Homework Homework so far Some people have had a lot of trouble with the more technical side of the class My objective was to encourage everyone to try to publish online: create content, create an online vehicle for the content (a web site) and publish the content on the web site (via ftp) Many of you are more interested in the issues, and you don't need to worry about the techie stuf So if you haven't done the ftp stuff by now, don't worry about it. My plan was to have the class in the computer lab, but it isn't available to us, so unfortunately we can't have more of a hands-on lab. Web site proposals web site proposals who's done it? problems? Picking a Topic Picking a topic: Think about - what you are an expert in - what you are interested in - what other people would be interested in ------ Cybertimes Stephen King's e-book equivalent of 66 printed pages $2.50, but many got it for free Most used 'glassbook' to read it, essentially a browser, in that it is software you use on your computer, but just for e-book text just like publishing on the web takes special formatting (html) rocket-books, e-books, and glass-books all require special formatting that is different. so publishing for these devices still requires manipulating text files and posting them on servers, although you may not use HTML to format the text. in the time it takes to read the Sunday Times ($2.75) you might read Riding the Bullet same enjoyment per dollar New Yorker VanGogh piece? ------ Web economics: History In the beginning (1994), the Web was entirely free. There was an 'open-source' feeling about it, similar to how Linux is discused today. There were no commercial sites, no commercial tools. All server software and html creation software was free. People used to predict the demise of the Internet, thought it was a passing fad, because there was no way to make money off of it. people thought of the internet as cb radio + pamphlet These early sites had a lot of trouble because: a) the Internet audience was very specific - mostly computer geeks at universities b) there was no infrastructure for selling ad space There was no standard ad size or rate or way to measure success. If you approached a company about advertising on your site they usually weren't interested. no 'Veri-sign' c) The early attempts at e-commerce were thwarted because there was no standard for security d) A few sites began running ads, and those sites were often derided as selling out. Most sites at that time were either: a) 'shingles' a company would have the equivalent of a business card online with phone numbers and other contact info b) academic papers c) personal pages (usually students) That has changed a lot in the past 5 years INCOME Getting Money Venture Capital Buyouts E-Commerce E-Service Subscription Advertising Affiliate Links ------ Venture Capital Catch a Rising Star There are many investors looking for places to invest their money. They want to catch the rising stars before they've risen too much Many look for startups that have been around long enough to demonstrate that they aren't just a flash in the pan They look for a group of maybe 3 to 5 people and an idea that has generated at least some income They invest large sums in exchange for stock, when the company goes public, the stock is worth much more 10% success rate They are willing to gamble somewhat The expectation is that 9 out of 10 Internet ventures will fail, but the one that succeeds grows by much more than 10 times, so the difference is made up. Hardware / Software / Service / Content In the stock game, hardware companies do better than software companies, which do better than service companies, etc. So, many content sites have more trouble finding VC, and are encouraged to offer services as well as content B2B versus B2C Another bias is for 'business to business' sites over 'business to consumer' sites B2C sites (amazon, movie review site, peapod) have more trouble than B2B sites (webservercompare.com) B2C are seen as having better potential to make money In the next year, many investors will abandon B2Cs Generation gap They are often totally ignorant of the Internet It is often difficult for companies when they bring in new money, because the investors feel like they are 'buying' the Web site, and if, for example, it looks different on different browsers, they feel like they're getting ripped off. They often come from a different culture, also, a 9-to-5 culture. And they don't understand why the employees come in at 11:00 and stay until 8:00 Profit better than VC Sites that are profitable early on have little motivation for seeking investors, since they would be relinquishing some control. They would also be letting go of a lot of stock, if they ever do go public. But for people who want to 'go big' and take their company public, they need experienced business and finance people involved. ------ Buy-outs Anticipated Goal for some Some sites are created in hopes that some big company like Microsoft will buy them out. Competition Elimination Buyouts often happen when a large company is trying to dominate a particular niche and wants to eliminate all