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Online advertising and the free world
November 12, 2008
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.
The Salmon ideology has nothing whatsoever to say about being rewarded by advertising, sorry. Rather, the Salmon ideology is that the way that publishing works is by monetizing a large and valuable readership. The larger that readership, the more potential money there is to be made. By advertising? Maybe. There are other ways to monetize relationships as well. But subscription firewalls are a particularly bad way of doing that, because what you gain in money you lose in readers and goodwill.
Posted by: Felix Salmon | November 12th, 2008 at 7:45 pm | Report this commentAdvertising spend-across all media-is probably going to respectively dwindle with the consumer spending, but nobody can debate that advertising dollars are shifting online.
It’s just going to grow by leaps and bounds, seriously man, have you been to a college dorm lately. These kids aren’t watching television, and when’s the last time you’ve seen an 18-24 yo male reading a newspaper. These kids noses are permanently attached to their iPhones, iMacs, Laptops and PSPs. You just can’t debate that online advertising is going to get the lion share of billings and ad spend in the next 10 years.
That’s the short and long bet.
Posted by: Ben Joven | November 13th, 2008 at 9:17 am | Report this comment[…] Comments J.J. on EtceteraBen Joven on Online advertising and the free worldFelix Salmon on Online advertising and the free […]
Posted by: FT.com | John Gapper’s Business Blog | Joe the Plumber does not work for free | November 13th, 2008 at 6:54 pm | Report this comment[…] Online advertising and the free world 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. More… […]
Posted by: NameDrive Blog » Blog Archive » ND Weekly #68 | November 14th, 2008 at 3:58 pm | Report this commentOnline marketing is going to be the order of the day for many more years to come and the demand for it cannot come down all on a sudden as predicted. So no need to be worried even now.
Posted by: Jayden Fellze | November 21st, 2008 at 8:01 am | Report this commentSince there seems to be internecine (sort of anyway) between Felix Salmon and the Financial Times, regarding Mr. Salmon’s criticism of the Financial Times business model, I can write the following as a paying reader:
1. I pay for the WSJ which I read only on-line. I have been a WSJ reader for 37 years. I am also a committed leftist politically. I waited to renew my subscription to the WSJ after News Corporation bought it to see if there would be any negative changes to the news pages. Once it appeared that the news pages were more or less safe, I renewed my subscription.
2. I paid for a subscription to the NYTimes a publication I have never subscribed to but have always read on a per-issue basis.
3. I gave in to the recommendation of a friend of mine (a top political-economist at Harvard) to subscribe to the FT several years ago. Stopped the subscription after trying it for a few months, then resubscribed on-line only last year. I am now a committed reader.
Individuals such as me are more than willing to pay a subscription fee for top-quality reporting, analysis and commentary, such as that offered by any of the publications listed. I am indifferent to on-line adverstising. I have never used it when offered on any site ranging from Google to any publication.
Posted by: Wendell Murray | November 21st, 2008 at 11:48 pm | Report this comment