2009 at 2:03 pm
Very interesting. Competence and trust — important in the confused marketplace of sound alike solutions.
May 26, 2009 at 4:53 pm
As usual excellent analysis Greg.
I am not sure whether the advertising economy is shrinking or not but it most certainly is in the throws of fragmentation.
May 26, 2009 at 5:30 pm
Fragmentation to be sure but also shrinking because some dollars will transfer to non-advertising activity and “free” stuff. How much? Not clear.
May 26, 2009 at 11:15 pm
Digital advertising can be measured – so you can see if it’s not working very well. Traditional media is difficult to measure in the same direct way, so people have become suspicious of it. We’re in a time of transition, chaos and confusion.
May 27, 2009 at 3:22 pm
As advertising $’s migrate online will the total $’s being spent shrink or grow? In the YP space, for example, the data that I’ve seen shows the revenue per advertiser for yellowpages print YP was approx $2400/yr but for the IYP product the average revenue dropped to $432. However, the number of businesses advertising using yellowpages.com’s IYP products, for example, actually surpassed their print YP product in 2008.
So maybe this is a situation where there will be less revenue per advertiser but the total number of advertisers will increase to the point where more $’s overall are being spent. Perhaps, this is a long tail scenario? Greg, I seem to remember some data you shared a while back that showed around 3.2 million YP advertisers. In 2007, there were an estimated 27.2 million businesses in the United States (from Dept. of Commerce) There seems to be a lot of opportunity to grow the total number of advertisers. I’m wondering how many of them will start/increase their advertising spending to take advantage of the reduced cost/increased measurability offered online?
May 27, 2009 at 3:33 pm
Ron:
Agree that numbers will go up online as per advertiser spend goes down.