Ad Revenue Based Web 2.0 Companies Will Need Massive Traffic to Thrive

Posted on March 17, 2007

A New York Times article discusses analysis by venture capitalist Jeremy Liew that indicate that it may take monster traffic to build a company that makes $50 million a year in ad revenues. Liew's analysis says a general interest website would need four billion pageviews a month in order to earn $50 million in ad revenues a year.

Let's say you wanted to build an advertising-supported online media business that took in $50 million a year in revenue. How many users would you have to attract to get there?
Probably too many for most people to even try, if the numbers run by Jeremy Liew, a venture capitalist at Lightspeed Venture Partners, are accurate. On his blog (lsvp.wordpress.com), Mr. Liew determined that even the type of site that can get the largest advertiser payments per user would have to be immensely popular before it made that kind of money.
The analysis is "sobering," wrote Tim O'Reilly, the chief executive of O'Reilly Media, a publisher of computer books. "This may be why more entrepreneurs are going for low-investment sites that don't need an exit but provide 'lifestyle businesses' for their owners," he wrote on Radar, his company's blog.
That is, rather than seek venture financing and hire a staff, it may be better for one or two people to create a relatively simple site - say, a hobbyist blog for guitar enthusiasts - and use a service like Google AdWords to, hopefully, make enough money to live on.

There have been many multi-million dollar investments in Web 2.0 companies that hope to make their money solely from ad revenues. You have to wonder how good of an idea that is given that it appears to be very difficult to build a company that can bring in $50 million a year in advertising revenues. Jeremy Liew's posts about building $50 million online media companies can be found here and here.