The Lightspeed article about the ways to build a $50m online business is getting some good press, mainly from the NYT, but from other sites as well. These articles raise an interesting point, mainly why is the value for online ads only $1 per thousand page views?

Traditional media has better demographics

I’d like to take the opportunity to point out that traditional media has established demographics for advertisers. Go look at the Washington Post Marketing Book and examine the demographic details they provide to users. Large sites with user generated information can compete, but how can other sites compete with this type of knowledge?

Traditional media has valuable content

In general, online sites do not have the same quality content as traditional media players. Sure, they can aggregate or steal content, but advertisers know that there is a lot of value from being associated with quality content. Online sites should be asking: how do I create valuable content to maximize my traffic in a given demographic space?

To create a $50m online business, companies must maximize mass appeal and niche

I’ve argued that New Media means rapidly increasing customer segments, but in order to maximize value, online sites must play a difficult game, they have to be niche, but also have a majority market share. Let’s say there are 100 sites devoted to New Media news. Initially, these sites are very fragmented because they are owned by 100 people. Today ads on these sites are worth only $1 per thousand page views because the space is fragmented and advertisers don’t know anything about demographics. I believe this best explains the low value per page view.

Creating “niche market monopolies” will maximize ad revenue

In order to increase the value of ads, online companies need to create a monopoly on a niche market. If I could buy 60 of these sites and control 95% of the traffic to New Media news, I would no longer want to use Google to place ads on my site. Instead, I would market my sites as the “exclusive distributor” of New Media news ads on the internet. Suddenly, advertisers will realize they can either buy cheap ads on Google (for the remaining 5% of traffic), or they can go with me, because I am the majority supplier of ads for New Media news on the internet. This should dramatically increase value per page views because there are less options (less supply) for the same demand in a given demographic/target subject.

Does this idea make sense? Please comment.

Update:  Good article from Nicholas Carr exemplifying this trend.

Possibly related posts: (automatically generated)