Capturing Value From Web Traffic
Few e-business leaders have demonstrated an understanding of how to monetize traffic, or effectively convert web visitors into revenue dollars. Here are some tips on how to generate highly trafficked web sites.
Few e-business leaders have demonstrated an understanding of how to monetize traffic, or effectively convert web visitors into revenue dollars. Here are some tips on how to generate highly trafficked web sites.
Few web businesses have demonstrated that they understand how to monetize traffic, or convert web visitors into revenue dollars, effectively. As a result, many online business models overvalue web traffic and rely on unrealistic planning assumptions. Others are overly reliant on web advertising approaches to generate cash while they struggle to devise other ways to generate revenues. There is limited evidence that this situation will change quickly enough for most of these firms.
Still Addicted to Ad Revenue
A large percentage of e-businesses count on online advertising for a significant part of their revenues. According to the Internet Advertising Bureau, there are 4,555 sites that depend on advertising revenue using popular business models including tools, portals, new media, e-promotion, and communities of interest.
Others rely excessively on web advertising approaches to generate cash while they struggle to find alternatives to generate revenues. For example, there have been 3,000 online marketplaces launched in the past several years, and many of them are starving for transactions. These businesses are starting to look hungrily at advertising and catalog fees while they wait for buy-and-sell transaction activity to develop.
Benchmarking Actual Results
To better understand how well online businesses are actually monetizing traffic, IMT Strategies looked at the web businesses that generated the most traffic. We analyzed the 750 most highly trafficked web sites according to the most recent NetValue ranking. The analysis considered every e-business that went public since 1995, focusing on businesses that relied on web traffic for the majority of their revenue stream and excluding software, infrastructure, and “click and mortar” firms that did not rely on web traffic for the majority of their revenues.
We produced an index of 76 dot-coms that were in the business of generating a lot of traffic and converting it into dollars. The index included a variety of business models ranging from portals to new media to online financial services. To benchmark traffic monetization performance of these businesses, we divided revenue (revenue per month) by traffic (monthly unique visitors).
More than 50 percent were generating less than $2 per month per unique monthly visitor with only 12 businesses generating more than $10 per month per unique monthly visitor. The common denominator among these firms is their ability to effectively diversify revenue streams, build massive traffic flows (for example, the top 15 sites), or convert visitors into buyers. Most were online financial services, e-commerce, Internet service providers (ISPs), and online marketplaces.
Current Traffic Monetization Levels Are Far Too Low
In particular, business models that relied heavily on ad revenues showed limited ability to convert. Ad-supported business models average less than $1.90 in monthly revenues per monthly unique visitor. Monetizing traffic at these levels will not lead to sustainable businesses. Why?
The Bottom Line: Where Does This Leave Online Marketers?
Web marketers must diversify revenue streams to maximize dollars from existing traffic levels to survive. For most, generating traffic is not a realistic option. Domestic Internet growth is slowing, and it is unlikely the market will support many more web sites with massive traffic (in excess of 10 million unique monthly visitors).
IMT Strategies forecasts that it will take at least two years for online revenue models to be mature enough to support many large and profitable web-based businesses. Consumers have been trained to think that all things on the web are free and that information is a commodity. Marketers must change their minds by innovating services and demonstrating value.
E-business leaders must focus on new ways to create and capture value online. It involves thinking differently about the value of information, the evolution of online buying behavior, and payment mechanisms. E-business leaders must get to work proving alternative revenue streams, specifically: