Web 3.0

This blog has speculated that the massive growth in ad-based business models is a bubble waiting to happen – although we may be misguided, there is some new evidence leading in that direction.

In a recent Economist article (April 3rd, 2008, Economist – San Francisco – “The case of the missing clicks”), the writer explores the very idea that we may have seen the peak in activity for in this area the biggest and most successful business of its type, Google. Reporting on Google’s recent drop in paid clicks (see Comscore) – “Alas, as so often in the nebulous business of online advertising, the devil is hiding somewhere underneath the numbers, and probably planning some mischief. The first possibility is that web users performed fewer web searches, leading to fewer results pages, ads and clicks. This turns out not to be the explanation. Web searches on Google grew in January, faster than on rival search engines, and dipped only slightly in February, but again less than on rival engines. Google’s market share of searches also continues to grow. This means that the ratio of paid clicks to searches dropped even faster than the number of paid clicks: it was down by 16% in the month of January.”

While this certainly isn’t conclusive evidence of a bursting of an ad-revenue bubble, it seems likely that this business model will become more complicated and difficult to pull off in the future.

However, we would expect to see, in the next year, a resurgence of paid clicks on these stats, as the country comes out of recession and more traditional media advertising is displaced by web based ads.

It is likely, though, that as web users become more mature in their usage, and as new applications like ScanBy and Amazon’s new service come out, that there will be increasing pressure on ads to deliver value to consumers, and justify their existence.