NONE: Inter_at_ctive Week story on Web site profits
Inter_at_ctive Week story on Web site profits
Cliff Kurtzman (cliff.kurtzman_at_tenagra.com)
Fri, 21 Jun 1996 00:55:11 -0600
In the June 17 issue of Inter_at_ctive Week, Steven Vonder Haar writes an
article called "Hold On: Web Sites Won't Turn a Profit Until 2000." It
quotes a study of web site economics from Forrester Research indicating
that content publishers should not expect to turn a profit until the year
2000 at the earliest. Forrester developed a model defining an "average"
content site on the web: "The average Web site can expect to generate
$170,000 in revenues from advertising, subscriptions and transactions this
year, leaving it with a substantial shortfall in meeting its $1.37 million
in expenses for the year."
[Yes, this is the same Forrester Research that made waves with a report
last January claiming that serious Promotional sites typically cost about
$300,000 to launch and maintain for a year, content sites require over $1.3
million, while transaction sites are budgeted at nearly $3.4 million.]
In the Inter_at_ctive Week story, the recently defunct Web Review is cited as
an example of what will undoubtedly be a growing trend of sites that don't
have the financial reserves to make it in the long term.
I think I would have to agree that it will get harder and harder for many
content oriented operations to stay in business on the web, particularly
those run by smaller organizations. A lack of advertising revenue
currently going into online ad buys as compared to other media is not the
only reason this will occur. For the really big players, the costs of
funding web ventures are small compared to their overall budgets, and their
interest at present is in establishing brand and dominating market share.
Once they drive the competition out of the market and the medium matures,
these folks will be in place to fully capitalize on their current
investments.
At the same time, there is continuing competition from new companies
receiving huge amounts of venture capital or capitalization through stock
offerings. Like the big players, these companies have the resources to
invest now for the long haul. Showing near term profitability is simply
not a major concern.
This environment makes it very hard for companies that must show a profit
to remain in business. This environment won't and can't last forever, but
for the next few years, its the way the game is going to be played. If you
are small, you either need to have very very deep pockets, be very very
clever, or get acquired or affiliated with someone big.
In a press release sent to me today by Neil Monnens at WebRep (a company
that represents web sites in the selling of site advertising), Glenn Davis
(formerly of Cool Site of the Day, currently of Project Cool) makes some
relevant comments:
"In a year, the web will be really incredible. The number of sites doubles
every 53 days. By the year 2,000, we'll have 50 million web sites. The
shake-out will be similar to publishing---only some sites will be on the
"newsstands" or candidates for advertising dollars."
Also in the June 17 Inter_at_ctive Week:
Career Mosaic is sited as an example of a profitable online venture.
Anil Singh of Yahoo claims that WebTrack's figures on Web ad spending are
"clearly wildly off."
Jupiter Communications, Inc. buys WebTrack and I/Pro acquires CyberAtlas.
New software from Bellcore lets advertisers design ads that adapt to a
user's profile and movement on a web site.
--Cliff
Cliff Kurtzman
The Tenagra Corporation
http://arganet.tenagra.com/
713/480-6300