the competition by buying the companies - sometimes incorporating them into the larger company, and sometimes just dissolving them. All of your visitors are people not using the competition's product, and you are denying them potential: subscribers - your subscribers are people who would pay them if you didn't exist advertisers - advertisers who pay to be on your site are not spending that money on their site visitors - your readers are finding content on your site, and not viewing their ads Annual Revenue Buyout rates are usually measured in terms of yearly revenue A company might be willing to pay 5 to 20 times the yearly revenue of the startup in question This is a way of gaging potential revenue from the company even if you're spending more than you're making, if you have any revenue, that's better than most on the Internet, and it means you have potential to make more. If your startup is making nothing, probably no one will be interested, they aren't threatened by you. If you're making $10,000 per year in advertising, you should be able to get $50,000 to $200,000 for the site 1-year salaries In addition to the flat fee, buyouts often include a one-year salary for the key people to help in 'transitioning' the startup Often in stock, not cash many internet millionaires are so only on paper, they are waiting for the stocks to vest which means waiting up to three years before selling the stock, which may collapse by then. ------ E-Commerce - selling stuff Bricks-and-Mortar Bricks and Mortar simply refers to traditional companies which have actual assets amazon.com may by worth more than sears roebuck on paper, but amazon (and most internet companies) would have nothing if the stock market collapsed Traditional companies trying to become 'bricks-and-clicks' companies, with a foot in the 'real' world of commerce and a foot in the Internet age. Branding Other, branding (mandms.com) Many sites have web sites for seemingly no reason other than to not appear backward. Kelloggs has a web site for each of its cereals, with lots of games for kids. The idea is to have kids visit the sites, play the games, and learn to associate fun with the particular brand Dell computers Dell is a perfect example Dell computers at one point was selling $1 million in computers each day. The costs of running a web site that is accessable in every city, is much cheaper than having a store in every city Same for USAToday, they still have to pay writers, but it's much cheaper to get news into every city. ------ Services - doing stuff delivery kozmo.com, urbanfetch.com auction ebay, yahoo stock trading etrade, ameritrade, schwab, dljdirect, etc. ticket reservation airlines, ticketmaster Often grouped with content E-Commerce sites (amazon) often have reviews - which have to be at least a little suspect E-Service sites also have content, stock analyses, vacation planning information content seen as vehicle for purchase important point, a huge amount of content on the web is the equivalent of promotional copy, it is not written by a writer who is dedicated to the craft of writing, rather it is a tool to make people buy stuff. Reference is sort of in-between content and service Is MapQuest a content site? As you prepare content for the web, you should be aware that online content is regarded more as a list of facts, not seen as literature so much ------ Subscription Like with e-commerce, Money flows from user to content site E-Commerce can be broken down into: products, services, content where content is a product or service that you are paying for Accounts Users need accounts on site Sites that require subscription usually have more information about their users Monthly fee Costs are usually monthly ($19.95 is common), sometimes annual Some have experimented with charging by the hour or minute ($0.001/minute) But that hasn't been successful Encourages people to use proxy server to copy the whole site, then read it locally at leisure. Other Media Other media models Radio - no one pays (other than NPR, honor system) Magazines, Newspapers - people pay, but there are some free versions Cable - most people pay, although originally it was paid for by ads exclusively which suggests that the Internet may go that direction someday Subscription model has not worked for a number of high-profile mainstream e-zines Too much free competition perhaps, in a few years, when the speculation bubble collapses and the sites not making money go bankrupt instead of pull in millions of investment dollars, The free competition will be crummy home pages, and the companies paying for quality content will be so few that they can charge. IMHO - in the future, most content web sites will be created by amateurs There will be a few sites that stand apart and have quality writing, and they will charge subscription most likely will be counterparts to TV and newspapers Combination Microsoft's Encarta is an online encyclopedia, each entry has a free part and a part that only subscribers can see Microsoft has suggested subscription for software, where you pay a monthly fee and are then entitled to all updates of that software. Unique Content