This is the first in a series of posts about making money online in which we will discuss the major online industries and their leaders. In our next post, we will provide examples of niche sites that have had success selling online and outline their business models.
I received a question from a professional acquaintance of mine about the best way to help a professional service client add the internet as a channel for delivering service.
My first instinct was to answer that there is A LOT OF FREE information online. Unless you are offering something that can not be found for free your chances of selling your product are bleak. As a small business or individual, potentially developing and offering some digital products, it can be difficult to both compete with the wealth of information and learning material freely available online and distinguish yourself and your product from the competition.
So the real question is: what market are you competing in? E-commerce, advertising, Software as Service, digital goods?
In 2010, Americans spent $165.4 billion online. Perhaps the first monolithic online industry that comes to mind is eCommerce — selling both physical and digital goods online. While giants like Amazon.com (with its online properties at Diapers.com and Zappos.com and many, many affiliates) and eBay certainly dominate the lion’s share of the market, smaller sites have been able to benefit from the industry’s long tail. Sites like Etsy offer handmade and unique items while specialty sites like Cabela’s cater to interest-specific shoppers.
The second major industry of the digital world is advertising ~ $26 billion in 2010. Making money by selling advertising online requires significant traffic and, often, a niche site for advertiser to be willing to spend their advertising budgets on your site or blog. Google is the dominant advertising force, offering targeted ads based on search results and collecting the advertising budgets of so many small businesses through AdSense. Facebook is a prime example with > 750 million users and a high number of page views such that their low click-through rate doesn’t adversely affect ad sales. Per Mashable, in 2010, Facebook had 0.051%, or about one click-through (CTR) for every 2,000 ad impressions with the industry standard CTR is 0.1 percent, or one click-through for every 1,000 impressions. As with eCommerce, niche interest-oriented sites can also generate significant advertising revenue fron banner advertising by offering information and a point of view not available elsewhere. Examples of sites of this type are TechCrunch.com (a tech blog), TeamLiquid.net (a popular gaming community site), and GorillavsBear.net (a music blog).
There is the increasingly successful SaaS (Software as a Service) industry ~ $12 billion in 2010. SaaS is attractive because it makes itself available “on-demand” and exists completely within the confines of the internet which means customers are not required to have hard disk space, CD-ROMs, or a personal computer, just a credit card or a few :). Furthermore, as a relatively new industry North American SaaS revenue is predicted to experience an 18.7% increase between 2010 and 2011 alone.
Finally, the digital goods market (the goods that do not exist in real life) has been growing. In the US, it is expected to reach $2.1 billion, up from $1.6 billion in 2010. This includes offerings from the social gaming companies like Zynga.com
Jumping into ponds with such big fish (Amazon, Google, Facebook) shouldn’t necessarily be a deterrent to your internet sales venture, but in our next post we will outline how individuals and small businesses have had success selling online by targeting smaller niche markets.
Image credit: http://www.getelastic.com/profiting-from-the-digital-goods-boom/