Advertising dollars concentrate on the sites with the most traffic
Traffic to websites follow a power law curve, a type of distribution that entails a few sites getting most of the traffic, followed by a long tail:
The shape of Figure #1, several hundred blogs ranked by number of inbound links, is roughly a power law distribution. Of the 433 listed blogs, the top two sites accounted for fully 5% of the inbound links between them. (They were InstaPundit and Andrew Sullivan, unsurprisingly.) The top dozen (less than 3% of the total) accounted for 20% of the inbound links, and the top 50 blogs (not quite 12%) accounted for 50% of such links.
The inbound link data is just an example: power law distributions are ubiquitous. Yahoo Groups mailing lists ranked by subscribers is a power law distribution. (Figure #2) LiveJournal users ranked by friends is a power law. (Figure #3) Jason Kottke has graphed the power law distribution of Technorati link data. The traffic to this article will be a power law, with a tiny percentage of the sites sending most of the traffic. If you run a website with more than a couple dozen pages, pick any time period where the traffic amounted to at least 1000 page views, and you will find that both the page views themselves and the traffic from the referring sites will follow power laws.
Advertising dollars on the web also follow a power law. The biggest sites get a huge percentage of the total amount of dollars spent online. This also means that medium sized sites struggle to get any advertising dollars at all. For this reason, local newspapers are probably doomed, because there offline sales are falling, and they are too small to get much of the online ad dollars:
Those ambitious numbers, she continues, show how hard it is for local news sites to be really profitable, and underscore “why local papers will have trouble offsetting traditional media declines” with revenue from their websites.
But the report also says that those sites that either get very big, like the New York Times online, or dominate a niche that is of interest to advertisers, will do well:
“Small website operations can be self-sustaining,” writes the report’s author, ContentNext Research Director Lauren Rich Fine, “but life is easier at the mega traffic sites.”
The challenge for all sites is garnering enough traffic and creating a discernable enough brand to make advertisers seek them out.
“Based on our research, the conversation [with advertisers] gets interesting at 200 million page views plus a month, but much more so around 800 million,” Ms. Fine writes.
…The report also looks at whether the Times could ever succeed as a web-only product, and concludes that it could — once NYT.com starts generating 1.3 billion page views a month.
By Ms. Fine’s back-of-the-envelope calculations, that kind of traffic would bring in $300 million in quarterly advertising revenues, about what the flagship paper is expected to generate in the fourth quarter.
The Times’ site had 173 million page views in October, according to ComScore Media Metrix.
Ms. Fine said sites such as Yahoo News and AOL News already get in the neighborhood of a billion page views a month, and it’s not out of the question that NYT.com could too.
“The fact that there are sites out there that are already achieving that suggests that this could work,” she said in an interview.
Analysts don’t dismiss the possibility of a major newspaper’s website eventually either replacing the print edition or making up for the continuing decline in print-ad revenues. But that kind of success is a long way off.