Is Web 2.0 Advertiser-Friendly?

There’s an uncomfortable situation we need to face. A number of very exciting, innovative Web sites have sprouted up over the last several years, attracting huge amounts of interest and attention. Their names are familiar, if not necessarily household: YouTube, Flickr, MySpace.com. The growth of these services has been spectacular, fueled by a healthy new supply of venture capital and entrepreneurial spirit. We’ve seen traffic numbers soar, way past these sites’ more traditional counterparts.

YouTube and MySpace are certainly leaders and have attracted quite a bit of advertiser attention. But just behind these leaders are a number of other, smaller companies with interesting Web services and technologies. Companies like Odeo and Squidoo are on the horizon, building audiences and attracting capital.

We’re getting to a critical inflection point in this secondary Web growth spurt. Many of these companies have built fiercely loyal audiences, yet without revenue streams. Others have developed value propositions that are only slightly differentiated. In fact, many Web users would be hard-pressed to clearly describe when someone might use one blog search engine over another.

The problem that concerns me the most is the lack of advertising on these services. Not because I believe ads should be everywhere but because most every content business in history has survived either thanks to advertising or subscriptions (most frequently, a combination of both). But the Web 2.0 mandate seems to be eschew both in favor of building numbers.

Clearly, they’ve built numbers. Advertisers are salivating over the reach and frequency sites like YouTube are getting. But YouTube took a significant turn last week, allowing advertisers the opportunity to develop their own branded channels on the site. They kicked it off with a Paris Hilton channel. If you’re ever unsure what to do as a marketer, call Paris Hilton.

YouTube, of course, allowed visitors to comment directly on to the videos. Here are three of the first comments:

• Let’s hope youtube doesn’t turn into the new mtv and just plaster nonsense sponsored content everywhere.
• Yeah, I like YouTube how it is, with its own celebrities and the random s–t people post…I don’t want it to be like MTV.
• This is what has p—-d me off about youtube. now that it has become “famous”, celebrities are all wanting to get on it to post their videos, which are edited so much that its not that great of a video. Most of them never go on these sites before they even become popular or even now to check out other people’s videos.

The question now is whether an opened-up revenue stream also opens up an audience leak. If so, Web 2.0 sites are in a heap of trouble. They’ve invested heavily in their services as a way to build their audiences. But there’s a bumper crop of new sites that offer some kind of social media/sharing experience. If visitors to one site become upset about a sudden introduction of ads, there are plenty of alternatives.

This is a pretty vicious circle. If each new site is willing to put itself out there without advertising and cool technology in the hopes of winning an audience, there’s no end to the value chain. The smaller site without ads may receive the escaping audience from the big site with ads, but for how long? Will the story simply repeat itself? It’s a good way for technology to develop (each new site will be better in some way) but not a sustainable business environment.

The solution is pretty simple, actually. New Web 2.0-type sites need to launch with advertising, even if they simply sign up with Commission Junction and place a bunch of eBay banners throughout the main pages. They need to establish, in the minds of the site’s visitors, that advertising is part of the service and that’s OK.

If the site does grow and meanwhile invents some incredible new way to make money from a content without ads or subscriptions, fantastic. Seriously. The YouTube team must have had a tough day when they essentially told their audience, “Ads are now going to be an integral part of this community.” If they started with ads, they could’ve instead had a day where they said, “Good news! No more ads.” The idea of branded channels is good, but it isn’t incredibly novel. I’m sure they thought of these a long time ago. It would be better to simply introduce ads right off the bat.

Admitting you’re in business and you expect the business to make money isn’t a bad thing. It certainly isn’t the only thing. I’m glad for freeware and blogs and citizen publishers doing it solely for love. But if you’re going to take in capital, be upfront with your visitors about the fact that you anticipate getting value back.