The ad funded web mirage and the mobile reality

After I read the last Microsoft earning release where they posted a +billion dollar loss in their web business, I took a look at their losses for the past 10 years and the picture was not pretty, so I asked a couple of my students to join me on a project. Hypothesis: ad funded web is a non sustainable macro economy (yet). When you put together all the money invested for the past 10 years by Angel Investors, Friends and Family, Private Equity firms, Venture Capital firms and Fortune 500 firms and you compare that with the online advertising revenues for the past 10 years, the equation doesn't seem to be balanced at all. There is no doubt that consumers benefit from all the innovation, but it is a non sustainable macro economic model and it just gets worse with the explosive growth of mobile devices.

We love Cinderella stories, so we look at Google, Facebook, Yahoo! and YouTube and we forget about the thousands ad funded start-ups or Fortune 500 ventures that did not make it and where venture capital funds faced the harsh reality of failed enterprises.

In some cases, building the audience was not the problem. The first 50,000 users are a given in most cases, but monetizing small audiences through advertising is a challenge. It does not work well online as it did not work well for the classic magazines that are closing doors every day, even when some offer premium quality content. It's maybe no coincidence that 7 out of 10 new startups I meet with are focused on paid business models. 50,000 customers monetized at $2.99 each is interesting. 50,000 users monetized at $5 eCPM does not work very well.

The display ad model worked for a successful minority, but most of the learning does not translate to mobile where the average screen size is +90% smaller and where users are moving away from the browsing experience and into apps. Mobile Internet access will be larger than PC based web access by 2013-2015 (Morgan Stanley, eMarketer, Nielsen). Nielsen reported that by Aug 2011, among Android based mobile users, 1/3 of their time was spent browsing, 2/3 using apps. Among iPhone users, apps usage (measure in minutes per user) surpassed internet access in June 2011.

I meditated on this after I read the post from @PaulCarr and discussed with Investors in Seattle and Menlo Park if it was possible that content did not fail (as Paul describes) but maybe the format failed. I offered the thought that microtransaction based content, consumed through apps is next. See Paul's comments here:  The "High Quality Web Content" Failed?

By 2009 the gap between the free and paid web was already evident, with 40% of the PC based internet being ad funded (5% paid digital content) versus 54% of the mobile web being paid digital content versus 5% ad funded. (Morgan Stanley/eMarketer/IDC)

So my prediction is that web 3.0 is the paid web. Starbucks convinced people to pay $4 for a cup of coffee that costs $0.05 at home, Apple trained people to pay $0.99 for something that was free. Mobile devices, cloud computing, "appification" of OS, "appification" of the web experience and change in user behavior toward micro payments paved the way for the hybrid web, where micro transactions will play a disruptive role.

If you are a CMO which one is the best monetization model for your product? Are you on top of the market dynamics on mobile and micro transaction trends? Can you help your company reach out profitability faster? As Jay Conrad Levinson says in his book "Guerrilla Marketing", profit is the only measurement of marketing success. Are you driving profits or are you dealing with the ad funded web mirage crashing with the mobile reality?