Monday, November 07, 2005

Web 2.0 - Google Adsense's role

Well the buzz about Web 2.0 has gotten deafening at this point. In Silicon Valley hundreds of start-ups have Web 2.0 plastered repeatedly in their business plans. Sadly though most of these start ups will end up in the same bin with many of the dot coms. The process will take longer as the start-ups are much smaller, much more agile and more likely to become on going concerns but a lot less likely to become the home runs that VCs want. A lot of people have focused on AJAX, XML and open based standards as the factor in releasing the flood gates of innovation. I would argue another important (and obviously over looked) factor is the Google Adsense program.

Google Adsense allows a small group of developers to develop a cool web application, launch it and not worry about how to monetize the application. If this seems perfectly normal, let's go back to the mid nineties and remember how advertsing was sold on the web. If you were a start-up that had a media focus such as an online magazine (now we call them blogs or even just web sites) you needed to build into the site a spot for advertising. You then needed to put together an advertising sales teams who would sell ads for that slot. Congratulations! You have just added $1,000,000 in salary and benefit costs for a five person sales team to your previously small start-up.

This meant that you needed to chase VC or angel funding in order to generate revenue. Later you could outsource this ad sales function to someone like Double Click which was costly also. It also meant that a start-up spent a lot of time chasing deals. During the Dot Com heyday, advertsing revenue deals occurred left and right and were announced with much fanfare.

In many ways the chase for revenue skewed the business activity of the start-up. A ton of time was spent chasing revenue or VC dollars in order to buy ads to generate or chase more dollars. As a result too little time was spent on product development. I realize this a BIG generalization but why else didn't Geocities, AngelFire and the other free hosting providers evolve into blogs? I mean they were in the web publishing business. Why? Because all those providers were to busy cutting deals to jam more ads into their web application without actually paying attention to what their customers (ie the people setting up those free web pages) wanted.

In a start-up dollars are limited every dollar that is going into sales isn't going into product development. With the advent of Google Adsense, developers can begin generating revenue from the initial launch of the product from the very beginning. While this revenue might not cover salaries or the costs of hosting the application initially, they can certainly function as seed capital for developers. Furthermore as the Adsense network can be seamlessly added to site, it means that developers who are working on their own time or part time can spend more time with the application. There is no need to add expensive and largely unproductive sales staff. Google handles the entire process. In many regards Google Adsense IS AN OUTSOURCED AD SALES FUNCTION.

This allows a small team of developers to focus on product development, without the distraction of a sales team. And that's a key factor in the growth of web application start-ups.

Technorati Tags: