Product Sales Beat Ad Sales for Web Revenues
by Rob Spiegel
Online advertising as a way to make a living on the Internet has gone the way of the dot com crash, but that doesn't mean that the Web is no longer a profitable place to do business. In fact, for product sales over the Internet, business is booming.
Most entrepreneurs who launch a Web site are seeking product sales revenue or advertising revenue. Even corporate brochure sites frequently sell advertising. As you click through sites while you're online, the proliferation of advertising gives the impression that Web ad sales could be a logical (and potentially profitable) way to offset the expenses of building, maintaining and promoting your site.
But before you make the call to Monster.com to ask who places their advertising, you may want to consider these statistics from Jupiter Media Metrix, and premier online advertising tracking company:
- Online advertising accounts for under 2 percent of total advertising. If all goes well (and right now online advertising is not going well at all), the research company predicts that will rise to 5.2 percent in five years.
- Online advertising rose an impressive 69 percent last year, but this year online ad revenue is only expected to rise 12 percent, and over the next five years, the growth will hover below 15 or 20 percent each year. This means online advertising will have to fight hard to rise to the level of billboard advertising.
- Jupiter also reported that advertisers have their doubts about online advertising. Advertisers believe Internet ads do not reach enough people and are too expensive.
- More bad news for those who want to sell ads is Jupiter's finding that the cost of Internet advertising has fallen 30 percent over the past year and these costs are expected to keep falling into the fall of 2001.
Online advertising is one of the casualties of the dot com crash. "Online advertising was built on false expectations set up in the Internet bubble when everyone believed the Net was magical and didn't need to be measured," said Carla Hendra, president of OgilvyOne North America, a major online advertising firm. "For the first few years, if someone looked at a Web site and said 'cool,' that was enough. Now clients are becoming more conservative."
This translates into "Forget about it" for those who believe they can attract advertising dollars to their Web site. Product sales at Web sites, however, present a completely different story. Even with the dot com crash, Americans are spending more money than ever online. The Web continues to be the fastest-growing retail channel. According to Boston Consulting Group, online retail revenues grew 65 percent in 2000, hitting $44.5 billion. The research company expects revenues to reach 66 billion this year, up 45 percent from last year.
In May of this year, visits to ecommerce sites were up 35 percent over May of last year, according to Goldman Sachs. Jupiter Media Metrix reported that Amazon's traffic was up 34 percent this May over last May, reaching 20 million visitors. Walmart.com visits were up 126 percent this May over last May.
So I received an email this week from Manuel Morales, owner of Sign3.com, a site that allows NFL fans to vote for their favorite team. He receives 1,000 visitors each day, which gives his site total page views of 4000 per day. And he's asking how to profit from this traffic. The simple answer is "Don't bother trying to sell adverting."
With his type of targeted audience, Manuel probably stands a better chance of selling official team products to create profits. He can likely obtain the products through affiliation or direct inventory purchases. He can tie an individual team product page to votes for a particular team so the fan sees only the page for the team selected. He can outsource the product shipping to the manufacturer or distributor.
The strategy of selling products to visitors is not foolproof, but given the advertising statistics versus the retail sales statistics, product sales are certainly the strategy most likely to succeed. And given the ability to use affiliation with product distributors as an alternative to actually buying inventory and filling the garage with stock, the product route may come with little risk.