April 6, 2008

How to think about selling online ads

It is posts like the two below that make Andrew Chen's Futuristic Play my favorite blog.

- How NOT to calculate ad revenue. "In order to model out your CPMs, you should never ever do a straight calculation of:

Wrong revenue = CPM * impressions / 1000

The reason is that brand advertising is typically demand constrained - meaning that you need to field a big NYC-based sales team in order to do your sell, and as a result, you can only sell some percentage of your inventory."

- Your ad-supported Web 2.0 site is actually a B2B enterprise in disguise. "And brand advertising sales looks and feels exactly the same as enterprise sales, and has all the same annoying characteristics, including:

* You have to hire a big ad sales team, potentially with an expensive office in New York
* A small percentage of advertiser/agency relationships will supply a large chunk of your revenues. This means that "key deals" matter, and you will jump if they ask you to - for example University of Phoenix was worth $200MM/yr for AOL
* Everyone you talk to in the ad industry are not nerds - many come from traditional media backgrounds, again with a NY bias
* And fundamentally, brand advertising isn't a tech game - it's one based on great execution and great teams - so Silicon Valley tech companies often are at a disadvantage"

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