The Future of Online Advertising

Jason Calacanis has an interesting take on the real story of Web 2.0; he sees the bells and whistles of technology being far less responsible for the growth of Web 2.0, the real driver being the growth in online advertising.

Chicken or egg?
Jason identifies the factors driving the growth in online advertising

a) there are more advertisers online today.
b) it’s getting easier to spend money online
c) Google Adsense/Adwords (a huge part of part B above)
d) Yahoo, MSN, AOL, and Google reaching scale, which in turn allows major advertisers to reach comparable audience sizes to TV
e) audiences shifting from TV, radio, and magazines to the Internet.

and goes on to predict that video and audio advertising will further fuel this boom.

All of which makes sense, but I have another question - why Web 2.0 and not Web 1.0? If it’s just a question of more advertising dollars available, it could as easily have fed conventional dot coms which use the ad-supported route.

Let’s look at Google Adsense, which has a number of Web 2.0 characteristics. A key factor driving its growth has been the ability to harness the Long Tail of advertisers - smaller businesses, sites or internet ventures that have budgets of a few hundred dollars. Individually, these don’t count; collectively, my guess is they account for a sizeable share of ad revenue. For these advertisers, having the advertising appear on hundreds of small sites rather than a single large one makes more sense, maximising the likelihood that clicks will follow in short order.

The complementary side is Adsense as a revenue source for a small webmaster; the ability to monetise a small site and earn a reasonable return for effort has played a part in triggering off heightened interest in creating sites and content - and moving forward, easing the process with content management software, blogging and RSS, and thereon to social networking. Contrast this with the high costs of sourcing, organising and publishing content in the Web 1.0 model, not to mention the pain factors; and the opportunity cost factor. For a part time webmaster who’s looking to add revenue, creating content or encouraging a network to create content doesn’t have the costs that a conventional web content provider has; it’s partly a labor of love, and partly driven by considering free time to be zero cost.

Advertising may have been a significant catalyst, but in my opinion it’s been a virtuous cycle - advertising drives site creation and networking, which drive additional advertising, and so on ad infinitum (pun intended).