June 15, 2013
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The Rise and Fall of Ad-revenue based websites
Several Days ago I shared a list of Free Blogging websites:
http://edlives.xanga.com/773824064/lets-look-at-free-blogging-platforms/
Now, this list wasn't comprehensive, nor was it my intention to deal with a full fledged review of each site.
The point of that post was to address longevity. Some people got that message, others didn't.
Xanga has been around for over a decade. It's changed very little in it's core programming since it launched back in 1999.
When Facebook came onto the scene, I saw the similarities in look and feel to Xanga's universal inbox.
However, facebook wasn't designed to be for advertising - they thought of that after the fact. Same thing with Twitter, the initial design of it didn't include advertising.
Many popular sites are provided to us because someone has a vision, a thought, or an idea - and they wanted to see if it worked first, then they'd look at how to market it second.
Most look at the internet as it should be 'free'. For the most part, I agree. Wherever you can share and distribute information freely, you should do so.
Please understand, however, that websites providing a free level of service are also trying to pay their bills and therefore are a business.
Users on any website are subject to whatever changes that the website needs to do in order to stay in business.
It's been said that Yahoo!'s acquisition of Tumblr for a billion dollars was a bad decision - and I completely agree.
How does tumblr earn it's revenue - through traffic and advertising. Yes they provide extra service for a charge - but only a very small percentage of people would actually pay for a premium service when they can get it for free elsewhere (sound familiar?). This is the challenge of any website providing services for free that is ad-revenue based.
Now, Tumblr is at where Myspace once was, and Xanga was also before Facebook came onto the scene.
What is wrong with these sites that provide a free blogging account that make them go either belly-up or people move onto other websites?
First - the average blogger thinks they should get a free account anywhere. Why is this? Well, it's advertising and market trends. The reality is that websites want your business. They want your content - so they can sell advertising and make money. It's content based ad revenue marketing.
The concept however, has an inherent flaw in regards to longterm revenue stability...
A website providing any service usually has overhead like any other business - and the website has to constantly be on a growth pattern - or it will fail. However, ad-revenue based websites have to be extremely relevent. They have to be discussing what is going on and where everyone is at in order to stay in business - and stay active.
Very few ad-revenue model (free) blogging sites appear to have the level of infrastructure needed to stay long term. Why is this? Primarily because they are backed by large organizations with other revenue building avenues.
It's this very infrastructure of an ad-revenue model that can cause a website to implode ... causing it to fail. Here's how that happens:
1 - a free blogging website is launched, has all these bells and whistles that other blogging sites have. It's revenue structure isn't built in, but has ads displayed on the pages to help offset operational costs. People migrate to the new site - and like what the site has to offer. Like kids at christmas time, they play with the site like playing with a new set of toys. The site is deemed a success, and people share the site with their friends.
2 - the company has to expand its services in order to accommodate market trends and additional users - including adding additional servers and programmers and engineers. Ad revenue increases due to advertisers taking notice of where their audience is - and purchases ads on that website.
3 - People start getting bored with the site, as other sites are becoming more competitive and offer even more latest and greatest options - with better response, etc... Ad revenue starts to stagnate - as new advertisers start going to the other sites as well. more servers are needed as the data flow and storage needs to regularly increase.
4 - overhead on the company is large, although profits from the site show a nice uptick - many don't see the stagnation in advertising. More people start going to other websites - as the company seeks to improve by adding more bells and wistles - with hits and misses. Meanwhile, servers still needing to be expanding upon as current users still require an ever increasing supply of resources (memory) . Ad revenue continues to stagnate - with advertisers questioning the validity of spending money on the site - questioning the ROI of a sites validity in providing leads for sales, etc... The company starts to provide extra options to garner revenue, from both it's advertisers and it's userbase. So, extra ad options are displayed, and the site gets cluttered with more ads.
5 - company has to start cutting back, laying off employees - offering less upgrades and services. Meanwhile, users that still remain still require that increase in servers to accommodate more data. Company still tries to accommodate users and advertisers as best it can in order to stay relevant and in business.
