Online Business Models Explained: Advertising

advertising-online-business-models-explained

This series is starting to get off the ground, so far there were three parts explaining the business models of: services and consulting, products, affiliate income. This time we’re going to discuss probably the most obvious model of them all – advertising.

Why is it the most obvious? Well, chances are that if you say to anyone that you intend to make some money over the internet via your website they will assume that you’re going to make that money on advertising.

Therefore, making money on ads, or more accurately – the concept of making money on ads is often the first strategy for online businesses. In essence, it’s simple. All you have to do is convince some advertisers to buy the advertisement space you’re offering. In practice, it’s not that easy to make a viable business model.

Don’t get me wrong, earning some money from advertising is super-easy, but earning a fulltime income is a completely different story.

To be perfectly honest with you, I know absolutely nothing about making a fulltime income from advertising. I can only assume what needs to be done basing my assumptions on the things I’m doing right now and the things I should be doing to bump my advertising earnings.

But let’s talk some positive sides of the advertising business model – for example – it’s very easy to get started.

Where to start

If you want to make some advertising money there are two main ways you can take. You can either sign up to an advertising network, or sell ads yourself. The latter is not a possibility if your website is relatively new and doesn’t yet have a REALLY good position in the marketplace.

So advertising networks. First let me point you towards two networks worth considering (in my opinion):

  • Google AdSense – the biggest player in the game of contextual advertising.
  • Chitika – great for search targeted and local ads.

Google AdSense works in a relatively simple way. What it does is it looks at your site’s content and displays ads that are relevant to it. So if you’re writing about “cheap wedding dresses,” for example, some ads for wedding dresses are most likely to appear.

Chitika has a slightly different way of doing things. If a visitor comes to your site after doing a search on Google, Chitika recognizes the search term and displays an ad relevant to that term. Also, they can display ads relevant to the visitor’s location – some local ads that the visitor might find interesting.

It’s difficult to say which one of these networks will be better for you because it all depends on the niche and the audience your site is attracting, but I would advise to start with AdSense, and then include Chitika either if you’re not satisfied with the results or as a test.

Signing up is really easy and AdSense takes you step by step through the whole process. On top of that, there are many AdSense plugins for WordPress, which make it easy to include the code you’ll receive. These two for example: Adsense Made Easy, Wp-Insert.

Now, one more thing you have to do is select the place on your website where you want to display the ads. Ad placement is a topic for another post, so I’m not going to get into this in detail here, but let me just tell you that the most common way of displaying ads is to have an ad block in the sidebar and an additional one somewhere in the main content section (for instance, above the first paragraph).

The Wp-Insert plugin lets you place ad blocks in a number of different places, so I’m sure you’ll find something that works for you.

The fact is that there’s no single best placement for ads, it all depends on a number of factors, that’s why you simply have to test different placements to find the sweet spot – one that makes you the most money. Testing is always the most powerful weapon in an advertiser’s arsenal.

Bright sides of advertising

The biggest advantage of advertising is that it can be implemented in every scenario, no matter what niche you’re in, as opposed to some other business models.

For example, you might find yourself in a market that doesn’t have a lot of quality affiliate products to promote, or a market where you haven’t yet identified a product your audience might buy. No matter the situation you can still use advertising as your initial monetization technique.

Google AdSense is a truly massive network, and they can provide an ad for any topic imaginable, so even when you can’t find a product to promote individually, Google is still capable of finding a relevant ad.

One more thing advertising is really good at is testing any niche. As I said in the previous posts, developing a product only makes sense when you’ve done some research and have a really strong indication that your audience will actually enjoy what you have in store.

Advertising is a great way of testing your niche and its commercial potential. Here’s what you do. First you start by displaying some contextual ads from AdSense and you constantly monitor their performance.

Then after a while you have a fair amount of data about what ads are most popular on your site, and what the average click through rates are. You can use this knowledge to do two things.

  1. Sign up to a direct ad network (like BuySellAds) or start selling ads directly.
  2. Find relevant affiliate products.

Signing up to a direct ad network and selling ads directly is essentially the same thing. A network like BuySellAds only acts like a broker in providing a place where new advertisers can find you, but it’s still up to you what price you’re willing to offer your ad space for.

When you have your AdSense data you can predict how many clicks a direct ad might receive, also you know how much money on average a contextual advertiser was paying for one click. By combining these two pieces of data you can set your price for a direct ad – one that is both realistic from an advertiser’s point of view and also profitable for you.

AdSense data can also be used for finding good affiliate products. For example, if you see that certain type of ads work really well in comparison to all the other ones, you can find an affiliate product similar to what those popular ads are presenting, and probably make more money by promoting this product directly.

Finally, after testing the space with affiliate products you can create your own products. By using such an approach you’re not running in the dark wondering if your product will work, but you have a strong set of data that make success much more probable.

Just to sum all the benefits up:

  • Easy to get started.
  • Easy to set on a website.
  • Great for testing.
  • Great for small niches with no affiliate products.
  • Great for getting initial niche performance data.

The downsides of advertising

There’s one really big downside. It’s impossible to make any significant amount of money if you don’t have a truly popular website.

Sorry, but that’s just the way it is…

Let me show you an example.

Let’s say that your CTR is 0.5% and the average CPC is $0.20 (these numbers are not exaggerated in any way – a real life example).

If you get 10,000 page views they will result in 50 clicks, which inevitably equals to $10.

Now, 10,000 page views is not a big number for some sites, but for most new sites it just is. So even making a lousy $10 can require a lot of work in terms of promotion and growing your website.

That’s not the worst part though. Let’s take another look at the example above. If you want to earn a modest $1000 from this model you’ll have to attract 1,000,000 page views … yea right.

OK OK, the reality is not the harsh. Chances are that if you already have 1M views on your site you’ve developed a number of other monetization techniques and you’re probably making a lot more money than $1000. But still, advertising all by itself is a hard business model to make worthwhile.

Another downside is that most of the time you don’t have full control over what ads are displayed on your site (contextual advertising). Every now and then you’ll stumble upon something you would never ever endorse, but still you end up advertising it. You can filter those in your AdSense settings, but there’s no truly efficient prevention mechanism, you can only act once you see something you don’t like.

Is it worth it?

In my opinion, YES.

To be frank, I don’t treat advertising as a way to make money. I’m treating it as a way to test if there’s a possibility to make money.

There’s truly no better way of testing a market than by displaying some relevant ads and observing what happens.

AND

One more thing ads are great at is setting the mindset of your audience.

Here’s what I mean. I’m sure you can recall a situation where some website owner hasn’t been promoting anything on their website until one moment when this changed. Such a situation is most likely to face some audience’s backlash and overall disaffection. But for sites that present ads right from the get go, no such thing happens.

If a visitor sees that there are ads on a site from day one, then they’re a lot less likely to be surprised by a more aggressive promotion that might take place one day.

So, do people hate advertisements? – YES. Do I advise you to use ads on your site anyway? – YES.

What’s your opinion? Is advertising working for you?

Next parts of the series are coming soon so don’t forget to come back to get them. Feel free to subscribe to my RSS feed or email updates to get the posts delivered to you the minute they are created.