What’s the #1 opportunity in online advertising?
Here’s a quick hint:
That’s right, it’s monetizing user-generated content.
When people ask me about the big trends in online advertising, and what I think of X ad startup or Y ad startup, I always ask what piece of the page they are trying to monetize. Ultimately, you can break up a blog, or a MySpace page, all into a couple distinct parts:
- First, there’s the ad units – these are the formal ad units everyone’s familiar with
- Then you have widgets and sidebar elements
- And finally, you have content areas – like blogs, pictures, etc. that constitute "the news"
- Perhaps you’ll have some specialized parts, like the "Friends" area or other page elements
At the end of the day, each part of the page has value that can be extracted. Let me say that first of all, the formal ad units are incredibly hard to monetize and get to scale, as a startup. That’s because they are 2-sided markets of publishers and advertisers, and if you don’t perform well one day, your impressions will go to Google to Advertising.com or BlueLithium instead.
Furthermore, the technology involved in optimizing these ad units is at least several years into development. What you think might work naively may not, and you bet Google, ValueClick, and 20 other ad networks are trying very hard with more data, more inventory, and more advertisers than you.
What about the other page elements?
When I see ideas like Britepic, that’s when I get excited. Perhaps the integration has to be easier, and 20 other improvements have to be made, but fundamentally they are creating new ad units where none existed before. Another interesting proposition is monetizing widgets, which I wrote about previously. It has it’s pluses and minuses. I’m also looking to see if there’ll be more social networking-specific monetization tactics, such as an expansion on the BuddyLube concept. And of course, you have people that are trying to monetize in-content, such as PayPerPost.
I think it’s pretty clear, given all of these options, that given the right transparency and automated marketplace, that you’ll see several new "types" of ad units emerge as the types of inventory also changes.
Verticalizing is another option
Another interesting way to create a new ad network is in verticalizing against a new set of ad inventory that’d coming online. For example, given the proliferation of file upload sites, you should analyze how they are monetizing the inventory and see where you could do better. Currently, the status quo is to make you wait for the download, stare at some ads, and hopefully you’ll click through. But what if you tried to match "download offers" with what people were downloading? If they were downloading a game demo, you give them more game demos. If they’re downloading a movie, you give them players/utilities and more entertainment. Because getting people to download things is so hard, there are plenty of folks out there willing to pay out on a Per Download basis.
Another are to look at is the proliferation of casual games, or celebrity gossip blogs, or sports blogs, or any number of growing ad inventory that isn’t currently addressed by a "one-size-fits-all" approach to monetization. If you were able to verticalize into an area that’s growing and may become a dominant part of the Internet, then you are setting yourself up for a big business.
PS. Get new updates/analysis on tech and startupsI write a high-quality, weekly newsletter covering what's happening in Silicon Valley, focused on startups, marketing, and mobile.
Views expressed in âcontentâ (including posts, podcasts, videos) linked on this website or posted in social media and other platforms (collectively, âcontent distribution outletsâ) are my own and are not the views of AH Capital Management, L.L.C. (âa16zâ) or its respective affiliates. AH Capital Management is an investment adviser registered with the Securities and Exchange Commission. Registration as an investment adviser does not imply any special skill or training. The posts are not directed to any investors or potential investors, and do not constitute an offer to sell -- or a solicitation of an offer to buy -- any securities, and may not be used or relied upon in evaluating the merits of any investment.
The content should not be construed as or relied upon in any manner as investment, legal, tax, or other advice. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Any charts provided here are for informational purposes only, and should not be relied upon when making any investment decision. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, I have not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. The content speaks only as of the date indicated.
Under no circumstances should any posts or other information provided on this website -- or on associated content distribution outlets -- be construed as an offer soliciting the purchase or sale of any security or interest in any pooled investment vehicle sponsored, discussed, or mentioned by a16z personnel. Nor should it be construed as an offer to provide investment advisory services; an offer to invest in an a16z-managed pooled investment vehicle will be made separately and only by means of the confidential offering documents of the specific pooled investment vehicles -- which should be read in their entirety, and only to those who, among other requirements, meet certain qualifications under federal securities laws. Such investors, defined as accredited investors and qualified purchasers, are generally deemed capable of evaluating the merits and risks of prospective investments and financial matters. There can be no assurances that a16zâs investment objectives will be achieved or investment strategies will be successful. Any investment in a vehicle managed by a16z involves a high degree of risk including the risk that the entire amount invested is lost. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by a16z is available at https://a16z.com/investments/. Excluded from this list are investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets. Past results of Andreessen Horowitzâs investments, pooled investment vehicles, or investment strategies are not necessarily indicative of future results. Please see https://a16z.com/disclosures for additional important information.
