Niches Rule

Today I will excerpt some business chestnuts from a report sponsored by the Media Center. My focus will be on the limits of advertising driven business models. This is just a slice taken from a report about the nature of the media transformation underway. I encourage you to download a pdf or view the html version.

Several comments in the chapter entitled economics and investment smacked me upside the head: “If a business plan is based on an advertising model, the recent hype over Internet advertising growth must be tempered by the realization that only a few large Web sites generate a majority of the advertising and that the growth is limited to only a few formats, such as keyword searched … The top 50 websites generate 96 percent of all Internet advertising spending, leaving little room for the remaining hundreds of online companies.”

That realization follows this fact: “New media, such as the Internet, command less than five percent of total advertising.”

So while Internet advertising is growing far faster than competing media, it is a big leap off a small base. And past history suggests that the growth may be concentrated in a few outlets — the Googles, the Yahoos, the Kanoodles, the Feedburners and other RSS aggregators. How, when and whether meaningful cash will make its way to the Mini Media folks furnishing new content, as I lamented yesterday, is as yet unknown.

A couple of other thoughts caught my eye. Consumers continue to spend an increasing amount of disposable income on media. There is a chart (find it by searching “disposable income” in the html version) that shows we now spend above two percent of disposable income on media, up from just above one percent 30 years ago. But this spending includes home video, satellite, cable TV subscriptions, video games and other hardware or delivery systems. Again the money seems to support the distribution pipe. Content is the slurry that runs through the pipe, and as the report notes, there is “consumer hesitancy to pay for new media content.”

Not to end on a down note, the report cites “specialty media and marketing services” as one of the promising new media business opportunities. No examples are offered to clarify what falls into the category, but I infer it means things like dating services, where the content and the connection between people — whether it’s a date or a sale — is the business. According to the report: “Anecdotal evidence suggests that those companies first to the market survive, second to market struggle, while all others fail.” The positive spin is that new media entrepreneurs who follow their passions and develop some new niche may live long and prosper.

Tom Abate
Cause if you ain’t Mass Media, you’re Mini Media