Advertisers, Only You Can Save Web 2.0

The following is my Advertising Age column for next week. It builds on what I wrote earlier this week - to which many of you added lots of great thoughts. If you're a web start-up now is the time to consider your revenue streams. Advertising will not save all, I am afraid. Remember - as much as budgets are going digital, advertising is still cyclical.

Only You Can Save Web 2.0

Years ago the Advertising Council started a landmark campaign with Smokey the Bear that had a rather ominous tagline. It reads: "only you can prevent forest fires." (They still use it today.) The subtext, which the recent fires in California clearly reminded us, was that the word "only" implies that the "you" here is singular. In other words, if you're not out there preventing forest fires, then no one will.

While not quite as dramatic, a similar burden is starting to fall on digital marketers. Are your shoulders feeling heavier yet? They should because, you see, "only you" can save Web 2.0.

Nearly every online start-up you can think of is basing their business model on advertising. It's as if your digital budgets are a bottomless pot of money with more than enough to go around for everyone. Ask any of them how they plan to stay solvent and they all fire off the "a-word" - advertising.

The conventional wisdom in Silicon Valley is that as all advertising goes digital, there will be plenty of money for every business. Further, they argue that it doesn't take much to make a start-up profitable. The cost of starting, scaling and operating a Web 2.0 site is a fraction of what it was during the Web 1.0 era.

However, just like Social Security won't allow every baby born this year to retire in 2072, the harsh reality is that there will not be enough ad dollars to go around for everyone. For starters, advertisers have infinitely more choices on where and how to allocate the spend. More importantly, you're wisely looking for ROI - scale, quality and performance. These are three qualities that many start-ups lack.

The only remaining exit strategy for the gaggle of Web 2.0 sites that are depending on you is to sell themselves to a larger player, such as Google, Yahoo, AOL or Microsoft. Some certainly will. Many won't.

If you feel you saw this movie before, you did - in 2000. The sequel ends the same way, but not with as much carnage. That might change. But remember, only you can save Web 2.0.

Comments

[Sheila Scarborough]

Interesting how we've had some sort of harmonic convergence on this topic, with reactions to Google's recent slap-down, Brian Clark's Teaching Sells program just coming online, this blog post, etc.

I agree, there has to be some alternative to ads for making money. The only viable one I see right now is simply paying for content, the way I do to read "Salon" or to hear (ad-free -- yay) satellite radio. Surely there are more ideas out there, and as a writer who is trying to make a living (without doing copywriting, which is....writing ads) I'm very interested in all aspects of this discussion.

Thanks for your posts and tweets (love the Kool-Aid guy!)

[Chris]

I think it is funny how some of us who actually require our customers to pay for our service get looked at like aliens! The next 6-12 months will see an interesting shake out in the tech industry.

[John]

OK... what do you mean by "save" Web 2.0? Save it by putting 95% of the companies out of their misery? Advertisers will do that, whether asked to or not, by how they spend their money.

I think users will "save" Web 2.0 by at some point deciding what they'll use and what they'll pay for, and ignoring what they won't - leaving those sites and companies to their deserved fates.

VCs would also be in a better position to "save" Web 2.0 by being less free with the money - rewarding those who have a real business and rejecting those who don't.

Don't hold your breath for all advertising to go digital, by the way. Unless we all stop leaving the house, there will be plenty of call for outdoor, point of sale, etc. While the trend is clearly more online / less offline that trend doesn't distribute neatly across markets, industries, or target demographics, and there are many - where people are making good money - where online is just not where the action is.

[Dan Schawbel]

Many of these companies are thinking of their exit strategy. By building a brand, getting users and then selling to Google, Yahoo!, etc they can make a quick buck.

[Eric Gohs]

This shake-out is part of the natural evolution for these start-ups. There doesn't have to be bottomless pot of advertising dollars -- just advertisers who are looking for the biggest bang for their buck. Smart spending on their part will separate the wheat from the chaff. Another take on this topic is that there are some advertisers (and big portals and VCs for that matter) who take risks with their dollars. They may gamble early and advertise (or invest) with a 2.0 start-up and end up an early partner with the next Facebook. Or they may pick Friendster. Gotta roll the dice though.

[Uwe Hook]

Many of these Web 2.0 startups are not even equipped to handle advertising/media. Sure, they have banners but nobody is really interested in that. Advertisers/agencies are looking for integrated opportunities, for something that makes them stand out and break through the clutter. If I have the choice between an established site with buttoned-down metrics, the right target audience and good process and a start-up with limited metrics and no process, I will always go to the established site.

