The Hidden Truth About Online Advertising Revenues
author/source: Miles Galliford
At SubHub, we are frequently asked the question:
“Why should we charge for access to our content when we can give it away for free and sell advertising space on the pages?”
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 could make from running a subscription website, then go the free route. It is simpler”.
However, 90% of specialist information publishers will never make as much from advertising revenues as they can from subscriptions. These are the reasons why.
Reason #1 – We Only Hear About the Headline Advertising Figures
Anyone 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 companies
- 95% of all online advertising revenues go to just 50 companies
That leaves just 5% of the remaining revenues being distributed amongst tens of thousands of websites trying to make money from advertising. And amongst this group who have to pick up the scraps off the rich advertisers' tables 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 $625m
- In the UK, 5% of advertising revenues in 2005 was £40m
These are not large figures when you take into account how many websites are trying to get a piece of the action.
Reason #2 – Advertising is Driven by Traffic Volumes
The 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.
There are only two ways of making money from content on the web: free with advertising or paid for. Since advertising is volume driven, it 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.