During the dot-com bust, as the online advertising market dried up and the Web companies that had been buying most of the ad space went bankrupt, the people who start and fund companies in Silicon Valley began questioning whether Web sites could survive on advertising alone.
That moment of doubt didn’t last. The ad market revived and free Web services blossomed. But now, as advertising shrinks once again, entrepreneurs and venture capitalists are desperately seeking new sources of revenue.
Does this mean the advertising model is no longer a viable one for new Web start-ups?
Advertising requires an audience, and that takes a few years to build. Web start-ups struggle with the question of whether to sacrifice revenue for several years, build a huge audience and then sell them ads, as YouTube did, or find an alternative revenue stream that will bring in money from Day One.
The venture capitalists that back those start-ups have different philosophies, but as a group they have grown much more cautious about backing companies that have no immediate way to bring in some revenue.
Roger Lee, a general partner at Battery Ventures, said he looks for Web companies with multiple revenue streams. Even if some of a site’s services are free, most of the start-ups in his portfolio also have subscription products, premium services or an e-commerce element.
Read the full article here
Blog of Intellectual Capital 