If you base your whole business model on advertising, you better invest a lot of time in thinking to come up with new, innovative ideas to connect to people. Banners with a CTR of 0.1% won't cut it.

[Michael Tangeman]

Your 'budgets are going digital, advertising is still cyclical' point is very perceptive and should be heeded by all who keep reading the surveys of how advertising is migrating to the web.

On 2.0 startups needing to consider the revenue-underpinnings of their business model, I'd say there's likely one difference (at least one, I can think of) with the dot.com scenario of 2000 and that is burn rate. Whereas the dot.coms were burning huge amounts of cash, because of Web 2.0 technologies and the growth in the intervening years of relatively low-cost, open-source software solutions, the cost of entry has to be much lower for most 2.0 startups.

If I'm right about that, then belt-tightening should be less painful and the VC verdicts on which investments in their portfolio to save and which to drown like runts in the litter should not be so harsh as in 2000-01. At least one would hope so. Yes, there will be thinning, but my guess is the bloodletting will be much less severe because the bubble this time is much more elastic.

[Adrian P.]

@ John: I agree not all advertising will go digital, but I think VC's becoming less liberal with their money isn't quite the answer to saving Web 2.0 (my definition of "saving": keeping these sites running by making them profitable).

Many of the ideas coming out of Silicon Valley are great, but they need help until a viable business models evolve. I think one of the larger issues is that we aren't digging deeper for newer business models. Dion Hinchcliffe pointed out that we are really only falling back on three things: subscription fees, comission fees and advertising. These work well outside of Web 2.0, but strike me as highly uncreative and quite useless otherwise. We can save Web 2.0 by a) creating more effective/engaging advertising (Uwe Hook, you hit the nail on the head with your comment), and b) thinking outside the damn box already. The thing to look out for is that business model that no one has yet to think of; or, more likely, that business model that someone *has* thought of but isn't sharing (how selfish!).

[Mike Abundo]

The difference is accountability. The online ad models of 2000 were carryovers from offline media, failing to leverage the one thing that makes online media so great for advertising: granular real-time measurability.

The online ad models of 2007, meanwhile, wisely focus on conversions and ROI. While only advertising can save online media, only online media can save advertisers money.

[Adrian P.]

Mike: I'm glad you pointed out that the 2000 online push was merely a copy of what was happening offline; now we have metrics with which to effectively target and measurable data to keep us in check; -however- I feel that even those tools have not necessarily worked well within the specific context of Web 2.0: AdWords on a Google results page or banner ads on the New York Times are much different from what is placed on MySpace and Facebook. And thus far, a CTR of .01-.1% strikes me as a waste of money. So, if we are holding ourselves accountable, we probably shouldn't invest our ad dollars on those sites (?)

[Jay Ehret]

I find it ironic that as the effectiveness of advertising fades, the dependence upon it grows. Let's face it: Web 2.0 is one of the slayers of traditional advertising and yet digital startups crave their advertising fix. Because Web 2.0 can't find a way to get consumers to pay for their product, they expect advertisers to foot the bill.

[CompuWorld]

This a very necessary article for all those who dream to be full time bloggers (count me in them too). Being full time means depending totally on WEB 2.0 As happened with the dot com burst this might end up ruining many many lives..

This is true that at some day this pattern of work will have to be changed and the current way bloggers are moving wont be enough to earn living..

paid reviews, freelancing work, website designers, editors etc are the fields where I am trying to give my hand ..

I am part of this debate..

[Adam Martin {Fat Man}]

Bring back the subscription model all is forgiven! This is cultural shift, with digital content we expect it for free, their is no cost associated expectation (look at music) - we need to look at Webkinz model, whereby you buy a furry beagle, get a code and entry to a wonderful world where your kids can discuss Halo 3 and happy slapping whilst masquerading as the virtual version of their beagle.

Monetise the physical artefact to drive people to your premium content.

Also, and I mean this fondly Steve, but you look a bit like a meerkat.

[Yen]

With the massive number of ad networks clamoring to bundle inventory and add contextual targeting, it is possible that today's web 2.0 really need only focus on getting to scale in a few segments that advertisers are looking for (i.e. the "quality" you refer to in "quality, scale and performance")?

That the ad networks will bundle inventory from across sites for scale and mange them for performance?

Isn't that the promise of the tens of millions of dollars that have gone into ad networks?