Online Advertising Revenue Buys Me A Chai Latte

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Online Advertising Revenue Buys Me A Chai Latte

 

Those of you that are regular readers of OnStartups.com may recall that I had turned on online ads on the site for about a week.  As I noted back then, the motivation for this was more educational than financial (i.e. I wasn’t expecting to make much, and that was not the primary motivation).  Ads were left on for a week and then turned back off again.
This time around, I tested with Yahoo Publisher’s Network (YPN) – though I’ve run a similar experiment in the past with Google AdSense on another site.  I saw better results with AdSense overall, but not enough to change my opinion in any meaningful way.
In the week that I had advertising on, I generated just enough revenue to buy a nice cup of coffee at Starbucks.  No, I don’t mean per day, I mean revenue for the whole week.  The week that I ran the experiment was a relatively typical in terms of traffic on the site (clocking on average about 1,500 unique visitors a day).
Here are the likely arguments the online advertising experts would make regarding why the revenue generation was so low.  
  1. AdSense would have generated more:  I agree, it probably would have and I’ve tried that before too, but it would not have been more than 2 times more than YPN.
  1. Ads were not well placed:  I agree.  I was not looking to make ads the focus of the site in order to maximize revenue.  I wanted to see what would happen when I just placed them where it felt “right”.
  1. Not the right audience:  I agree.  OnStartups.com is not about gadgets, luxury travel or other “transactional” content that would likely be of interest to high-end advertisers.  It’s for entrepreneurs that are likely more interested in content and are not really looking to make a specific type of purchase.
  1. There are other advertising vehicles:  I agree.  I could have gone with CPM models, instead of CPC.  I could have used Chitika (which I have also tried before), or found more targeted advertisers myself.

  1. I don’t know what I’m doing.  I agree.  I’m by no means anywhere close to being an expert in online advertising and I’m sure if I had more knowledge and experience, I could have generated more revenue.

As noted, I agree with all of the above points.  This experiment was by no means conclusive nor scientific in any shape or form.
The big message I have here is this:  Advertising revenue is not easy.  You can’t just plop an ad up on a site and hope to watch the money roll in.  Though I could likely have increased my success-rate (possibly by an order of magnitude), this requires some degree of insight, learning and effort.  Personally, this is not something I’m particularly interested in doing.  For every hour that I could spend learning about the best way to generate ad dollars, I’d prefer devoting that time to reading more about my area of interest and writing content that I think would be useful to you, my reader.  Even if I was able to increase my ad revenue 100 fold, I’d still be making about $500/week, which is simply not interesting enough to be worth the effort.  And, it would be a lot of effort.
I would make a similar argument for the software startups that are hoping to use advertising revenue as their primary revenue vehicle.  In order to really do this, you have to:
a)     Have lots and lots of web traffic.  This is not easy to do, even for a relatively successful site.
b)     Ultimately be able to convert the traffic into meaningful interactions that advertisers are willing to pay for.
c)      Spend some amount of energy learning and experimenting with how to optimize the advertising revenue generated.
Though this is certainly not impossible (as proven by a number of exceptional examples making lots of money in online advertising), I would argue that most software startups are not necessarily good at knowing how to make meaningful money with advertising.  Few software developers are born with the skills required to be great online advertising revenue generators.  Though it’s learnable, you have to make a conscious choice as to whether you want to spend time learning about creating better products – or creating better placed ads with the right level of intrusion to optimize the money you can make.
Further, if I were putting ads on a software site (like my current startup, HubSpot), it would be even harder for Yahoo! or Google to generate meaningful ads.  Most of the content they would need to select the right kind of ads would be hidden behind a secure sign-on.  Most software startups, other than those focused on user-generated and publicly facing content would manifest this challenge.   Without a lot of meaningful content, the advertising engines can’t place the right ads.  This is why I do not expect to use advertising as a means to generate revenue for my startup.  It just doesn’t make sense for me.

Summary Of My Point: 
Software startups relying primarily on advertising revenue need to experiment and actually try it to see what kind of money they can currently make.  For example, if a site is getting 100,000 unique visitors today and making $100/week in ads, we can extrapolate a little bit from there and figure out what kind of traffic would have to be generated to make enough money to be worthwhile.  Chances are, it’s going to be a lot of traffic.