Subscription model can work, but the content has to be unique You can decide how much to spend on advertising by calculating your cost per viewer or cost per host A: If you are making money from selling computers (dell.com) and you know that: 1% of your visitors makes a purchase The average online purchase is $2,000 with markup, the profit is $1,000 then the average visitor is worth $10.00 You can then spend up to $10.00 per visitor ------ Advertising - the big one Other Types of Sites Subscription is like E-Commerce, in that money flows from reader to site. With E-Service, money flows from the reader to third party, and the site takes a commision For advertising, money flows from third party to advertiser Money flows from advertiser (almost any company) to content site Other Media TV - advertising, but not on premium subscription channels Magazines, Newspapers - advertising and subscription, although there are some free papers that charge for (usually classified) ads Radio - advertising (and public radio) I don't think the honor system will ever work online Software - traditionally you bought it, with shareware you are on honor system (like public radio), Many things like email and internet access are moving from buying the software, to giving it our for free but forcing ads on the users. ‘Impressions’ Usually pay per 'impression' ie exposure If an ad is lame, the site shouldn't have to suffer A site can cheat by positioning the ad at the bottom of the screen, so many contracts stipulate 'top-left' or 'above the fold' some ads are sold in units of time (by the month, week, etc.) but that's not as common CPM cost per mille (cost per thousand) The amount the advertiser pays per block of thousand ads ads are sold in blocks of a thousand, many big sites require blocks of 10,000 if a cpm is $10.00 then each ad impression costs $0.01 cpm rates range from less than $2.00 for very generalized ads, to over $100 for very targetted ads small sites with generalized content (rantaboutyour mother.com) usually can't command more than $2, while very targetted sites like webservercompare.com can get $90 webservercompare.com is targetted because everyone who goes to the site is likely to buy a web server in the next year or two. So advertisers want those people to see their ads, even if they don't click, it's good branding When I was at PC Magazine, we would do reader surveys and they would tell us that they bought the magazine for the ads as much as for the articles - the ads were very targetted, thus valuable. Demographics Advertisers pay more if they have specific demographic information about your readers gender, age, income, education, etc. There is strong incentive for sites to collect that information Even if you don't sell email lists, if you know statistically how many of your readers are women, for example, or have a college degree, then some advertisers will no longer be interested in your site, but others will pay more. Opt-in Many sites require you to fill out a long form, even if you're just doing something trivial - they want your demographic statistics When you fill in a form, you often have checkboxes that say 'I want to receive important information about new products...' It simply means, 'by not unchecking this box you are allowing yourself to be put on our spam list' Opting out usually means they won't send you their newsletter but they still have your name, etc. which they add to their list Once they have 10,000 or so they sell the list to marketting companies The marketting company now has your name and email address and a target keyword based on the site that sold them the list eg. if you go to a food site, fill in a form, the food site can sell your name and address to an agency who then categorizes you as 'interested in food' Newsletters Ads are big business for newsletters too. Web sites desparately want you to receive their newsletters Many will send them to you without your asking, and make it difficult to unsubscribe They want to have as many people receive the ads as possible CTR click-through rate Of the people who see the ad (or at least load a page that contains the ad), the percentage who click on it more literally, the number of clicks on an ad divided by the the number of impressions of the ad A few years ago, some sites claimed up to 25% ctr, a year ago the industry standard was supposed to be 1% to 4% Some sites would have trivia contests (riddler.com) with scavenger-hunt type questions based on information on the advertisers' sites - that encouraged readers to click on the ads to get the info. Now it's under 1%, although it is much higher for targetted ads than non-targetted ads. Low ctr ads are not worthless, though. They are still branding your site and serve exactly the same purpose as TV or print ads Ad Code Nyc HyperBanner Network Standard banner is 468x60 which is 6.5 inches by 5/6 inches Many other standards, 125x125, 234x60, etc. Some are tiny, 18x32 or so. Ad code doesn't specify a particular image, rather it sends parameters to ad server, which plucks an ad out of its rotation and sends it to the browser. The particular ad is recorded