Is The Long Tail Too Long?
Martin Peers made an important and often ignored point in his piece on online advertising in yesterday’s WSJ. Weakness in the online ad market, specifically display advertising, is not simply a current demand issue. Rather, we have a fundamental oversupply problem in the market that is only going to get worse.
As web publishing continues to be democratized, the same happens to web ad inventory. And there’s simply not enough brand advertising dollars to satisfy the level of online inventory continuing to grow by the second. So prices get hammered across the board and smaller sites are simply left out in the cold.
Contrary to Chris Anderson’s hypothesis, The Long Tail is simply too long to be that valuable.
So how do we make money given this reality?
On the brand advertising side, it’s all about scale. The larger a *relevant* audience you can deliver an advertiser, the more meaningful you are to them. There are a number of sophisticated ways that have emerged to improve user targeting and thereby relevance of audience delivery. But in the end it must be done at scale to matter to advertisers. It’s as simple as that.
More important to the future of revenue generation on the web is our ability to tap directly into consumer’s wallets. Many have been talking about digital goods for some time, but it’s emergence is becoming ever more clear to me. As we spend more time online, more of our discretionary spend will follow; the more we live online, the more digital goods will look like regular goods.
We are just at the beginning of this migration. Most of the winners are yet to emerge. But businesses that tap into this inevitable trend early will have a meaningful advantage in the coming digital economy. They will build their retail brands on prime real estate before others have an opportunity to do so. We’re certainly thinking about this a lot across a number of Spark portfolio companies.
