The Economy of the Web

I think we seldom stop to think through, how does anyone make money on the web. Typically, we think of the web as free information, freely distributed. Yahoo, Google, flickr, MySpace – we tend to think of all of these as free services. Yet, there are large corporations behind some of them and there are people making a living behind all of those listed. So, how does that happen? How does that work? At some rudimentary level we intuitively know that it has to do with advertising but I wonder if many of us stop to think about how or why that advertising works.

Newspapers carefully track and try to drive up their number of subscribers. Television stations spend a lot of money to document and drive up the number of viewers. Likewise radio stations and their listeners. Subscribers, viewers and listeners are the commodity of their respective media. Unique visits, unique page views is the commodity of the web. How many individuals load any given page of a web site is the money of the web. The more people that view your web site, the more money you make. Anything that prevents or deters people from viewing your web site reduces the income.

There are two basic concepts at play. Impressions and clicks. An impression is when someone looks at the advertisement. This happens, at least in theory, when a user loads any given web site. The web site loads, the user looks and sees the ad. One impression. A click is when the user not only looks at the ad but also clicks on the ad. Most online advertising is ultimately concerned with the Click Through Rate (CTR) which is the ratio of impressions to clicks. Obviously, the click is the part that advertisers are most interested. A click indicates that someone has shown enough interest to click on the ad and visit the advertiser’s web site.

The moral of the story? If you like a web site, you like the message of the site, you find the site entertaining, visit often and make a point of clicking on a few of the ads that appear on the site. In this way, you make a tacit contribution to the financial return on their efforts, thereby helping to ensure the continued existence and development of the site.


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