This post was inspired by Sean Carmody’s comment on my last post about subscription versus advertising business models on the web.
His observations initiated an important discussion about businesses in decline and those in their ascendancy. For businesses that are receiving significant cash flow from a declining/stagnant brand, it is difficult to forgo this income to gamble on a completely new approach to revenue. It seems that in the online publishing world the declining model is that of subscription and the model in the ascendancy is that driven by advertising, precisely because of the nature of the net and its multitudes – and the huge forecasts in online advertising growth in coming years. VC companies have had an affair with free content / advertising-driven models for some time now, much to the chagrin of those entrepreneurs with different ideas.
Web 2.0 is largely funded by advertising. Advertising is an AUDIENCE business. So, when Paul Graham is telling his companies to worry about building audience first, that’s actually a good point of view to take. It’s like building a magazine. If you don’t have any readers you won’t get any advertisers.
However, subscription sites will continue into the future. An online media business with a significant subscription base would be loath to write off the resulting revenue to bank on it being replaced by advertising – even if that subscription business is markedly in decline.
The strategic end of those subscription-based media businesses caught in this quandary, such as the Australian Financial Review (under threat from Murdoch’s Dow Jones/Wall Street Journal purchase) and other major B2B organisations I have dealt with, either have related advertising-only businesses (such as the Sydney Morning Herald and The Age) or are investing in free, advertising-only models that service the same market under different brands, to hedge themselves.
As content creators and publishers determine who is best placed to do what over the coming years, we will see businesses managing the subscription and advertising models to maximise revenue from their assets.