I spend a lot of my time studying what is happening on the Internet and in particular watching the ways sites make money.
Change tends to be evolutionary, rather than revolutionary
However by keeping an eye on the small moves it is usually possible to predict the bigger trends.
So here are my thoughts on what is happening in the Internet market at the moment:
1) Advertising and Affiliate Networks Want Control of Content
The big advertising and affiliate networks are starved of good quality online content. They have the advertisers; they just don’t have enough good places to display the ads.
As a result, the ad networks are trying to buy content websites so they have greater control over the quality. Example deals include:
• Google buying YouTube
• ValueClick buying eBabylon
• Yahoo buying Flickr
Prediction: The ad networks will continue to buy content websites so they have more control over their advertising inventory
Pros: The quality of content on these sites will continue to improve
Cons: Advertisers, via the networks, will be able to influence the content. Independence could be sacrificed to keep advertisers happy
2) Content Websites Will Deal Direct with Advertisers
The big content sites and content networks have enough traffic and influence that they can deal directly with advertisers, cutting the networks out of the loop.
This trend is particularly clear in the blogging arena where groups of successful bloggers are joining forces to sell their content directly to advertisers. Examples include:
• Federated Media – www.federatedmedia.net
• B5Media – www.b5media.com
• Gawker – www.gawker.com
Prediction: Content owners will become more powerful. Advertisers will want to deal with the organ grinder, not the monkey. This trend is one of the reasons the ad networks are buying up content websites. They are worried about being cut out of the loop.
Pros: Content owners and creators who are part of these networks will earn more money
Cons: Content independence will be put in jeopardy.
3) Clustering of Niche Content
There is a trend towards clustering together lots of niche sites that cover the same subject and target a similar audience. This niche network of sites can then be marketed to advertisers and ad agencies.
In the early days of the Internet, advertisers were only interested in reaching as many people on the Internet as possible. They focused their spend on the handful of sites with huge audiences - Yahoo, MSN, AOL, etc.
Today advertisers are far more street wise and are starting to focus on the quality of visitor, rather than the quantity.
Examples of companies focused on aggregating niche websites include:
• Adify – www.adify.com
• Gorilla Nation – www.gorillanation.com
Predictions: Highly targeted niche content will become more valuable as advertisers start to focus on results rather than reach. Advertisers will still want to buy big blocks of inventory, so niche aggregators will become more important
Pros: Niche content providers will earn more money
Cons: Niche markets will become more competitive.
4) Merchants Will be More Ruthless About Who They Use as Affiliate Partners
Merchants who use affiliate marketing usually make at least 80% of their affiliate revenues from less than 20% of their affiliate partners.
However in the past they have spent a lot of their time persuading their less active partners to sell more. This is changing.
Most merchants are now getting rid of their poor quality partners and focusing on their very productive ones.
Prediction: It will become harder for website owners to dabble with affiliate marketing. They will have to either do it properly or not do it at all.
Pros: Those website which take affiliate marketing seriously are likely to get a lot more support from the merchants and as a result make more money
Cons: It will be harder for new websites to get started with quality affiliate partners
5) Drop Shipping Will Come of Age
Drop shipping is where a manufacturer or wholesaler holds stock and takes care of sending goods to customers on behalf of a website owner.
An online retailer sets up a shop on their site. When an order comes through they take payment and send the request to the drop shipper, who then packs and posts the product to the customer and invoices the website owner.
Drop shipping has been around on the Internet for many years, but the industry has had a bad name because of the very mixed quality of the suppliers.
Now many manufacturers and wholesalers are getting their act together and setting up divisions dedicated to fulfilling internet orders. Take a look at Shopster.com to get an insight into the ways things are going.
Prediction: Drop shipping will grow rapidly and become an important revenue stream for thousands of internet businesses
Pros: Drop shipping will become another good source of income for niche website owners
Cons: It will take time for the cowboys to be pushed out the industry, so many website owners will have bad experiences before they crack this opportunity
6) Ecommerce Will Continue to Grow
Ecommerce has passed the tipping point.
It will continue to grow and prosper.
However, buyers will become far cleverer at searching for deals. They will research and compare prices. This will squeeze the margin out of many generic products (books, cds, electronic goods, etc)
Predictions: Selling generic goods will be a volumes low margin business. This will be dominated by a few huge players, like Amazon. These companies won’t bother with low volume niche products, which will still be sold through niche sites
Pros: Niche websites with loyal audiences will be able to grow their ecommerce revenues as more shopping moves online
Cons: Small online businesses selling generic goods will go out of business
7) Paid-for Content Will Have to Be Unique and Exclusive
Finding good quality free information on the web continues to get easier. Internet users will not pay for content they can get for free.
However evidence and research suggests that people will continue to pay for niche content that is not readily available elsewhere. They will also pay to be part of a specialist community where they can mix with their peers.
Prediction: Websites trying to sell access to me-too content will fail. Specialist content providers who create unique content and online communities will continue to prosper as print publications fail or move online
Pros: The best content websites will grow bigger and more profitable
Cons: Some paid-for sites will fail as free alternatives become available
Conclusion
Making money online continues to evolve. With every change new opportunities emerge.
Website owners should put aside time each week to keep up to date with what is happening.
Everyone can make money online, but the people who make a lot of money are those that ride each new wave.