in the log file. Cost per viewer Cost per click You can decide how much to spend on advertising by calculating your cost per viewer or cost per host If you are making money from advertising and you know that: Your average cpm is $10.00, then each ad impression brings in $0.01 (1 cent) That is, each time a user loads a page with an ad on it, you get a penny Your average user views 10 pages Then each user is worth $0.10 (10 cents) If you put two ads on each page, the revenue doubles You can see why some sites are covered with ads These numbers don't include the actual cost of running the web site, but you can see why e-commerce sites advertise so much more than content sites But, suppose you look deeper A visitor to a content site will probably not visit only once, after the user knows of the site, he will come back (provided it's sticky enough) And many marketing/ad sales people view the editorial staff as merely the way to get the users to come back Suppose your average visitor visits 10 times in a year Then each user is worth $1.00, 100 times a year makes the user worth $10.00, etc. Many sites have stock quotes, weather, horoscopes, etc. because they want the user to come back every single day Examples Suppose you decide to buy advertising space on Yahoo At $10 cpm, you get 50,000 ads for $5,000 Your designer makes a banner ad and you send it on to Yahoo The ctr on the ad ends up being 0.5% (half of 1 percent) Which means that 1 out of every 200 people who saw the ad actually clicked on it. With 50,000 impressions, you should have gotten 250 users to visit your site You spent $5,000 on 250 new visitors, which comes to $20 per visitor So, based on that ctr, advertising on Yahoo is not worth it, even to the e-commerce site How it works An advertiser sometimes pays for a specific unit of time - 1 month, maybe More common, though, is for the advertiser to pay for a specific number of ads. Either way, but especially in the latter case, the advertiser needs to know how many times the ad was shown Every file request is recorded on a log file includes images, html, downloads, etc. date - time - browser - ip address of host - file - referrer - etc. So, the advertiser needs to see this log It isn't as convenient to view the full log file, and advertisers might think you're faking it If you're a big site, you have separate ad servers with their own logs that record only ad requests Many sites use the 'Dart' system which was developed by DoubleClick as a way to track ads Big sites have to be trusted to count correctly Many smaller sites get advertisements through third-party ad merchants (eg. ad-venture.com) In this scenario, the advertiser buys a block of ads that are put into 'rotation' on the merchant's ad server The content sites make requests of the ad server and may get the advertisers' ad. ------ Affiliates No other media models Money flows from e-commerce site to content site Imagine CBS paying NBC to send viewers their way Pay-per-click Impetus is on site to promote the link, with positioning and incorporation into the content itself. With ads, the advertiser tries to make a flashy ad, and the publication simply displays it With affiliate links, the publication is responsible for making the ad attractive Imagine doing that in print! Commissions You put a link on your site to amazon.com, or to a particular book's page within their site. Included in the link is a piece of code that indicates your account http://www.amazon.com/exec/obidos/ASIN/0877596492/matchstickkidboo if anyone clicks on that link, amazon's server records that they came from your site. If they buy anything, you get a 15% commision Some companies only pay for clicks ($0.10/per), some only pay when an actual purchase is made, and some pay for both Encourages developers (amateur and professional) to create content that is merely a vehicle for making purchases Different from Advertising It is different from normal advertising, where the advertiser is responsible for the look of the ad. With affiliate programs, the site manager wants to make the link very attractive, because he is paid after the click, not just for the display. Examples See refer-it.com for a list of a couple thousand affiliate programs Many advertisers are wary of false ctrs, or of the value of advertising in general How it works: A company (amazon.com) wants to bring in potential customers, and is willing to pay for them You, as a content site (perhaps you have a site that is nothing but reviews of cookbooks) sign up with amazon.com's affiliate program. It costs nothing to join. Not just for amateurs I've heard of people making $40,000 to $50,000 per year with affiliate programs One audiophile guy had a personal site with music and stereo reviews On every review page he had a link to CDNow or a site that sells stereo hardware. His costs were essentially nothing other than his time affiliate programs are usually thought of in regard to amateur sites but they are used more now between big sites as a way of measuring cross-linking "I'll pay you 1 penny for every user you send my way" or, "I'll pay you 1 penny for every user you send my way, and