There are still an enormous number of great opportunities available on the Net. You might not believe it, but it’s true. What’s more, a sponsorship-based business model (as opposed to one based on e-commerce) can be quite lucrative.
It’s all a matter of connecting with the right audience.
Last weeks column listed a few criteria that I use in gauging how attractive an audience is – common interest or need, a critical mass, and community of support – but let’s flesh that out a little more. Where are the attractive, underserved audiences out there?
If you are paying attention, you know that B2B is all the buzz right now. Why? Because businesses are always looking for new products and services to improve their operations. When they find them, they are willing and able to spend significant dollars for long periods of time to implement the necessary strategies.
A company that can successfully acquire a new business customer via the Net has a huge payoff, especially if they can retain them for the long run. A business customer can give that advertiser a thousand, ten thousand or hundreds of thousands of dollars of business per month. As long as the advertiser does their job, the cost per acquisition is microscopic… even if the CPM paid to reach that customer was fairly high.
Let’s look at an opposite scenario.
Back in ’96, a site called DaveCentral had an advertiser by the name of Nico Mak (owner of WinZip). At that time, WinZip sold for about $29 a shot.
Nico was willing to pay up to 25 percent of the cost of the sale to acquire new buyers for WinZip. DaveCentral was then selling on a CPM (cost per thousand impressions) basis, and DaveCentral tried to run some numbers to see how this could play itself out for Nico. Long story short… Dave would have had to sell its inventory at under $1 CPM (and pray to a higher power for a high click-through and conversion rate) for the numbers to work in Nico’s favor.
Bottom line: For someone selling a product for less than $100, it’s incredibly difficult to make online advertising pay off… especially if you are buying on a CPM basis. Even if those customers upgrade several times after the original sale, the ratio doesn’t work terribly well for the advertiser.
If you as the site publisher have to accommodate advertisers selling products in that price range, the resulting CPM for you is hardly worth the effort.
That kind of scenario should sound a wake-up call for site publishers: Don’t get yourself stuck in a position where your advertisers need incredibly low customer-acquisition costs in order to successfully advertise with you. For the most part, that knocks most consumer goods directly out of the picture.
Unless you are attracting wealthy individuals and advertising high-ticket products and services (which is a whole ‘nother issue to talk about some day), there is no way you are going to get decent CPMs… Your advertisers surely won’t win, and neither will you.
Before you launch any new venture, look at the sponsor’s side of the table first. Unless they win, you lose.
Let me give you an example you probably know well: ClickZ.
Many of ClickZ’s sponsors are selling advertising space on sites or networks. Many of our readers are media buyers and agency professionals. When they make buys, they make pretty substantial buys, and extend them over a long period of time. It’s not unusual for the media buyers in our audience to place orders for $10K, $20K, even $100K per month for individual media properties and networks.
So if a web site or network can spend, say, $10,000 on sponsorship of a particular area, and then attract two or three customers per month who place orders with them for $10K per month for a year (and in many cases, its been much higher than that), that $10K nets them $300-$500K per year or more. Not a bad value proposition.
The beauty of a B2B audience like ours is that issues like page impressions and click-through percentage cease to be relevant (not that they are to anybody anyway, really). What matters is getting your marketing message in front of an audience that can (and does) represent major spending power.
Ask yourself these questions from an advertisers perspective:
- How valuable is this audience to building my business?
- What is the lifetime value of any single customer I might acquire by reaching this audience?
- What am I willing to pay to acquire one of these customers?
- Does it make economic sense for me to advertise on or sponsor this site in order to acquire a certain number of customers per month?
From there, your rate card and the types of ad vehicles you offer can take shape, because you want to offer a spectrum of alternatives for your sponsors.
But for now, gauge the audience you are looking for by looking at it through your prospective advertisers’ eyes. What you see can really impact what you get.