ONLINE-ADS>> Subscription Model vs. CPM

Greg Bulmash (greg_at_bulmash.com)
Thu, 6 Nov 1997 12:17:46 -0800

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The plain and simple fact is that to attract and bring-back visitors
it's requiring more and more bandwidth-intensive, "added value"
features like chats, java applets, streaming audio, streaming video,
etcetera, which really don't increase page views or ad views but do
increase your costs.

If an average user uses 2 mb of bandwidth a month at a $50 per gig
delivery cost, that costs you $.10 in delivery. If that's worth $2 a
month to them and you have 1,000 subscribers, you net $1900 after
delivery.

You may say then, but it costs me $X to produce the features and the
increased volume of making it free will offset that better than the
lower volume if I charged.

Not necessarily so.

Let's assume that without increasing your promotional costs, you would
attract 50x more visitors to an advertiser supported site than you
would to a subscriber supported site, but they would use the site less
exhaustively, decreasing your delivery cost per person by 50%.

1,000 subscribers _at_ $2 per month _at_ $.10 delivery cost =
$200 delivery cost and $1900 net.

50,000 visitors _at_ $.05 delivery cost =
$2,500 delivery cost...

Let's assume that after selling ads directly and at auction, your
income is such that it would equal selling 60% of your inventory at
your target CPM. So now we have 30,000 visitors at your target CPM and
a $2,500 delivery cost. To generate $4,400 in income, you must earn
approximately $.15 per visitor. If your target CPM is $10, they must
each view 15 ads.

You can argue with the various numbers. You may have a 5%
subscribership instead of a 2%. You may have lower usage, higher
bandwidth costs ($50 a gig is a pretty good value when you consider
what some hosting services charge), etc. If you're doing enough
traffic to demand your own T3 connection, you might lower bandwidth
costs to as little as $5 and change per gig, (this is based on a fully
utilized/saturated 45mbps channel with minimal upstream overhead).

Heck, I know lots of sites who would _kill_ to have an income equal to
60% of inventory at $10 CPM.

What it really comes down to is that a subscription-based model will,
in most cases, produce a higher revenue per user than an
advertising-based model. If you can charge someone $2 a month to look
at 50 pages, you'd have to get a $40 CPM with 100% of your inventory
sold to get the same revenue out of the same user.

The question is whether enough people will want to pay for what you're
offering to make the higher revenue with lower volume be worth more
than a lower revenue at higher volume. For some sites, especially ones
with lots of bandwidth-intensive, "added value" features, a
subscriber-based model makes more sense.

-Greg

--

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|Q: How do you make the hiccups go away?                     |
|A: Tell them you love them.                                 |
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|Greg Bulmash               Author/Editor - The WASHED-UPdate|
|greg_at_bulmash.com               http://www.bulmash.com/washed|
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