23 Dec 2008 9:10 am   //   Filed under: Media, Technology

It’s time to get worried about the Internet

I’m alarmed by how many web sites have built their business models on one idea:

Traffic = Money

It feels right, doesn’t it? Popular movies, books and TV shows make money. Unpopular ones don’t. It stands to reason that the same is true for free-content web sites… Like Facebook and NYTimes.com and YouTube and all the others we enjoy every day when we’re bored at work on our lunch breaks.

Okay, suppose you’re trying to make a hit web site, as measured by traffic volume. Let’s take this idea one step further. All of the sudden, you’re saying things like, “We need to build a sticky aggregation portal to drive impressions.” And you start paying somebody to oversee “search engine optimization” so Google visitors find you instead of some other company’s site (which evidently hasn’t hired an SEO consultant, those poor bastards). And, in that race for cheap content that draws attention, you start reposting stories and pictures you’re grabbing from other sites without permission, justifying it by saying you’re linking back and helping that other site by driving traffic to them. You get a little racy (though not enough to get blocked as a porn site), a little sensational (but not enough to turn people away), a little loose with facts (but not enough to get sued) in search of an exclusive, hit-driving post. (See Gawker, Huffington, etc.) You monitor your stats to see how far you can push things to squeeze as much traffic as possible out of your site. This is starting to seem silly, but it wasn’t much of a leap to get here.

Take it two steps further, and ALL THAT MATTERS is having people visit your site. Suddenly you’re tossing out nonsense references to Jennifer Aniston naked in GQ just to snag people using those search times. Suddenly you’re buying pop-under ads that do nothing but load your site on unsuspecting people’s computers when they mistype a URL. Suddenly you’re buying banner ads that say “You’re the 100,000th visitor! You win a free Nintendo Wii!” or “Did Obama steal the election? Click yes or no to vote!

Why not? Traffic = money.

Problem is, where is this money coming from? Well, lots of it is coming from other web sites that use the same business model as you. (What do you think Google AdSense is?) Some more is coming from ads for e-commerce sites, which actually have a real business of selling stuff. The rest is coming from non-Internet companies that hope web advertising will help them make money.

Internet advertising is (probably) growing, but realistically, is it generating enough money to pay for the effort it takes to run all these free Web sites? Is it going to pay the salaries and benefits of all the writers, artists, programmers and salespeople it takes to power the free Internet? Will it keep all those server farms humming?

To look at in another way, think about how much money you spent this week that you would have spent differently, if not for an online advertisement you saw. If you’re like me, it was $0. Can you even remember the last three banner ads you saw? Of course not.

BusinessWeek recently reported that Digg – a huge driver of Internet traffic that’s looked upon with envy by Web 2.0 worker bees like me – isn’t making money. In fact, it’s losing money faster now than it was last year.

The free Internet that we love is not a sustainable industry. Get scared. And start thinking hard about Web 3.0.

Related: Web 2.0 Death Pool.

(And yes, the company where I work relies on online advertising in addition to a variety of other revenue streams. We think we’re in better shape than most because we target a specific B2B readership that wants to buy stuff.)