Posted by Dharmesh Shah on Sun, Jun 11, 2006

COMMENTS

How long till we have people that "Will Blog for Chai"?

posted on Sunday, June 11, 2006 at 3:54 AM by Colin McLennan


I read your blog via RSS so i never realized. I wonder what percentage of blog readers do the same and what impact this has on advertising costs/revenue.

posted on Sunday, June 11, 2006 at 4:00 AM by ora


If I replace 'advertising revenue' with 'software sales' your point would basically read like this - 'You should not expect money rolling in after you open Visual Studio and write a few lines of code'...

Another thought - as a software product should ideally solve a real and important problem, the advertising site should be built to match existing precise advertiser's demand or you'll get 'the product with no users'.

Or, in other words, planning, designing and building a source of advertising revenue requires the same amount of thought, effort and experience as successful software product :-)

posted on Sunday, June 11, 2006 at 6:48 AM by Alex


Alex: Excellent points. Had not thought of it that way, but you are right.

In order to expect advertising revenue, you have to make a conscious decision to position your site for ads just like you would design a software product for sales. In this case, I guess we can think of the advertisers as customers (much like Google does).

The one challenge I see here is that the product is being used by one group (the users) but the customer is someone else. Not the first time this has happened, but may present some issues.

posted on Sunday, June 11, 2006 at 10:00 AM by


The key is the difference in being a software site. You made a point about Yahoo, Google having a hard time coming up with relevant ads. The other point is, yours is not a site for mass consumption.

Ad-based business models work best for consumer-oriented sites, which yours obviously isn't. I still believe you - and many other professional sites, be it software, consulting, legal, medical ...etc - are making money on the site. Indirectly, by building a brand an connections that helps the primary business, which is NOT ad-based :-)

posted on Sunday, June 11, 2006 at 10:22 AM by


I'm an RSS reader most of the time, so had never seen/noticed your ads. Just an FYI.

posted on Sunday, June 11, 2006 at 11:19 AM by John Roberts


Here's another way of summarizing Dharmesh's point: "If you plan to make money with advertising, you'd better be knowledgable about advertising." Assuming that google ads are "plug and play" revenue and so you can focus on content instead of the business is a low-probability play.

And a quick note on Zoli's comment - advertising can work very well in non-consumer environments. I say this as the CEO of an active advertiser in non-consumer publications. So it's not about millions of users - it's about providing value both to the readers (which retains their attention) and to the advertisers. And that's more work than cutting and pasting javascript code.

posted on Sunday, June 11, 2006 at 1:52 PM by Ray


Did you hear about that Canadian dating site (plentyoffish.com)'s owner who received a ~ $900,000 check from Google?

His ads get him horny clicks. Cheap way to make money, but that's his thing and he's doing great with it.

What I'm surprised about is the ratio of people who read the blog page vs people who comment. I just typed 'beta "Web 2.0" site hosting' and Dharmesh's "Crash of the Titans" post came up 1st on Google!

Some amazing linking going on here!

But why is the forum so quiet? I'm used to forums that work almost like a realtime conversation (or IM) you make a post and 10 people reply within minutes. The way the blog is optimized with Google you'd think there would be a lot more people joining the forum.

Marc

posted on Sunday, June 11, 2006 at 2:53 PM by


Heh-- I did this exact same thing (on a slightly grander scale). I wanted to understand Adsense so I started dorking around with it... I think the amount of traffic you need is fairly astounding to make any money... Most Adsense publishers solve this problem by creating new sites every day... I actually wrote an a little article on how Adsense is ruining the Internet a year or two ago (on tonywright.com). Motley Fool just echoed the sentiment the other day.

One note about your article-- you mentioned "luxury travel" as a topic that might result in good clicks... It's not. Ads are from people who have things to SELL. Travel is something people buy very rarely... How many times are you reading about travel compared and are ready to buy THAT INSTANT? I actually experimented with travel oriented adsense content and it had awfully low click-thru rates.

posted on Tuesday, June 13, 2006 at 12:10 PM by Tony Wright


I run a sports website that garners 1200-3000 uniques a day depending on the time of the year. Adsense is probably the least money making scheme of the ones I have tried. Amazon affiliate links and CPM advertising have been more lucrative. Of course the CPM ones are a tad more annoying as well. But they pay the hosting and other related costs.

posted on Tuesday, June 13, 2006 at 2:57 PM by Dallas


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