Apr 1, 2012
Making Web 3 Profitable Beyond Display Ads
Mortality rate of startups is +50% and venture capital and angel investing became a “hits” business with a disproportionate share of success coming from a very small number of great successes such as Facebook, Google, eBay or Skype.
Mortality rates are correlated with the lack of ability to monetize audiences properly. Display advertising worked relatively well for a minority of successful web companies and the success of few, masked the reality of the macro economic failure of the mechanism. Display advertising does not work for the tail and Google is the only entity that managed to monetize that tail in a profitable way. But Display advertising is the same tired and ineffective mechanism born 300 years ago in the first printed newspaper ad. It is the same ineffective mechanism, different media.
One just need to look at the fundamental metrics of the successful media outlets monetizing content at scale via display ads, such as Yahoo!, Facebook or Google and see how even when the total display ad business keeps growing at low double digit year over year, profitability is not growing as an aggregate figure and in some cases the money is just moving from one player to another, from Yahoo! to Facebook or Google, from tired News sites to Interactive sites, from still image to video. But at the macro level, most web properties monetized solely trough display ads are unprofitable.
With the mobile web, monetization challenges become more evident. Mobile devices, whether Tablets or Phones, have a smaller screen form factor compared with traditional computers (80% smaller in average) and hence less pixels that can be devoted to display advertising. Even the rich and interactive brand ad experiences that advertisers such as Toyota are playing with, are just nice experiments, at over $200K production cost each one, that are proven to be not more effective than traditional advertising if one factors in scale and reach.
Mobile advertising is the promised land we read about every single year, with spectacular metrics on CTR, CPM, but for some reason, not growing at the expected rate and mobile advertising is not close in terms of growth, to the explosive growth of the mobile web user base.
Paid content revenue dominates the mobile web. Only 5% of the global mobile Internet revenues come from advertising while 73% comes from eCommerce and 22% from paid services. 54% is paid digital content: apps, ringtones, music, video, etc (Morgan Stanley) The role of micro transactions is key in the mobile web.
This is a gold mine opportunity for entrepreneurs and venture capitalists. Less than 10% of the web in 2012 is mobile ready (Mongoose metrics data series), and while more interactive, personalized and targeted ad experiences can for sure deliver on more revenue, the mobile web is transaction friendly and is “appified” with 2/3 of mobile time spent on apps versus web browsing (KPCB).
To capitalize on the large audiences built during web 2.0 times and to enable the mobile web 3.0, proper monetization technologies are needed and with companies formation costs at all time low and easy access to cloud computing, time is ripe for entrepreneurs to build those monetization technologies needed by large corporations that struggle to see their revenues going down as their audiences migrate to the mobile web.
HBS – N9-811-036 – Dec 3, 2010 - WILLIAM A. SAHLMAN – Risk and Reward in Venture Capital
KPCB – Mobile Internet Trends 2011 – Meker / Murphy
Morgan Stanley – Mobile Internet Trends 2010 - Meker