When can we drop the advertising model?
I've been thinking about revenue streams and the web quite a lot lately. Web content and service producers need to make money. No one can do it for free, forever. So how do we make money? The overwhelming majority go with the advertising model. They hook up with other people/companies with a message and plaster that message on their own product for a fee. I tried to convince myself that this was a worthwhile model for a long time. But it's getting more difficult to believe.
Law of diminishing returns
Sell a few ads, make money, and everyone's happy. Except it doesn't stay that way. Soon, advertisers want more ad space. And they don't want to pay more. Users didn't like the ads in the first place. Do you think they want more of them? I doubt it. Eventually, there's not enough room for the product the users visit your site to see, amid the ocean of ads.
New in town
In addition to ad space growing with no increase in value, there is the issue of new services and new content providers. With very low traffic, ads bring in very little (if any) income. With Fuelizer, my co-founder and I have experienced this first hand. We ran advertisements on our site (from Adbrite) and raked in a killer $0.05 in exchange for displaying an ad 4,400 times. This took around 3 months to accomplish. With a mere ~1,400 page views per month, our site was far from "high traffic" at the time, but is it really worth less than $0.02 per month for all of our users combined? I find that hard to believe. And I'm certain that our users didn't enjoy offers of "NEW GREAT GAME!! CLICK DOWNLOAD NOW!!"
So what do we do?
I think it is time to find a new and more beneficial way of compensating service and content providers on the web. Consumers don't like advertisements and often rebel against them. Ads interfere with the aesthetic appeal of a web page. Providers don't make money without massive traffic. It seems as though the major players in the web economy (providers and consumers) are both losing out. But what can replace ads?
The real answer to this problem is innovation. We need a new approach to monitizing the web. Something radical, something different. With the current state of the web, it's not a question of what the answer is, it's a question of when will someone build it. So get out there and build it... before I do.