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Apr 5, 2008

NEWS: Your ad-supported Web 2.0 site is actually a B2B enterprise in disguise

Doing a B2C is more fun than a B2B right?
A lot of folks are doing consumer internet startups because they think Web 2.0 startups are more fun. You can focus on the end user, make them happy, get traction, and go from there. Enterprise software companies (or their equivalent brethren, SaaS companies) are perceived as annoying because:

  • You have to hire a big, inefficient sales team
  • Your numbers depend on closing key deals (usually at the end of the quarter)
  • You have to deal with annoying suit-wearing people who don't talk geek
  • You have to make your product better not through superior technology, but often through superior PR, sales operations, or other non-geek issues...

It's very hard to just use ad networks like Google AdSense to sustain yourself - just do the math using 10 to 25 cent CPMs and you'll quickly see why.

And brand advertising sales looks and feels exactly the same as enterprise sales, and has all the same annoying characteristics, including:

  • You have to hire a big ad sales team, potentially with an expensive office in New York
  • A small percentage of advertiser/agency relationships will supply a large chunk of your revenues. This means that "key deals" matter, and you will jump if they ask you to - for example University of Phoenix was worth $200MM/yr for AOL
  • Everyone you talk to in the ad industry are not nerds - many come from traditional media backgrounds, again with a NY bias
  • And fundamentally, brand advertising isn't a tech game - it's one based on great execution and great teams - so Silicon Valley tech companies often are at a disadvantage

The key thing here is: The users of your website are not really your customers...

How to avoid this mess
Of course, one way to completely sidestep these issues is to directly monetize your users - this is pretty hard, because you have to deal with transaction processing, coming up with something so compelling people will pay for it, and a number of other problems.

Net/net, the approaches here that align you directly with your customers are business models like:

  • Subscriptions
  • Virtual goods
  • E-Commerce
  • etc

Ed: Brand ad sales is fragmented and expensive. 

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