Two weeks back*, Brian O’Kelley wrote the second part of his Forbes series entitled “Can Technology Save Journalism.”  The article, which is very good, talks about some of the problems facing digital publishers today – namely that they don’t make much money, and a good chunk of the money they do make ends up in the hands of Google and Facebook.

As a product manager on the buy side of the ad tech industry, I spend a lot of time thinking about how advertisers can more efficiently reach their audiences.  However, it’s also important to realize that on the other side of that transaction is an ad-supported website business that is probably struggling to get by (or even operating at a loss).

To illustrate this issue, let’s take a look at this blog (the one you’re reading right now).  As you’ve probably noticed, I don’t put ads on the site and I’m not trying to generate ad revenue, but let’s pretend like I was.  How profitable would this blog be as an ad-supported business?

Surely there are advertisers out there that want to talk to readers of this blog – you are all intelligent successful people, right?  I must be sitting on a goldmine!  Ok – let’s do some math to figure out how much money I could make.

First let’s calculate how much work it takes to write the blog.

I’ve been writing for a little over seven years at roughly one post per week.  That adds up to (at the time of this writing) 357 total posts.

Each post takes me about three hours to research, write and edit.  So that amounts to a little over 1,000 hours of total work.

Now, how much money, hypothetically, could I make for this work?

Let’s take a look at the actual traffic report from the site.

For the first 3 years (2010-2012) the site averaged less than 300 page views per month, but today the site has over 1,000 views per month – which feels like a lot.

So, how much money would I make from this traffic?

Let’s say there were three standard ad slots on each page, and for the sake of argument, I was able to completely sell out all of the ad inventory on the site through the real time exchange (I “filled” 100%).  That would give me about 3,000 “impressions” (chances to show an ad) per month to sell.  Not bad, right?

Now, how much would advertisers be willing to pay for this traffic?

The average CPM (Cost per 1,000 Impressions) that advertisers are willing to pay on the open exchange is around $1-$2.  But let’s say my audience is special (you are!) and advertisers would be willing to pay 3x the average exchange rate.  So that’s $6 per 1,000 impressions.

Now let’s add it all up.  1,000 page views per month, at $6 CPM x 3 ad slots on the page (1000 * (6/1000) x 3) = $18

That’s right.  My 1,000 hours of work on this blog would earn me just $18 per month in ad revenue.

Since I write for about 12 hours per month, that’s just $1.50 per hour of work.  Said differently, writing this blog would make me about 1/6th of the current New York State minimum wage.

Not the best return on effort out there.

In fact, it’s possible (and quite likely) that Google makes more money off of helping people find my website (by showing search ads to people that search for the blog) than I could make actually placing ads on the site.

Out of the 1,364 visits my blog received in the last 30 days, 937 of them (69%) came from a Google search.  You might look at these numbers and say that Google is my leading source of traffic and that Google is doing me a favor by driving people to my site, but looking more closely at the data, it’s clear that the people coming to my site from Google are purposefully looking for my site (e.g. by searching for Andrew Eifler Blog).  In my case, Google is acting more like a directory than a search engine.

So – how much money does Google make off people looking for my site?  Well – it’s hard to know for sure, but let’s make some reasonable assumptions.  Let’s say that for every 10 people that search for this blog and find it – there is one person who searched for this blog and was lured into clicking on a Google paid search ad listing.

Further, let’s assume that Google makes on average 50 cents per paid search click.

So that would be 1/10 of 937 * $0.50 = $47

Based on this math, it’s plausible that Google is making $47 per month on my blog, while I – the person who is actually putting all of the work into the site, could only make $18.

Think about that for a second.  I’m doing all the work, but Google could be making over 2.5x more than I am.

No wonder high quality digital publishers are struggling – that value equation is completely screwed up.

 

*Special note: this post was planned to go live last week – but my wife and I welcomed our Son into the world last Monday, so I was a little preoccupied :)

Running a Website Business is Really, Really Hard and Google Makes All of the Money
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  • Ken David

    Google provides tremendous value to billions of users around the world, offering their directory services via Search, and some advertisers are able to create huge global businesses by using AdWords to find the right customers.

    Google only makes the $0.50 per click if you are advertising for your own blog on Google and willing to pay $0.50 per click via your AdWords campaign… You could instead generate your own social traffic by reminding friends, family, colleagues and acquaintances on Facebook and LinkedIn for free, and also have your content available for free in organic Google Search results.

    Not all AdWords campaigns are profitable – and if you found it was leading to a -50% ROI you’d probably just stop using it. Google would still keep showing your site on Organic results for free though…

  • Ken,
    Thanks for the response – I agree with everything you said and it is important to appreciate the immense value google provides. At the sane time it’s impossible to ignore the dichotomy here. Google is a wildly profitable business that helps people find content – content that is produced by hard working people who are typically running businesses that are far less profitable than the directory that helps people find them.

    I don’t write this to point at something Google is doing wrong, more of just a commentary on how the current Internet content value chain is out of wack.