The Hidden Truth About Online Advertising Revenues

In my role I get to meet literally hundreds of online content publishers every year and the question I’m most frequently asked is:”Should we give our content away for free and make our money from advertising, or should we charge people to get access to our content?”Our answer is always the same.”If you can make as much money giving your content away for free and selling advertising space against it, as you can make from running a paid subscription website, then go the free content route. It is simpler”. However for 90% of specialist information publishers they will never make as much from advertising revenues as they can from subscriptions and these are the reasons why.Reason #1 – We Only Hear About the Headline Advertising FiguresAnyone vaguely involved with the internet will frequently see figures being quoted about the size of the online advertising market and how quickly it is growing. But rarely do we see a breakdown of how these revenues are distributed. So here it is:72% of all online advertising revenues go to just 10 companies95% of all online advertising revenues go to just 50 companiesThat leaves just 5% of the remaining revenues being distributed amongst tens of thousands of websites which are trying to make money from advertising. And amongst this group who have to pick up the scraps off the rich advertisers table are many big international publishers. They are taking a big chunk of the remaining 5%!To put some numbers around these facts:In the US 5% of advertising revenues in 2005 was $620mIn the UK 5% of advertising revenues in 2005 was £40mThese are not big figures when you take into account how many thousands of websites are trying to get a piece of the action.Reason #2 – Advertising is Driven by Traffic VolumesThe second reason is, like it or not, online advertising revenues are still largely driven by volumes of visitors to a website. The typical rates are $8/£5 per thousand pageviews (even for Adsense). To make $100,000 or £60,000 in revenue you would need to be getting over 34,000 pageviews a day on your website.Successful specialist online publications typically rely on having a low volume of highly interested and loyal readers. This does not suit a volume driven advertising model.ConclusionThere are only two ways of making money from content on the web. Free with advertising, or paid for access. Advertising is volume driven so does not suit niche sites with low numbers of loyal followers. Therefore content owners have one alternative and that is to charge for the content. They can do this as one off downloads or provide access to content on an ongoing basis for a subscription fee.