The slowing down of ad growth at AOL (TWX) prompted an article in the New York Times (NYT) that makes it look like they may be in big trouble.
One of the problems is AOL had been growing its ad revenue so strongly that sooner or later there would have to be a slowdown, nobody could sustain that type of growth.
It does give an opportunity to understand the online ad-suppported model though.
For example, there has been a move by some advertisers to go to other competitors of scale like larger social networks because they're offering lower pricing for their ads. Of course that has already caused a problem for the social networks because they don't want to develop the reputation and habit of becoming a low-end market. At this time they are, although they're trying to change that quickly, especially MySpace (NWS-A).
The other thing to consider about web portals, social networks and any online site that is catering to a general audience, is eventually they'll fragment, similar to television when cable became a competitor.
In other words the fragmentation comes about from the niche interests that people have and the desire to focus on those interests. There's no way to really combat that, it will happen in any market that is attempting to scale. Eventually it stops growing and people in general scatter to other specific, targeted sites of interest.
Fragmentation is a part of media life. Those unprepared for it will find themselves in trouble and scratching their heads on why their audience isn't as large as it used to be. Niche interests of people is the answer.
At this time social networks are the darlings of the online media, but you'll see the general social networks eventually experience the same thing web portals will: people will fragment to niche networks as well. Nothing will be able to stop this, it's the way people live and act.
This doesn't mean people will abandon them altogether, they just won't visit or use them as much. They will visit for general information and content - not specific.
The other thing about running an ad-supported model for any business is that the business itself is cyclical. So when someone says a company is slowing down in its ad sales, it's simply a part of being in that business. When things start to get tough in a business, right or wrong some of the first places to cut expenses is the marketing department.
How do you run an ad-supported online business then? I would run it lean. While I believe every business should run lean and religiously watch their costs, in a cyclical business it's even more important.
We need to prioritize what we have to spend money on, and what isn't necessary. When you run lean, the slower moving times are just a blip on the screen to you as your business practices will have you prepared when things slow down; which they will if you're in the ad-supported business.
Don't start to believe you're the exception to the rule because you're in a hot time of the business or you started recently and so your growth is consistent and you haven't experienced the cycle yet. You will!
Start your business lean, and keep it running lean. Develop that as part of the culture you operate in. Those running lean will survive and even thrive when they have a strong, disciplined hold on the finances of the business. Opportunities and growth will come to those that are prepared for the eventual slowdown in this business.
Running lean will successfully navigate you through about anything that comes your way, and will allow you to keep the people that are making your business a success.
Comment Preview