Advertising downturn and long term profitability

The downturn in advertising revenue is no myth, while small individual publishers can never be sure whether they are just have a bad day, week or month some larger publishers are seeing the same and few are being hit as hard as parking portfolios.

Parked portfolios consist of large companies with thousands of domains parking the pages and relying on parking revenue income from direct type in traffic, companies like DBS Dark Blue Sea with the size of their portfolio can really give you a more measured look into the bigger picture.

DBS releases their financial profit guidance with it’s first quarter performance to March 31st
http://newsstore.smh.com.au/apps/previewDocument.ac?docID=GCA00839750DBS&f=pdf

The report is really quite interesting and well worth a read.

The online advertising industry has been growing at 25% to 30% per annum since
the bottom in 2002 and while estimates from industry analysts of future growth vary,
similarly strong growth rates are anticipated for the next few years. In March 2008,
eMarketer, the leading online advertising industry research group, released updated
forecasts of 23% growth for calendar 2008 (revised down from 28%) and 16% for
2009 (unchanged).

One of the reasons that the online advertising industry’s share of ad spend is still low
relative to audience is that it has not yet been fully embraced by two significant
advertiser segments – major brand advertisers and SMEs. Growth in the online
advertising industry to date has been substantially driven by internet companies and
direct marketers.

Industry analysts are now concerned about the cyclical exposure of the US online
advertising industry to an economic downturn. Whilst online advertising is still one of
the most cost effective methods of advertising, it is also one of the easiest to cancel.
And cancelled online advertising can lead to immediate impacts through the keyword
auction and Coverage, Relevancy, Quality, Price mechanisms outlined above.

Over the last four or five months, the Company has observed a general reduction in
the ad spend of a number of large advertisers that have historically purchased the
Company’s direct navigation traffic. We have observed this through a partial
reduction in price but more significantly through a decrease in Click through rate.
This reduction in these advertisers appears to be partly due to the weaker economic
environment but is also linked to some significant structural changes that the Search
Ad Networks have been making.
This company have struck a deal with godaddy to sell their domains which will make a huge difference to it’s profitability over the next few years helping it maintain profits but with advertising going down and domain sales going up to try and keep overall profit levels it does not look like a sustainable business model to me.

Internal domain sales
First Quarter Last year $333,000
First Quarter This Year $1,370,000

Total Revenue
First Quarter Last year $2,281,000
First Quarter This Year $2,372,000

So the rise in domain sales covers the drop in advertising revenue but you can only sell a domain once, finding and buying domains with traffic is getting harder and less abundant than it would have been.

Why am I talking about this company?
Well I feel it has parallels to a lot of what many of us are doing and experiencing,  we endeavour to garner more and more free traffic through organic rankings just to get users to quickly click and leave our site before they even know they arrived, what site? they will ask, if you have a 15% CTR based on page impressions is that more like 40% of actual visitors who would not be able to recall your domain name even if they wanted the same information in the future.

Falling advertising income means we all have to widen our search for profitability and look at our business models, this offers many possibilities and options, some of which I am considering just now.

  • Contacting advertisers directly to leverage a better return.
  • Value our traffic better, is it really worth sending to some other site in return for a few cents or would it be more valuable in the long run to build a brand and a readership making advertising less blended.
  • Building our own products and services rather than selling through affiliates which can offer better value, more income and again help build a brand.
  • Perhaps some of us need to change our whole model away from high CTR to re-investing money earned to build more useful sites, products and tools which don’t go after a quick buck but play the long game.
  • Use existing sites to launch cleaner better looking sites without ugly advertising and high CTR’s with low return.

Now is a very good time to take a long hard look at what your offering or trying to offer and consider that right now Google can provide enough free traffic to build a brand, in the future that may change which makes what you choose to do today even more important.

About Scott Jones

Scott hails from the north east of Scotland and started earning online at the end of 2000 building websites for local businesses during which time he won an award from Lord Alan Sugar for Excellence in Enterprise. After having quite a bit of success with domaining Scott mainly runs educational evergreen websites which generate over 3 million visitors per month but is always on the lookout for a fresh thinking out of the box way to turn a buck. Follow on Twitter.

Comments

  1. I really agree with points #2 & 4. They are what are keeping me from diving into the domain market huge. I’d prefer to focus on a handful of sites, and build them up as true resources, not portals to be clicked-through for a few cents. That’s just completely unsustainable.

  2. Why aim for revenue through such a passive source as parked domains when with a touch more effeort you can brand your efforts, display banner ads leading to offers that bring in tens of dollars commissions, or better still, leverage your own efforts and create and market your own cutting-edge products online?

    Once again, a case of the lazy man taking the most pains! 🙂

    • For a company like DBS it is because they own hundreds of thousands of domains (500K) and that is their strategy.

    • It makes a lot of sense to me to think that parked domain sites will make less and less as time goes on. As people become more sophisticated about how they use the Internet, they’re going to see less and less of those useless parked pages…and when they do see them, I’m guessing fewer people will click.

  3. I would be surprised if parked sites didn’t have 99% bounce rate. Buy maybe I am over-estimating the average internet user.

    Monetization Hub’s last blog post..Displaying Random Ads

  4. We’re finding that our clients are much more eager to work on organic search results vs. droping more money on afiliates or PPC. Before, they didn’t have the time and didn’t want to learn. Now that we’re seeing reduced budgets I’m getting many more phone calls from clients telling me they are ready to ‘help out’ if they can. Scary!

    Jim Belosic
    Belosic|ADG – A Reno, NV Advertising Agency

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