Profit on the web is about audience not traffic

At the recent Digital Magazine Symposium, Gordon Borell astonished the audience by blowing up the notion that building that largest base of online readers is the key to ad revenue. 

   After surveying the financial results from thousands of local media Web operations for the past eight years Borrell concludes there is no direct correlation between large amounts of traffic and large amounts of money.

For example, Borrell tracked a wedding Web site in one of the top media ten media markets making nearly as much money in Internet advertising (in millions of dollars) as the #1 ranked TV station website in that market. The TV site gets about 600,000 unique visitors per month, the wedding site gets about 60,000, or 1/10th of that traffic. How can this happen?

Borrell says that online, the best advertising is content. There was a time before the Internet (my kids are shocked at this statement) when the top way consumers learned about products was through advertising. But the Internet has become a far more efficient educator. Many of the most profitable websites make money because their content functions like advertising did years ago, as a customer educator for product sales. According to Borrell, visitors of these sites are “leaning forward” to read the content while probably ignoring the banner ads. 

Some print publishers are still trying to win the print circulation/CPM battles online. But that battle is over. They lost. Online, search, which now accounts for over half of all online advertising dollars spent, has won. A media buyer can always buy more clicks per dollar buying search. 

While the online CPM battle is lost, the war for publisher profit can be won. Borrell shows us how with an example: “Compare radio, a $15 billion media segment, with the yellow pages, a $9.8 billion segment. About twice as many people listen to radio compared with those who use the printed yellow pages. So those ad dollars seem just a little out of whack, right?  Now consider this:  For radio, average weekly time spent listening is about 20 hours.  For the yellow pages, it’s about a minute.  An industry that reaches less than half the audience of radio and gets about 60 seconds of quality time with them every week – compared with radio’s 20 hours a week – can still attract about 65% of the ad dollars as radio?  That’s because the yellow pages, like the Internet, are a lean-forward medium where people see the advertising because the advertising is the content."

At the Digital Magazine Symposium, when Borrell laid this out, everyone in the audience was taking furious notes.

To further support Borrell's points, the chart below illustrates the dollar value of a unique visitor at some of the best known websites. To estimate these numbers, Silicon Alley Insider took the full year revenue for 2009 for each of the companies below and divided them by the number of their average monthly worldwide unique visitors.

As per Borrell, the more "wallet ready" the unique visitor is, the more dollars generated. Search gets the most per visitor, then display, and then social. 

Google's uniques (search) are the most valuable: $18 of revenue per monthly unique per year. Facebook's uniques, meanwhile (social networking) are worth a paltry $3.50. Twitter's uniques are worth almost nothing.

Understanding this, publishers, even small ones, can compete. For example, check out HD Camera Guide which attracts  a relatively small but valuable "wallet ready" audience.

Comments

[Mike]

Not surprising, the graph. The signal-to-noise ratio in regards to marketing in Twitter and Facebook are damn low.

[Scott Donovan]

Surprising high value for Google as Financial institutions make about $40 per customer.
They do keep your money securely in an account for just $40 profit / year / customer.
In order to do so they spend quite a large amount on advertising as customer acquisition costs are very high.

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Wow!! Goolge has the highest of them all! Hmm i want facebook will be on second place =) hehehe

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Excellent post. Thanks for providing with so useful information. I really appreciate your blog. But the data shown bit surprises me as now Facebook is quietly more popular.

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Goes without saying- unqualified traffic is a waste of time (except for it's value in ranking in the SERPs. Otherwise you're better off with 3 targeted visits a day over time than 100's who aren't looking for what you're offering.

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