6 - company reaches a cross roads. With advertisers not wanting to purchase advertising on the site, along with a steady decline of its userbase, the ad revenue significantly decreases. Unable to keep increasing server capability - they are now a shell of it's former self - still with a large amount of servers - much of which isn't used.
By this time the company has a few options:
A - sell the website
B - rebrand itself
C - shut down the site.
Story sounds familiar?
One would think that I would be talking about Xanga -and I could be... but in actuality I was just describing Myspace. One could also view where Facebook is in that mix at this time as well.
Myspace was sold, and is currently rebranding itself.
My point here is that if any blogging website wants to maintain longevity - they have to really take a hard look at current market trends and rethink how it will obtain it's revenue in order to not only survive - but thrive.
TheXangaTeam understands blogging trends I think more than anyone else on Xanga.
I do have my own criticisms from time to time - but I will say that I've learned more from thexangateam on what to do with blogging community websites - and it's been working.
So, if you're looking at going to a free blogging site - just remember what to expect.
The hope with Xanga 2.0 is that the ad-revue will not be the primary source of income for Xanga - we will. They won't have to worry about traffic or advertising... they will have to focus on Us - making sure our blogs have what is relevant to keep us marketable.
They recognize the community, and what it will take to make Xanga not only survive - but to thrive.
#WeAreXanga - use the hashtag, join the movement - contribute to the cause - https://xanga.crowdhoster.com/relaunch-xanga
Comments (27)
Nicely laid out for someone like me to understand. Thank you.
Thanks, Joel, for this very clear explanation! I hope we still have enough of a base to understand and respond to this!
You have been more present of a voice through all of this mess than the actual "leaders" of Xanga. I think you should consider launching you're own community based blogging site.
I would not say Step #3 and beyond is inevitable, but a possible path a company's direction can take.
There are steps missing between #2 and #3 to will ultimately decide on the particular path a company follows:
2.1) Company has an intelligent plan of evolving their site over time to accommodate changes in the technical landscape and user requests.
2.2) Company continually and aggressively seeks to grow their user base, both directly through active advertising and indirectly through given incentives to the loyal user base to bring in other users.
If these steps are done successfully, they follow a different path than the stated step #3. If they don't and stagnate, then step 3 is the natural result.
As an example- Google was around in the late 90's, and they are even more powerful and relevant than they were then. Meanwhile the vast majority of their search engine competitors of that time and beyond have gone to the wayside.
MySpace had a great headstart on Facebook and it certainly wasn't "inevitable" that they would decline or fall from grace. It's not a lesson on the the failure of ad revenue based income but more on the results of mismanagement and having a cloudy direction moving forward.
Failure is not the inevitable outcome of Ad based revenue models. Failure results from bad business planning and execution of that model.
And some people got the message and probably just disagreed with you on some points.
@amateurprose - I'm already working on one...
thanks!
@SoullFire - incorrect. I thought about that course of action as well. However, ad revenue based websites are dependent on quality traffic that it can provide to the advertiser. The focus becomes what it can give the advertiser, and not the end user. Result over time is a disinterested and frustrated user base.
Companies have tried what they believe is an intelligent plan. But the reality still remains...They have to rely on advertising to remain in business.
The appropriate marketing plan is always necessary to grow any user base. However, if you are too aggressive over a prolonged period of time, then you just become another noise out there.
Smart publicity and a strong and thought through advertising plan is what I'd advise.
The issue with ad based sites... And I manage one... Is that it's an unstable source of revenue.
@TheTheologiansCafe - lol, to be expected... Of course.
@SoullFire - Agreed for sure. And keep in mind Myspace is still open and free to use. It's rebranded and evolved but like most of the free sites that were once very popular and have taken a downturn, many are still open and have some level of free membership. They've cut the fat, downsized, and made better decisions for themselves. Some sold yes, but for many of those sites it did not change a free user policy. Tumblr's woes is made up of entirely bad business decisions (while noble) was not sustainable in the long term without serious help and reconstruction.
