Forget Ad-Based Revenue Models

December 23rd, 2008 | Sources: NY Times

Subjects: ,

It was nice while it lasted, but the days when Web-based start-ups could focus on building traffic and cash in later on ad-based revenue models are going, going, gone.

Online display-ad spending will likely plummet in 2009, and probably stay low through at least part of 2010, and the line-up of affected companies looks like an Internet murderer’s row: Twitter, Facebook, AOL, CNET and Yahoo among others, according to Silicon Alley Insider.

In the Great Economic Crisis of 2008, Web companies need a balanced revenue model according to Roger Lee, a general partner from Battery Ventures.

Lee told the New York Times that most start-ups in his portfolio offer premium services, subscription products or e-commerce elements in addition to free services.

Pizaazz has covered several companies like this including comScore, LinkedIn, and Yammer.

Angie’s List does this as well. It provides reviews and ratings of local businesses for a monthly fee, as well as earning income from ads. World Golf Tour is yet another. The site lets people play famous golf courses for free on their computers, but charges tournament fees and has a virtual store that sells duds for avatars and tips from pros.

Or, as David Weiden said, “If a company approaches investors with a plan to lose money for three or four years while building an audience, it will encounter many closed doors.”

The partner at Khosla Ventures told the Times, “It’s gone from plausible to almost implausible.”

“What’s changed more than the ability to make money from ads is the ability to raise money at the same valuation it had six months ago (using an ad-based revenue model),” he added.


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