I noticed a TechCrunch article this morning talking about lay-offs at one of the top 5 advertisement networks Adbrite. It’s always sad when a company has to let people go, but that wasn’t really what drew my attention. It was actually this part:
There is a silver lining to the layoffs, or at least for those who still have a job at Adbrite: The company will now be cash flow positive and profitable, CEO Iggy Fanlo and Levine said in a phone conversation. The company had gross revenues of $32 million in 2007. He won’t discuss current revenues, other than to say it continues to grow, and that October will be a record month.
Adbrite is a top five advertising network according to Comscore. They sell advertising for 70,000 websites and serve 1.3 billion ad impressions per day.
I may not be a top financial expert, but if these numbers are anywhere near the truth then we can conclude that one of the top five advertisement networks makes extremely low revenues per advertisement served. You would need an electronic microscope to find the revenue that they earn when they display an advertisement. I bet there are particles found at Cern that are more easily detected under a microscope than this revenue.
I do not mind that people are making a living out of advertisement. I think lots of web 2.0 startups would be willing to cut of an arm to earn 32Mln a year. But if we compare that number to the number of ads being displayed I cannot help but feel this is such a destructive, non-value creating business model. A staggering 475Bln times a year people are exposed to advertisement so that Adbrite can earn 32Mln a year. A perfect example where the transaction costs to display advertisement have dropped to zero, but the accompanying value that is being created too.
I do not know a SINGLE company that has 475BLN interactions with customers a year and only make 32Mln in revenues. It’s moronic. If you can have that much views of your product and you are unable to convert that to revenues it tells me that the business model creates ZERO value.
When will people finally begin to realise that this whole shift in advertisement from traditional media to the web doesn’t necessarily mean that the web user is really interested in advertisement. Just because you can harass people on the web doesn’t mean you should? A business model that doesn’t build value is the worst kind of model there is. And yet 90% of all web startups still seem to be struggling with advertisement a their main business model. I can’t help but think that it only leads to crazy valuations, but not to value creation. Big difference.
Let’s hope this financial crisis will put some sense into investors, entrepreneurs and advertisers. I hope they will focus on user value business models. Not only are they value based, but thy are also so much more fun to execute! I’d rather have 100.000 enthusiastic customers than 475BLN hits being ignored by the world.