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.