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Sunday, March 30, 2008

I get approached by a lot on online business looking to outsource their ad sales.

Well, I say outsource their ad sales but, basically, they don't have any to outsource.

What they all really mean is... "I want you to sell advertising for my unproven Web 2.0 business but I haven't any cash to pay you".

There's a great article in today's Sunday Times The new dotcom boom which gives some insight into this.

Whilst drawing some parallels with the last dot-bomb bubble, most notably the growth of start-up networking events, it's recognised that there are a some differences this time round.

Today, it's typcial of Web 2.0 start-ups see their exit through a strategic buyer rather than an IPO. VC activity is up but no-where near the feeding frenzy heights of last time around. One reason could be that it's so much cheaper to actually start up a Web 2.0 business today.

"Lastminute used to cost millions of pounds every year in technology," says Hoberman [Brent Hoberman of Lastminute.com and wayn.com]. "Now it is far cheaper." How come? "Moore's Law. Everything becomes cheaper and faster." Can you set up for 20,000? "Absolutely," says Clegg [Judith Clegg of the Glasshouse, the company that runs Second Chance Tuesday]. "Less, perhaps."

Add this to the fact that most Web 2.0 start-ups' business model is based solely on advertising revenues and you start to see why we get approached by so many people to sell advertising on commission.

The problem is that none of these start-ups have anywhere near enough traction to make a CPM model pay. So, to fill the void, there's this vague idea that someone can just make a few phone calls and drum up a quick ad deal for their "next big thing".

Sure, ad spend is moving rapidly online. However, as the article points out "with lots of social networking sites all seeking advertising money, some kind of shake-out is due."

Web 2.0 businesses typically work on some low value/high volume model (which could be be that a directly listing fee, monthly or annually subscription or CPM ad revenues). The trouble for us is that these models just don't work well with telesales (which needs at the very least a medium value proposition) unless you're prepared to buy business in a land-grab.

If you're looking to self-fund and grow covering your sales costs (outsources or in-house) from revenue then you either need a higher value offering or a small number of partnership deals which will bring the long term revenue scale you need.

So, now you know, please... stop calling me ;-)

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Posted by: David Regler @ 5:29 pm |   | Links to this post  

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  1. Feedback At 8:16 am ~ Blogger Jamie Hancox said...

    I couldn't agree more - I run a sales agency for small consultancy (www.buyingtime.co.uk) and tech companies... and with a background in ad sales the same questions often come to me. no traffic, no ad sales... that's the law. Jamie Hancox

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