In a competitive market.. you have to stay relevant and innovative without alienating your entire userbase. Most people complain when Facebook makes small code and design changes... can you imagine what would happen if they charged a fee?
@edlives - I agree that an ad revenue based company must rely on having enough revenue to survive, but the point you make that companies must bend to the will of advertisers over their users is incorrect.
Assuming the company successfully develops a large base of people that can be deemed to be of quality, it is the company that calls the shots in allowing advertising, not the other way around. Advertisers want access to that user group, as they need users to buy their product to survive as well. The bigger the groups of users available, the more they want to access that market, and more importantly, they fear their competitors getting access to that market without them.
A prime example of this is Super Bowl advertising with record breaking amounts year after year.
Facebook tried using "Beacon", which advertisers loved, but when users staged a small revolt against what they felt was privacy intrusion, they quickly relented, apologized, and sought other means for ad revenue marketing.
The instability on ad based revenue sites is only a problem if they aren't a sufficient size or allow their user base to shrink to a critical level. The same instability problems you experience on the site you manage is no different than those of larger sites like Google, Facebook, Television, Radio, or other ad based revenue outlets. Two of the oldest mediums, TV and radio, show no sign that the commercial based free station is going extinct anytime soon.
What you are doing is using the problems based on a small operation (relatively speaking), and projecting that as the natural course of "all" similar model based companies - that is where your inaccuracy lies.
@edlives - I see nothing wrong with having both free and paid for blogging sites. I think the paid for blogging sites should be more for professional bloggers and free blogging sites should be for people, who are newbies and amateur bloggers, that can't afford to spend money on a blogging site. This should also apply toward those, who just like it as a hobby. I think some of the biggest problems with a few sites is that they try to be way too high tech with their features. There's nothing wrong with wanting to be modern. However, these blogging/social networking sites these days claim they're trying to be "user friendly" by supposedly "simplifying" their features, when it's actually the very opposite. I thought the purpose of modern technology was to make things easier and understandable for the common people. It's really a contradiction.
Look at today's cell phones for example. Every nano second, the phone companies are coming out with the latest high tech feature and social app. How many people on average use ALL those features on their cell phones? Not that many. They may use some, but not all. People are just wasting their time, money, and energy on phones with features they barely use and know how to use. It also doesn't help any, when your instruction manual was terribly created. I got a Verizon Wireless Chocolate Bar cell phone years ago as a Christmas gift. I barely knew how to work it. I didn't even have to press any buttons and it would start scrolling around and calling people, who I didn't even dial. LOL! Because I didn't waste time using that phone nearly as much (since most people don't call me anyway), I wasn't wasting my time trying to learn how to work every feature. I held onto that phone for several years because I was worried about the next cell phone being more complicated than the Chocolate. Once, I even read the reviews for the phone. The Verizon Wireless Chocolate Bar reviews were terrible.
The more that I think about it, the "New MySpace," reminds me of that shitty Chocolate Bar cell phone. LOL! This brings me back to these blogging sites. If they're way too high tech for the average blogger, the sites will scare away potential bloggers because some make their blogging features way too confusing to use. That's not to say that the users shouldn't try learning how to work the blogging features. However, if the sites are trying to attract newbies and amateur bloggers to their blogging sites, their features shouldn't be so complicated, that only a brain surgeon or a rocket scientist could use them. You know what I mean? LOL!
@SoullFire - even with a large user base, the infrastructure still has to continue expanding to accommodate the large volumes of data.
Companies can only sustain an ad revenue based model for so long. They must adapt, but many don't.
MySpace was able to regroup after being sold to another company, and they may bounce back from their rebranding, we have to see how long their upgrade lasts. Will they have long term sustainability in their business model? If it is ad revenue based, I seriously doubt it. Will they be able to gather and maintain a large user base? We don't know. That's the bigger issue.
Here's the deal...
No matter how large or small, when you are dealing with an ad based revenue model, your advertisers tend to come first. I've managed and assisted in websites long enough to know that in order to keep the business afloat, you have to concede to who's paying the bill.
With that being the focus, where does that leave us... The users?
