I know it’s a bold statementÂ that isn’tÂ entirely true, but let me explain. Obviously, a large number of successful companies can call advertising their revenue model, but this is only after siginificant traffic growth.Â The number of new start-ups that launch with an advertising model in mind, compared with the number that can actually sustain such a model is minimal. I would consider it a generous estimate to say 1% or so can do it.
Let’s do a little math experiment (using some basic assumptions)…
CompanyÂ XYZ has 3 full-time employees. Let’s also say that they have no other expenses as they run out of a makeshift basement office. Assuming an extremely modest salary of $50,000 a year each, the company needs to generate revenues of $150,000 a year just to break even. Keep in mind that we are assuming no other expenses exist, even though hosting, bandwidth, and other factors should (in theory) play into the equation.
So, in order to break even, the company needs to generate $150,000, or $12,500 a month, or $417 a day. That doesn’t seem too unrealistic. Now, let’s assume that the website can achieve a $5 CPM, which is relatively good for a small company. The company would need to generate 83,000 page views per day just to break even. This is where many begin to realize that monetizing via advertising is much harder than it seems. From a monthly perspective, that’s 2.5 million page views per month. That’s a significant number. Once again, keep in mind that this is assuming no other expenses and doesn’t include a lifestyle of luxury.
[Please feel free to rip apart my math, point out any inaccuracies, or add any relevant commentary.]
On the whole, what I’m trying to say is that an advertising model is possibleÂ to sustain, but it’s rare. Other forms of monetization are much more effective and attainable. With such high levels of competition in every area of the Internet, your ability to capitalize on ads has been greatly diminished.Â
As we all know though, many of these companies never intended on monetizing via advertising like they say. Their sole intention was to build traffic and sell off to a major player (Google, Yahoo, Microsoft). This is the typical web 2.0 revenue model. This “hope for the best” strategy is risky, but has paid dividends for a small minority. I wouldn’t recommend it though.