you pay me 1 penny for every user I send your way" and at the end of the month we'll calculate the difference" ie partnership or simply on a large scale, deja has user-written reviews (free content) and affiliate links to e-commerce sites that sell the items being reviewed. Example Suppose that 10% of his visitors actually clicked on one of the affiliate links (possible, since it is a selected audience) Suppose that, of those, 1% actually made a purchase (a reasonable, if optimistic estimate) And suppose that for each of those purchases, he made a 15% commision And lastly, suppose the average purchase was $20 working backwards, his average commision is 15% of $20 or $3 He gets the $3 once for every 100 people who click on an affiliate link on his site Those 100 people represent 1,000 visitors to his site So he makes $3.00 per thousand visitors 1,000 visitors/day = $3/day * 365 days/year = $1.095/year 10,000 visitors/day = $10,000/year 50,000 visitors/day = $50,000/year ------ Combinations ads and affiliates Many sites have a large free component to pull in large amounts of traffic, and promote the subscription stuff heavily on the free pages essentially using the content as an advertising vehicle for the pay areas. ------ OUT Big cost is usually not the technology, but the people who know how to use it Many new companies offer stock instead of competitive salaries, and don't have insurance or retirement benefits. The stock is valued at some fixed pre-opening price, maybe $0.50 per share. If your hourly rate is $20/hour, you then get 40 shares per hour If the company goes public and the stock goes to $40 per share, you could be a millionaire Or if the company never makes it you have nothing but a tax write-off Development - often a one-time cost, depending on the type of site and how often it needs a redesign Design $60 / hour $60,000 Design is hard to decide on, everyone has an opinion, but there are many quality designers who can really help a site Programming $80 / hour $80,000 or find some unambitious college drop-out genius (there are lots) with low self-esteem who will work for next to nothing Maintenance - continual costs Writing $0.50 / word Writers are pretty cheap, $30,000 Hosting outsource: $6 - $200 per month or $100 - $3,000 per year or more in-house: SysAdmin + equipment = at least $40,000, more like $100,000 Production A good producer can make $60,000 Sales Depends, often works off commission Sales people usually make quite a bit more than editorial people ------ Lowest buget - Free An existing office takes on additional Web production responsibilities Many times someone has a nephew or son of a friend who 'knows how to make web pages' He uses space on someone else's server and does all the development for free Or if you have a local network, you can make one of the desktop computers a server simply by installing server software on it. That's a problem, though if the site has more than marginal traffic. Costs = essentially none, income = doesn't really matter, but the makers of this sort of site usually have low expectations These sites are often a way to get started, let the staff get used to putting content online, and assess the value of having a site Middle budget - All outsourced A company wants a site, but has no one on staff who knows where to begin Hire a development company to do all development ($10,000 to $300,000) and host everything ($20 to $150/month) They train the employees how to use a content upload service - usually all through a browser Costs = a one-time fee of tens of thousands of dollars and a monthly fee that varies depending on how much service you want Income = these sites are usually intended for branding or small e-commerce sites, not sites that need daily updates Big budget - All in-house A group of people gets together to make a Web site Rent and other office expenses = really varies but a super-cheap space in Manhattan or a reasonable spot in an office park in NJ will be at least a few thousand/month Network, computers = initial expense of a few thousand, maintenance costs around $1,000/month A staff Business = $8,000/month Sales/PR = $6,000/month Programmer = $7,000/month Producer = $4,000/month Designer = $4,000/month Editorial = $3,000/month A staff of 10 people = may be around $70,000/month if you have benefits, retirement, etc. Staff of content sites is usually 1/3 editorial, 1/3 technical, 1/3 sales An e-commerce site may have 10 techies per edit person, and outsource all design So, even a medium-size site may cost $1million/year If you rely on subscriptions and charge $250/year $1,000,000/ $250/user/year = 4,000 users before making a profit If you rely on advertising, have 2 ads per page and have a CPM of $40, you are making 8 cents per page view $1,000,000 / $0.08/page = 12,500,000 pages/year = 1,000,000 pages/month = 35,000 pages/day before making a profit Traffic is everything, yet, it's only valuable if there are ads. JavaBoutique has tripled the traffic in the past year (160,000 pages/day) but we only sell about 10,000 ads/day so most of the ads on the site are 'house' ads, ie ads for other sites in the network.