You said it yourself by your example with Facebook and "Beacon"... Facebook first catered to the advertiser, until the user base had such a riot on there hands they had to change course.
Why should anyone have to cater to an advertiser? Shouldn't social media sites be about the user throughout the whole business model? Why did the user base have to 'revolt' to begin with? That's just providing a serious disservice to the user base. Facebook lost many users based on that decision. They are in step 4 at the moment on that note.
The example you provided begs the question, who really is the website serving... The advertiser or the user? The reality by your own example shows that the advertiser comes first in that scenario, and this is often the case.
However, with a paid to blog business model, we are the primary customer, and we become part of the process in website development and needs... Not the advertiser. The company is not having to divert attention and or resources to what the advertiser wants, and therefor the user base is content and more loyal.
Advertising on a site should be supplementary revenue, not primary.
You and I may disagree, and that's ok. I'm glad we're able to discuss this issue.
@RealistMe - I do agree that there should be some level of free at blogging. I also think that any blog site should have a very easy user friendly interface.
I chuckled at your cell phone example, my wife said something very similar when she read this post.
@Cagey - but Facebook is starting to enter a phase where they need to seriously think on how to address their revenue issues. There's already been a couple of series of layoffs.
@edlives - I see your point but summing up my points:
The internet is another type of communication medium, like television and radio. All three attract large numbers of users and in doing so attract advertisers.
Marketers in each medium live or die by their ability to attract enough users to their program or website.
Some programs do well, and other fail.
Now the programs or websites that are failing can't turn around and say "The system doesn't work!" if other programs are succeeding using that same system. Using other failed programs as further examples doesn't change the fact that there are others succeeding.
If internet based ad revenue isn't a viable model, shouldn't that be seen on "ALL" models of ad revenue in all mediums? One would expect to see free TV and radio failing massively or even out of business.
We can agree to disagree, but as long as people like Jenna Marbles are becoming rich from ad based revenue on the internet, arguing that the "system doesn't work" is a tough sell. =)
@edlives - Yeah, it's just ridiculous nowadays with the way modern technology is right now. I'm shocked there isn't a social app on the latest cell phone to program washing machines away from home. LOL!
Well written and explained.
Absolutely agree with your statement that "they have to really take a hard look at current market trends and
rethink how it will obtain it's revenue in order to not only survive -
but thrive". Based on the only official communication from the Xanga team I have doubts. Where is the business plan for how they want to grow? Introducing a pay wall will not make you grow per se - rather the opposite.
@SoullFire - Internet advertising is much different than advertising needed for TV and Radio. Each has it's own level of measurements of return on investment. The purpose of selling advertising is to help offset the cost of running the business. Internet websites can do ok selling advertising, but social networks are a bit different - as the network is constantly growing.
To your question: "If internet based ad revenue isn't a viable model, shouldn't that be seen on "ALL" models of ad revenue in all mediums?" - my point is that we have - over the years. But it isn't something that makes news headlines all the time.
For TV and Radio, they don't have to have the infrastructure (servers, technicians, and data management) like that of an internet social media website. They are not having to manage a social media site where thousands of terabytes of data has to be stored and managed on a daily basis. So TV and Radio don't have a rapidly growing infrastructure needing to be maintained like that of a social blogging website.
In my previous post on this subject - with the link provided - I share 10 free platforms that were around last year. Many were very popular - or at least modest in popularity. Out of those 10 free platforms, at least 3 shut down.
Why was that? The answer is simple - they weren't making enough money to stay in business. They relied on the ad revenue based model.
I've shared that Autisable reaches 30,000 people per month - on average. It only makes $100 per month - on average. Now, that is just the number of people viewing the site and its articles.
With over a few hundred active accounts on Autisable - many of whom are syndicated - we're able to just pay the bills. We have no budget for adverting, no budget to market the site.
How could Autisable market itself in such a grand way - when it has no money available? Suffice it to say, out of that $100 - I may have a few dollars left over.
And when I mean on average - some months it's $50, others it's $150. A few months even much less.
