The current state of ebusiness simply does not work

I just read an interesting post in Tech Crunch, why advertising is failing on the internet (http://www.techcrunch.com/2009/03/22/why-advertising-is-failing-on-the-internet/), and while I disagree with part of the authors statements, what does ring in my ear like a siren is how sustainable is the current method of operation?

Now, I know I am a mere SEO consultant, however, my opinion is that the internet has to change, there is not choice. Most of the places you go to on a daily basis (news papers, tv, social) does not make money. An economy like this will eat companies like this up and spit them out. Here is a quick breakdown that backs my argument:

Social sites - How long can huge sites (with most of the internet traffic) like facebook, youtube, Myspace, Twitter, etc., keep failing to make a profit? Facebook, which has roughly the same page views monthly as Google, did $437 million in revenue in 2008 compared to Google who did more than $20 Billion in 2008. That is a 40x metric. Guess what audience – you better start clicking on an ad from time to time or prepare to pay for site usage. The bottom line is advertising most likely wont pay off the same way as it has in Search.  When companies start to get bigger, and have to make numbers to appease shareholders, these business models will change. I can guarantee it.

Newspaper sites - Newspapers, which are folding as quickly as a lawn chair factory (that was bad wasn’t it?), are turning to the online ad space, which just doesn’t make money for them. Before they could charge a subscription fee to at least subsidize the cost of delivering the content, no longer will that get that. Further, they received much more money per “view” than their online counterpart. Not sure If you have ever bought media space on a newspaper website, but rarely does the ad payoff. And with the ROI-obsessed online businesses, if it is not paying off quickly, it will be dropped.
    With newspapers going under, so will the very same businesses that have supported these newspapers. Traditional brick and mortar furniture sites, auto dealers and other local companies that used to rely on the local papers wont get the same exposure and will be effected greatly. And I can assure you that the local furniture store does not want to compete with a guy like me, they can’t win. Newspapers had their own eco-system of businesses. When newspapers go away, so will everything down the line.

Etailers – Online retailing has been completely turned over with the growing popularity of comparison-shopping engines. Forget Circuit City and Best Buy being across the street from one another, and have to compete in that way, now consumers can, in 1 minute, search for a product and instantly compare prices against most of the websites online.  This will force online retailers to continue to drive prices down to near-zilch margins and start a cycle of closures in the ecommerce space as well.  As referenced above, traditional retailers are going to have to make some major changes. These guys are going to be competing with ecommerce sites. Great (temporarily) for online retailers, bad for traditional business. And as much as online retailers don’t think they rely on traditional business, they have another thing coming. There is going to be a huge impact from the “out of sight, out of mind” scenario. How many times have you gone to a brick and mortar store, just passing time, saw something you loved, and went ONLINE to read more about it. Nothing will replace seeing and touching a product. For me, almost everything is originated in person, and then I go online to buy it. With this critical missing component to the retail ecosystem, we will all take a hit.

The Internet is going to change; you will have to change to. Get ready, this change is coming much sooner than everyone things. The current economy is forcing all businesses to look at what they do and how it is they make money. Making money is the ONLY thing in business. Stock prices, hype, a good CEO, it doesn’t matter. At the end of the day shareholders need to make money. The only way for shareholders to make money is for stock value to rise. For stock value to rise, the company needs to produce a profit.  These companies will be forced to change, and so will you.

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