The decline of ad-based internet sites is reaching a critical point [View all]

[KurtNYC]

The wake of the FaceBook IPO has brought something clearly into focus. As the world picked through FaceBook's business model to determine what the business model of FaceBook is really worth we had collectively a moment like the end of the fable "The Emperor's New Clothes" (aka "The Emperor has no clothes&quot

'Look at the fine business model that FaceBook has' said the underwriters. 'They know so much about so many consumers! Surely all that info will translate into ad revenue.'

And then a tiny boy (named General Motors) stood up and said 'but the Emperor didn't deliver customers. We spent $10 mil with FaceBook and not only will we never do it again, we don't recommend that anyone market through FaceBook.'

It was as if all the air had been sucked out to room. GM diss'ed FaceBook on the eve of their glorious IPO ?!

And now everyone can see, just like after the dot com implosion, that having lots of non-paying users clicking on content does not translate into profit. All the signs were there for those who follow such things. The NYTimes and many similar sites started last year a major push to get online users to "subscribe" and...PAY FOR IT (?) Even discussion boards are being forced to change their revenue model and look for more from users because there is less coming from advertisers.

In terms of supply and demand what is happening is that advertisers, like GM, are becoming more selective and want to see measurable results from the internet marketing dollars. Meanwhile supply, the number of webpages viewed daily and available for advertising, grows constantly.

The cost of delivering our eyeballs and minds to advertisers is now above what smarter advertisers are willing to pay. This is not just the end of FaceBook's model, it is the end of most ad-based internet business models. The future of the internet is subscription based sites which have a loyal user base and deliver a sense of community. We will have to pay something but as we make this transition, we finally become the customer that we thought we were all along. Many websites will have to stop selling us to advertisers and start selling their services to us.