The Subtraction of Online Ads

Like many of you out there, I unfortunately have more than my fair share of friends who are trying their best to find a job in this bad economy. And while these friends are working hard to find a job, they also don't want to jump to companies that might not be in the best of shape. This means that these friends often ask my opinion of businesses they are looking to join. They ask about the health of the companies and their potential for growth. The one piece of advice that I pretty much always have is, if the company you're interviewing at relies 100 percent on online advertising for its revenue, it may not have the brightest future.

Jim RapozaLike many of you out there, I unfortunately have more than my fair share of friends who are trying their best to find a job in this bad economy. And while these friends are working hard to find a job, they also don't want to jump to companies that might not be in the best of shape.

This means that these friends often ask my opinion of businesses they are looking to join. They ask about the health of the companies and their potential for growth. The one piece of advice that I pretty much always have is, if the company you're interviewing at relies 100 percent on online advertising for its revenue, it may not have the brightest future.

I know I'm not alone in this opinion. At many of the emerging technology and start-up conferences I attended late last year, I heard the same thing from many other pundits, VCs and analysts. They would say something like, "Yeah, company X has some pretty interesting technology and solves a real problem, but I don't know how they expect to survive on advertising alone."

Many industry observers and analysts are predicting a significant drop in overall Web-based advertising, and this will impact more than just job seekers.

A lot of companies today are relying more and more on free advertiser-supported services and applications to get things done for their businesses. Even if your business isn't officially doing this, there's a good chance that your employees are using some free Web service to do important work, and if this service goes away, some work won't get done and some data will go away.

Now, not everyone who relies on online advertising has the same level of risk. Many businesses have other revenue streams besides advertising, such as services that have a free advertiser-supported basic version but charge for their more robust business offerings.

Also, many think that the main type of advertising at risk is the classic Web page splashed with tons of essentially unrelated ads. A lot of research has shown that most people can pretty effectively block these types of ads out.

However, some types of online ads can still be profitable and effective, such as ads that are do well focusing on the things people are doing on the Web site and that have very direct sales impact--for example, travel sites that make it easy to book flights and hotels while looking up information on destinations.

However, make no mistake, there will be a drop in online advertising and it will result in the loss of sites, services and applications that many people rely on today.

This doesn't mean that online advertising is dead forever. We saw a massive decline right after the original Web bubble burst, and then it came back stronger than ever. I expect there will be smart people who will figure out better models for carrying out online advertising and delivering real value to advertisers.

However, that's probably at least a couple of years away. In the meantime, you might want to look at the Web-based businesses and services that you rely on and check the diversity of their revenue streams. If a business is based solely on traditional banner and display ads, and doesn't have any other significant form of revenue, you should probably have a plan in place just in case that business goes belly up.

Essentially, unless its name is Google, a company that relies totally on online advertising probably isn't a good candidate for long-term job growth, or one you want to bet your business on.