I was reading a blog post on Silicon Alley Insider titled “Free” is Killing Us – Blame The VCs. One paragraph in that post did not sit well with me. Here is what it says:

The economic problem with advertising businesses is that advertising businesses do not work without really significant scale. In the past, a good product or service could address a niche and succeed without being a home run. Today, a home run is required because if you do not reach a massive scale, advertisers are uninterested. And even if advertisers could be attracted, CPMs are so low that the revenue would be inconsequential. Small Internet businesses don’t work. (Emphases are mine)

The statement may have been true during the first dot-com boom, but it’s definitely not true any longer. In fact, the opposite now holds more water. Increasingly, advertisers are looking for niched sites in which to reach their target customers. Not only are they interested, they actively seek out these opportunities. This started mostly with finance sites (think WSJ.com fetching upwards of $100 CPM) but has now expanded to women’s, men’s, and children’s sites, health sites, senior sites, you name it. These sites are definitely desirable among advertisers who wish to reach the users of these sites.

I would argue that if these niche websites are not profitable, they have more to do with loose management (most Internet companies are run by executives with less management experience than traditional non-web companies) and less with low CPMs.

What do you think? Please leave your comments below!