As Online Ad Revenue Remains Concentrated In Few Hands, Frustration Builds

6 Comments

With online ad spending growing more slowly, are internet ad dollars being spread too thin? Reuters put the question to a few media execs and digital agency heads who express concern about the heavy reliance on advertising as a means of support.

Beth Comstock, president of Integrated Media at NBC Universal, is pretty emphatic about it. Noting that NBCU started a fund to invest in digital ventures, Reuters (NSDQ: RTRSY) recorded her frustration at the seeming lack of imagination of some business models that are presented to her: “I’m getting to the point where I feel like every answer to every business development pitch is ‘We’re going to be advertiser supported.’ … There are not going to be enough advertising dollars in the marketplace. No matter how clever we are, no matter what the format is.”

Aside from the proliferation of new web outlets from traditional media companies, others like Google (NSDQ: GOOG) are drawing more and more ad dollars. Still, the portion devoted to online advertising remains demonstrably small compared to what TV alone receives. And in its recent forecast, ZenithOptimedia predicted that the internet’s share of the $495 billion in global advertising would still be under 10 percent in 2009 – still behind what’s spent on magazines, newspapers and TV. So there’s still room for online advertising to grow, which the Interactive Advertising Bureau – and others – has suggested will happen once there are better metrics in place.

So the big problem is not that ad spending is drying up, it’s that the bulk is concentrated in a few sites. Citing the IAB, Reuters points out that the top 50 websites in the U.S. took in more than 90 percent of the revenue from online ads in H107, while the top 10 sites sucked up 70 percent of internet revs for the same period.

6 Comments

Phil

The same could be said about TV and Magazines – new TV channels keep starting up as do new magazines.
If you get enough visitors and they have money to spend then companies will pay to advertise to them – that has to be a criteria for ad supported sites – how much disposable income do the people you attract have

Andrew Goodman

I wholeheartedly agree. This whole "advertiser-supported business model thing" — how unimaginative!

Which is why we at Digiferous.com have come up with something different.

We ask our subscribers to mail us a finger. One of theirs. We frown on the getting of fingers from other people.

We then place the fingers into a global finger auction so that these generously-supplied digits can rise to their natural price level.

Through these means, we can support our operations.

However, if this proves not to be as promising as we expect, we're considering an advertising supported model.

Joe Duck

Excellent summary, however the move from offline to online advertising seems too pessimistic. Good metrics are available now to determine cost per sale or customer aquisition and this will continue to favor online. By 2009 I'll be surprised if online spend is not at least 20% of total. That's about a hundred billion which could fund a lot of site development.

Slavito

Another issue is that content producers are generally not the ones making the big money in this game. Instead, it's content "aggregators" – search engine being the most prominent of them (after all, the most effective ad machine created to date is Google and the company refuses to get dirty with actual content production).

This situation contributes to the growing dissatisfaction of content producers (newspapers and even regular web authors) who feel they should somehow be compensated for the extraordinary revenues aggregators earn "on top" of their content. This argument is countered by saying that aggregators already "pay" them in the form of additional visitors (thus increasing the audience and propping up the rate card). The logic that is begrudgingly accepted… for now. However, if the balance tilts too far in aggregators' favor, I am not sure this argument will continue to work.

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