Nick Denton, my friend and former colleague, has posted a gloomy forecast about how online advertising is about to fall substantially. As proprietor of Gawker, the blog publishing group that relies entirely on advertising for its revenues, he has reason to be worried.
Nick does have a habit of being publicly pessimistic about online advertising, as he concedes. While he is a smart and independent thinker, he is also prone to dramatic overstatement. However, in this case, I think he will prove more wrong than right.
He is acting on his own advice by cutting back expenses at Gawker, and he is not the only one. Conde Nast has trimmed its online operations, including the internet side of Portfolio, its business magazine. Peter Kafka has some more figures on the online advertising slowdown.
This has implications for the business models of many internet companies, which abandoned any attempt to charge to access and instead rely entirely on advertising revenues. That worked well enough for them over the past few years but looks dangerous now.
It has exposed them heavily to the advertising cycle, which is one reason why fear has broken out in Silicon Valley over the fate of many start-ups.
One sign of things to come was when, after taking over Dow Jones, Rupert Murdoch forgot his rhetoric about making the Wall Street Journal site completely free and instead stuck to its subscription-based model (while making a few more articles free to all-comers).
This kind of thing, and the hybrid access model adopted by FT.com, has attracted a lot of grief from those who would prefer everything to be “free” – ie advertising supported. Felix Salmon, for example, is always banging on about how wrong-headed it is on the endangered Portfolio.com.
The trouble with the Salmon ideology is that it involves wishful thinking – free access will be rewarded by advertising while subscription revenues are trifling and of relatively little value. That may have been true while online advertising was buoyant. In a downturn, less so.