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HipMojo's Ashkan Karbasfrooshan writes today that most venture capitalists investing in the slew of startups hoping to grow by garnering ad dollars don't have the necessary experience to gauge likely success. Since most venture capitalists have technical backgrounds, he reasons that they don't have the deep industry knowledge of the ad industry to determine if an online media startup has a chance. His advice is for venture capitalists to spend more time with the sales people that are expected to drive revenue at the startup: I must say: I am baffled with how much many VCs are neither realistic nor knowledgeable with the bulk of their advertising assumptions. Not only are the assumptions off, but they seem to fail to realize the psychology and dynamics that go into play with how ad sales work. The competitive nature and subjective method to the madness is generally unaccounted for. Or, alternatively, the challenges and complexities of building sales streams are wildly underestimated. Venture capitalists used to be the first to admit that they weren't very good at investing in media companies. There were a few exceptions, but most investors stuck to technology companies. With the advent of Adsense, that has obviously changed. It will be worth watching to see if the monetization troubles so many social networks are suffering now will start to reverse that trend and send more venture capitalists back to the familiar world of technology. - Joshua Jaffe Joshua Jaffe is general manager of TechConfidential.com.
Comments
From: Joshua Jaffe
 ,
Agreed, Ashkan. Although, I would add that tens of millions of monthly page views (which is what I define as boatloads of traffic) is only required for mass media companies. Smart niche media companies targeting coveted communities can still thrive. I'm not talking about sports or women-focused media startups, which are after huge audiences. I'm thinking of new media companies focused on diverse topics such as greentech, digital media, national politics or startups that are building value by doing exactly what you describe in your post; building real relationships with sponsors willing to pay to reach the influencers in their industry. If these companies have VCs on board who understand the ad sales challenge, even better.
Posted on:
February 21, 2008 12:40 AM
From: Parham,
Great post and follow up comments! AdSense is set for Google to make money and not for publishers. No business model can solely rely on AdSense or Overture, not even MySpace. Sponsorships, targeted advertising are far better models and more efficient. Vertical ads network will be far more successful in the next 5 years. I agree with Joshua on building real relationships with sponsors willing to reach the influencers.
Posted on:
February 21, 2008 8:52 PM
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April 18, 2009 5:47 PM
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Joshua, thanks for the mention. In fact, AdSense added to the problem because so many "business models" start and end with "adding AdSense to monetize the service".
Like all ad networks, AdSense makes money for Google, mainly, and not the publishers. To be a publisher that can earn meaningful revenue, it takes boatloads of traffic, which means you're passed the VC stage or an established media company that is wary of Google in the first place.