Ad-Revenue is good - but there's no stability in it. I also don't have the added pressure of maintaining banks of servers and hiring engineers and programmers - which increases overhead exponentially. So the larger the social blogging network, the more complicated and costly it becomes.
Out of the 10 social blogging sites out there, two have enough traffic to keep things going... for now.
The reality is there isn't money to be made in having a blogging network, not with ad revenue based model. Not with any size of site. The reason is the vast amounts of data being stored and shared has to be maintained and secured.
When your revenue has a serious potential of fluctuating dramatically - due to advertiser trends - then you open yourself up to serving advertiser needs - rather than user needs and desires.
By a pay to blog model - the focus is about the blogger, and their needs. And, the average cost to have your own blog is about $4 per month. This cost is a stable income for a company. With each blogger paying, it ensures that as the network grows, so can the infastructure - without worry. It also allows the opportunity for more marketing to take place because a budget can be made available.
@beowulf222 - well, like any organization going through troubling times, Xanga has taken a hard look at itself. They layed out their initial plan on the fundraising page. Much of it involves us xangans, and working with us to make Xanga better. This includes everyones ideas from the current ideas section on the current site, to also marketing.
@RealistMe - oh I'd love to have a washing machine cell phone app. For that matter, a dishwasher app.
@edlives - As have many companies -- both internet based and physical. This is the nature of their individual business decisions and the economy but not entirely related to advertising. Over the long term I am not concerned with Facebook -- even if they lay off individuals. Additionally, it is merely an assumption for the reason some blog services shut down and others did not. We cannot say for certain why 3 out of 10 (I'd say that's a really good ratio honestly) experienced a problem, nor could we attribute it entirely the fault of ad revenue. There can be, and usually are a whole host of reasons why. And it is the same for Xanga.
I can tell you that, the fansite I used to help run (one of many) had advertising on it. During it's time it was very popular, having some 10,000 members on it's forums alone. But in about 11 years usage trailed off. Today that particular site is a shadow of it's former self -- but it certainly still exists and kept on being free. That amount of membership is certainly a tiny drop in the ocean compared to the amount that some social network/blog sites have, sure. But the fact remains over the long term, all-pay to use schemes in the blogging market is one I don't see as viable or sustainable. It alienates both former and future customers and is limited in marketability.
Additionally.. there are many services both on the Internet, tv, and gaming that we may pay for. Just because we pay for them does not mean our interests as a customer are served. Individuals who provide as much as possible to membership for free, really are doing a noble service. Let's say that Xanga has about 1 million free users, and 10,000 paid users. If those 1 million people go elsewhere after this change -- do you think only serving the needs of the 10,000 were worth it? You won't get those people back and you can't grow -- only in limited ways. This is of course an example on numbers and not a reflection of the traffic or membership this site currently has.
I may disagree with you on this issue, but I appreciate you talking about it. I wish the Team would be the one doing this...
@Cagey - good discussion and ideas. I always enjoy collaborative efforts on projects - it brings different perspectives on an issue.
I think you also have to take into account the fact that many people use things like ad blocker when browsing - myself included. When websites gets to a point where the ads are intrusive and distract from the content, more people use such programs and therefore the ads aren't reaching anyone either. I would like it if most or all of the Internet was free, but there are companies running the sites who need to pay their employees, or upgrade servers or whatnot. Did no one learn from the dot-com bubble burst?
"Internet websites can do ok selling
advertising, but social networks are a bit different - as the network is
constantly growing."
They are growing "if" they are popular. If not, they stagnate or shrink. Xanga's traffic has been shrinking for years.
"For TV and Radio, they don't have to have the
infrastructure (servers, technicians, and data management) like that of
an internet social media website."
They have their own share of expensive infrastructure costs- broadcast stations consisting of transmitters, antennas, technicians which are still heavily unionized, FCC licensing, and they also have to manage archiving their content generated.
"They are not having to manage a social media
site where thousands of terabytes of data has to be stored and managed
on a daily basis."
