Don’t blame entrepreneurs to base their business model on advertising…

when you get headlines like this one.

Note: I have also published this piece on my WordPress.com account since I can’t access Typepad to post it on Software Only. Sounds like the technical problems and scaling issues aren’t quite solved yet… And I know that no-one is reading that blog, but hey – publish or perish :-).

We all know that ad spending is cyclical, and startups need to have revenue sources that are less prone to going up and done like a roller coaster. Just as an example, John Battelle during the November session of the Search SIG shared with the audience that the Industry Standard went from a $260M revenue run rate to $47M in one quarter when Bubble 1.0 exploded.

In that context, MarketWatch’s Frank Barnako had a catchy headline for his column this morning: Advertisers’ growing Net appetite shows. The most interesting, and concerning (?), bit was:

Sales of online advertising are so strong that some Web sites are sold out and taking orders 18 months in advance. “We have a supply issue,” Joanne Bradford, chief media revenue officer for Microsoft’s MSN, told the Wall Street Journal. Rising demand is allowing major Web portals to raise their ad rates. Several told the Journal that they’ve increased prices as much as 20% this year. MSN, owned by Microsoft Corp. said it charges as much as $1 million for an ad that lasts 24 hours on the site. “It’s starting to get into Super Bowl territory,” said Sean Finnegan, U.S. director of OMD Digital, a division of ad-agency giant Omnicom Group.

The Web’s multimedia capabilities are driving demand for broadband placements. “We have ad agencies telling us, ‘We’ll take every impression you can give us,’ ” said Wayne Gattinella, president and chief executive for WebMD Health. The president of the industry’s Interactive Advertising Bureau said media buyers are able to make rational judgments to justify online spending. “In 1999, there was no research and people were chasing fear and greed,” Greg Stuart told the Journal. “Now, there’s good data, plus marketers have their own real experience.”

Obviously, not every online property is as sought as MSN (or Yahoo, or MySpace,…) and I would venture that this overcapacity of ad inventory is only limited to the top Web properties. At the same time, it is clear that web sites, services or communities able to attract and serve a specific audience will get favorable response from direct advertisers interested in reaching and engaging that audience.

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