A shakeout of unhealthy advertisement sponsored web 2.0 businesses

There is some talk this morning on the possibility of on-line advertisement collapsing due to the current financial crisis. Svetlana Gladkova notes that when looking back at the Great Depression advertisement spent remained healthy and asks herself if we are sure there is going to be an advertisement collapse.

Mathew Ingram writes a good post on it too. He notes that the web advertisement business was one of the few in the ad sector that has show growth this year.

Are ad-dependent businesses going to sail through the economic turmoil without a care? Hardly. But an online-advertising apocalypse doesn’t seem terribly likely either. If anything, it seems as though traditional media should be the one feeling twitchy at this point. The competition could be intensifying.

In my opinion the on-line advertisement spent has been misused as unhealthy sponsoring of crappy web 2.0 startups. Anyone with a “web 2.0”-ish idea has taken the easy route to success. Use the FREE advertisement based business model to grow the business and try to get advertisement dollars to hide the fact that no one was really waiting for that service in the first place.

The “old-school” media and advertisement companies ended up paying for this mess. They didn’t really understand web 2.0 but were effectively talked into a state of depression by entrepreneurs, investors and the success of Google. Old school media doesn’t work, you need to be on-line to make it happen. As a result billions of advertisement money has been invested to create the largest on-line billboard money can buy. Which is weird as “old-school” companies should have realised that if billboards don’t work in old-fashioned media channels such as tv or newspaper, it’s hardly going to perform any better on-line.

If anything, this current crisis will lead to a shakeout of unhealthy web 2.0 businesses. There is nothing wrong with spending advertisement money on-line. But just like in real life, a business will only be healthy if it provides user value. You can spend all the advertisement dollars you want to sponsor web companies or advertisement networks. But if the service sucks, then your money simply lengthens the road to an inevitable crash. And the FREE advertisement based business model doesn’t focus on user value, it focuses on network value.

I think there may be some good coming from this mess. In my opinion we will see less attraction to the FREE advertisement based business model. Entrepreneurs, investors, media and advertisement companies. Everyone will be asking questions about the value that is being created. And that is a healthy thing. As a result we will get more focus on business models that monetize user value. It’s the cleanest and best possible business model. And it will benefit the one that it should be about, the user.

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2 Responses to A shakeout of unhealthy advertisement sponsored web 2.0 businesses

  1. Alexander, actually in my post on online ads I was thinking more about media companies (websites of newspapers, news sites, blogs, etc.), not the ad-supported startups. The problem with ad-supported model is often that startups need to raise money to operate and with investment banks breaking chances of getting an investment will be lowering. Of course for startups it will be wiser to develop a solid business model based on real value people are ready to pay for instead of supporting themselves with ads. What I was talking about myself is that advertisers will still continue to pay money for the ads we display – and it will be the matter of efficiency where they spend their money.

  2. Hi Svetlane, I understand what you are saying. I’m touching the same subject from a slightly different perspective. I also believe that media companies will remain spending advertisement money on-line. But because they will be forced to do this more efficiently we will see that it will have great effect on advertisement based startups. They will get hit hard has both investors and media companies will be less likely to invest based upon an advertisement based business model only. And that is a good thing.

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