It’s becoming increasingly clear that the generic advertising based web 2.0 business models are struggling, and I am wondering if lead gen business models are a much more effective model for the current downturn. Some of my partners are saying that 100 million in the new 10 million, as in a startup now needs 100 million monthly views to generate venture style revenue returns based off of a pure advertising based business model. While this is a bit of a cynical joke, there does seem to be statistically valid slipping in online CPMs, particularly around untargeted display advertisements. Targeting definitely helps, and some startups that I interact with are earning $25 to $60 CPMs… however, these are for highly desirable user groups. If you really think your startup has better targeting but doesn’t have huge users maybe you should consider using lead generation to do the monetization yourself.*
My general thought process is as follows:
- Targeting requires work and advertisers can be lazy. Most web 2.0 startups have operated under the assumption that the advertisers would bear the brunt of this work. Facebook’s ad engine is an example of this - the advertiser has the ability to target users with pretty amazing specificity. However, the system isn’t particularly user friendly, and takes effort (as I discovered when I attempted to use Facebook’s engine to drive traffic to Startable.com.) However, despite the site’s huge user base advertising revenue appears to be a bit lower than the hype… Maybe some of this is because advertisers aren’t up for spending the effort to do this targeting for all of their campaigns. I have spoken to several advertising executives (at brands and agencies) who are thought true interactive advertising thought leaders, and these advertisers are willing to put the time and effort into targeting ads. However, I get the feeling that most advertisers are lazy and would rather just buy the million views they want on the TV show that they think that their customers watch.
- You need huge volume to target. It’s not worth an advertiser’s time to target an ad at 1,000 viewers, or even 100,000 views. Most large advertisers want to hit millions of viewers, and unless your startup has millions upon millions of viewers then an advertiser trying to do targeting will end up with too few people to justify a campaign.
- Finally, the economy is not happy right now. Advertisers may be more focused on efficiency than before, and the most effective spend is likely a cost-per-action (CPA) vs. the typical cost per thousands (CPM).
Is lead gen the solution? If you really have such a great targeted user base, why don’t you try to monetize them yourself? You know your user base better than anyone else, and you are likely more willing than anyone else to do the targeting. Finally, advertisers may be more willing to go the CPA route since they are possibly more willing to give away good $ for anything that can grow their topline in an economic downturn.
Anyone have any thoughts? Does this make sense?
*secret thanks to the CEO who I spoke with recently about this - you synthesized a bunch of my scrambled thoughts in a very structured way!
