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This post beat me to everything I wanted to say before I could actually put it together in a coherent message.

The fact of the matter is advertising dollars don’t easily trickle down to the small time publishers.  Even medium sized services have trouble securing significant dollars.  Some that function on a really tight ship can probably make do - and maybe a few comfortably so - on dollars from networks or (ugh) adSense but in general unless you reach a significant volume you won’t grab the rich deals.

You need to carry a strong name that dominates a particular niche.  There are thousands of tech blogs out there, but only a few really clean up those $25+ CPMs.  This is why we’re seeing such a rapid rise in vertical ad networks that try to aggregate quality (or something approximating quality) content within clear niches.  The small site by itself won’t survive and teams up with others to try to reach a scale that will appear on the radars of major ad spenders.

And if you’re trying to be a generic play, it gets even tougher.  YouTube, Facebook, and MySpace are all huge sites with astounding amounts of traffic and recognition.  And they all have trouble monetizing their inventory.  Granted two of them were able to make an exit before too many people caught on (still maybe someone will find the trick to actually making them significantly profitable).   I can’t imagine what it’s like to sit in the middle of the pack as a social network or video portal.  How many exits remain that seem likely or attractive in those crowded spaces?

Ways to Potentially avoid the Abyss of the Deadpool:

First:

Don’t make another generic social network or video portal.  Don’t get me wrong, there’s always an opportunity for a new player to disrupt the field.  But the chances are extremely small.  If you have to do it, you better be sure you bring not just an innovative offering but a damn good monetization strategy (and some good connections).

Second:

Don’t go in with just a cool technology.  There are exceptions in certain fields, but I can’t think of very many web properties these days that have defensible technology.  Someone can always jump on eLance and pay $500 for a knock off of your site.   Hell, building Twitter is practically Chapter 3 in any Ruby on Rails book.

The days of running ahead with just the cool technology are likely coming to a close.  The barriers to entry are just way too low today.  You need to bring the whole package with you.  This means marketing, sales, quality customer service, unique advertising offerings, etc.  Alternative revenue strategies instead of advertising are great, but it doesn’t mean you need to give up on advertising as a possibility.  Just be smart about it.  Offer something new (from the advertiser’s perspective), partner where you can, actually put effort into sales, and identify openings in the advertising market.

Third:

Even if you’re not really, pretend you’re bootstrapping.  I know it’s crazy, but I’d suggest saving product launch parties for companies that actually already pull in revenue.  Focus on putting money more into what will actually see returns than cool crap for the office (and maybe consider not even bothering to have much of an office).

None of this is necessarily new advice, but a browse through CrunchBase quickly demonstrates how few people have bothered to learn it.  What’s more criminal is browsing the list of companies that have gained funding, and haven’t bothered to learn any of it.

The problem I believe is tunnel vision towards the success stories.  If they made it with a huge extravagant launch party and no clear plan to get to profit, clearly I can. But more than likely, they were in the right place at the right time.  Always leave the plan wide open for new opportunities and adaptation, but at least have a plan.

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