Spokeo Blog

Ad Model vs. Premium Model

Written by Harrison October 6, 2008

As most of you would agree, the Web 2.0 era is long over.  Web 2.0 was categorized by ad-based business models.  Everything has to be free, and advertisers would somehow pay the bills.  We entrepreneurs chased after user counts, and the ad dollars were assumed to flow in.

We started Spokeo with the standard "Google AdSense" ad model.  We thought that if we’ve built something cool that people like, we would earn enough to cover our operations and someone would buy us out.  This sounds naive, but that’s what we were dreaming, and I bet that’s what every TechCrunch reader was thinking back in 2006.

The pursuit of user counts works fine if the ad CPM (cost per thousand impressions) stays at the 2005 level.  Back then, advertisers hadn’t figured out that user-generated content converts poorly into sales, so these advertisers paid more for the benefits of the doubt.  Take Google as an example.  Google paid MySpace $900 million dollars in 2006 to take care of MySpace’s ad inventory, and all Google got in return is the lesson that user-generated content doesn’t monetize.  Advertisers aren’t dumb, and they won’t pay for ads that don’t work forever.  CPM for user-generated content took a nose dive around 2007, and all Web 2.0 sites with ad-driven business models were affected.

Spokeo cannot escape this fallout.  We ran ads for 3 months in the beginning of 2008, and we quickly realized that even if we grow the traffic by 100 times, we still couldn’t cover our basic costs.  Facing the hard reality, we made one of the biggest business decisions by turning Spokeo into a premium service.  It’s a last-ditched effort to save our business, and we didn’t know what to expect.  Fortunately, there were many people who like Spokeo to pay a little to support us, and now we should be able to weather through this economic downturn. 

Here we would like to thank all of our users for supporting us, and we would continue to introduce new and innovative products in the near future.  We got something huge scheduled for January 2009 (big projects always take time), so stay tuned!

Posted in The Spokeo Perspective

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