That may be, but internet sites are not paying the cost of salaries to all the actors, actresses, and other personnel to appear on programs. It is by no means cheap to operate a TV network- as a matter of fact, I'm sure it's easier and less expensive to do an internet start up than it is a radio/TV start up and grow it.
Blogger (which became Blogspot) was started by just two people on a shoe string budget. Google started with a couple of college kids. Yahoo had similar roots- same as Facebook.
"Out of those 10 free platforms, at least 3 shut down.
Why
was that? The answer is simple - they weren't making enough money to
stay in business. They relied on the ad revenue based model. "
80% of businesses fail withing the 1st five years of operation, so some companies dropping out is to be expected.
The remaining companies that are doing well- why is that? Aren't they also relying on the same ad revenue based model?
By the way, I did some research on Facebook and can't find any information on any layoffs. The only thing that came up was Zynga, a game company for Facebook was laying off staff so that may be where it might have been confused with Facebook- they are separate companies. Facebook's latest earnings shows increasing profitability from ad revenue.
"I've shared that Autisable reaches 30,000
people per month - on average. It only makes $100 per month - on
average. Now, that is just the number of people viewing the site and
its articles. "
I'm sure we can both agree that that is a very low volume compared to internet site heavy hitters than reach millions of people on a daily basis.
"How could Autisable market itself in such a
grand way - when it has no money available? Suffice it to say, out of
that $100 - I may have a few dollars left over."
Right, which means that "low traffic" sites don't do well with an ad revenue based model. As you've said previously, the problem lies in the amount of quality network traffic generated.
The model itself is not a problem for larger traffic sites. I use Jenna Marbles as an example since she is well known- she is reportedly making over $4 million/yr on her site due to the huge amount of network traffic she generates. She also used the ad based revenue model, and could pay Xanga's bills with just a fraction of her income.
If the ad revenue model works for her and many others, then the problem isn't the model not working, but some companies can't generate the level of traffic needed to be successful. That's a business execution problem.
"I also don't have the added pressure of
maintaining banks of servers and hiring engineers and programmers -
which increases overhead exponentially. So the larger the social
blogging network, the more complicated and costly it becomes."
Neither does Jenna- Google pays for the infrastructure costs and in turn takes a cut of Jenna's profits to the tune of at least 50%. That means Google earns at least $4 million from Jenna's site alone, which shows in the companies exploding profits year after year, and that takes into account the costs of network growth.
"The reality is there isn't money to be made
in having a blogging network, not with ad revenue based model. Not with
any size of site. "
I believe the information I've provided disproves that statement. The actual reality is Xanga enjoyed a highly profitable run for many years, but their business failed to attract enough new users to offset those leaving, so its traffic shrunk year after year and reached the point where it is today.
If Xanga had maintained even a third of its network traffic during its prime, we wouldn't be having this discussion now as there wouldn't have been a need for a last minute pledge drive for revenue.
@edlives - LOL!
you know this reminds me of 'friendster'. Way back in 1999 before they crashed and had to change into a gamer site. It's sort of surprising I never heard of Xanga until a few years ago, considering I was on Friendster (not a blog network but like Xanga but one of the pioneer cyber social networks). but back then it was like old school Facebook and it was just us college students getting a thrill of adding each other so after we all hung out we could go back to our dorms and "you know, publically talk about what we just did 2 hours ago...ONLINE".
But Friendster made it barely 5 years and Xanga made it 12 and going. To comment on ads online, I think some people don't know where the money goes, it's harder to 'see' lets say the money, unlike a store that sells products where you can see a physical object and it is a direct transaction of money passing so they know it takes money to keep it running. Friendster crashed and burned because of the same problem xanga and many networking sites have gone through.
It's a 'free site' and the people who created Friendster wanted it to be a free community also. But what we see is some templates on screen and many don't know the cost of production, maintenance, staff ( computer programmers sure as heck don't work for anything remotely 'free'), electronic equipment, the servers etc. But look at what 'Friendster' became and had to become to stay alive. http://www.friendster.com
But I remember it when it was like twitter or a very basic remedial FB and you guys both started out about the same time.
@Amandascowen - Thank you! Thank you! Thank you!
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