The Internet is maturing into the world's greatest source of
entertainment and information. But its revenue potential has been
much more challenging to define and pursue than that of
predecessors like radio or television.
) this month announced a package of initiatives to expand its
revenue streams from Web content. Those included a streaming
music service for $9.99 per month, an upgrade to Google maps and
an arrangement allowing video producers to charge subscription
fees for YouTube content.
The YouTube pilot program will offer paid channels with fees
ranging from 99 cents to $9.99 a month. The early participants
include Sesame Workshop, the producer of "Sesame Street,"
National Geographic Kids and Ultimate Fighting Championship.
Google did not say how much of a cut it will get from each
subscription, but it's similar to the move last year by rival
platform Vimeo.com, which is owned byIAC/InterActiveCorp (
) The arrangement lets producers charge per video, including for
YouTube will remain a free service, just like its parent
Google, which is largely dependent on advertising. But like so
many other Internet business models, it's temporary, what
Internet watchers call a "freemium" strategy: Let users jump
aboard for free. Once they're hooked, figure out ways to enhance
ad revenue with premium services.
Such fast-changing strategies combined with the fast-evolving
world of Internet content providers can be instantly bewildering.
There are 44 companies in IBD's Internet-Content group. They all
share some similar traits, but can differ widely in their
business models and revenue streams.
Here are some basic views into the business models of some of
the big names.
In the early days of the Internet, figuring out how to make
money was confusing. Today, the ways in which consumers use the
Internet are better understood, but still developing. Numerous
research firms track all manner of data.
In 2012, U.S. retail e-commerce sales reached $186 billion, up
15% from the prior year. Another $36.6 billion was spent on
digital advertising. There are now about 2.4 billion Internet
Google's revenue for this year is projected at just under $60
billion. More than 90% of that will come from ads and related
fees through two primary platforms. Google's AdWords program
enables client companies to promote products and services with
targeted advertising based on search queries. They pay a fee to
Google on a "cost-per-click" basis.
The other platform, called AdSense, allows websites to run
Google ads next to Web content. These display ads can include
video, text or images that appear on YouTube, Google Finance and
the websites of Google Network members. Google and the website
owners both get paid for clicks on those ads. These same
techniques are integrated by Google into mobile devices,
including smartphones, portable computers and tablets.
Google also generates revenues from its Motorola unit, which
sells cellphones based on its Android operating system. Google
has a lot of other irons in the fire. This includes its Chrome
operating system, Gmail, Google Plus and Google Glasses.
"We are still only at 1% of what's possible," said Google CEO
Larry Page in a conference call after posting first-quarter
results on April 18. "We're really just getting started."
A social networking website for professionals, LinkedIn boasts
225 million members. Its revenue is forecast to grow 54% this
year to $1.5 billion, coming from three sources.
The largest is Talent Solutions, which gets fees from
companies and headhunters trying to find prospective hires. The
group represented 57% of revenue in the first quarter. The fees,
depending on features, range from $40 to $400 monthly per
LinkedIn's Marketing Solutions unit, which sells ads,
accounted for 23% of revenue. A third revenue source is Premium
Subscriptions, where users pay a fee for extra services, such as
internal emails to LinkedIn members, access to profiles outside
of a person's network and advanced search filters, among other
features. Fees for this service range from $20 to $75 a
Like everyone else, LinkedIn is also placing a strong emphasis
on expanding its mobile strategy. Along those lines it recently
acquired Pulse, a mobile news reader and content distribution
platform. About 30% of unique visitors to the site in Q1 came
through mobile apps, vs. 19% a year ago.
When LinkedIn posted first-quarter results on May 2, CEO
Jeffrey Weiner announced that its sales force, for the first
time, will be able to sell ads on both desktop and mobile
"We're excited about the potential there and we're going to
continue to invest," said Weiner in the conference call.
Facebook is almost entirely dependent on a single revenue
stream: advertisers placing ads on the world's largest social
network. Analysts project just over $6.7 billion in revenue this
In the first quarter, ad revenue at Facebook of $1.25 billion
represented 85% of total revenue. Mobile ad revenue of $375
million was 30% of the total. Facebook has about 1.1 billion
monthly active users and daily active users of 665 million.
Facebook reported 751 million mobile users, up 54%
Facebook has rolled out several advertising products recently,
as well as data analytics tools to help advertisers plan and
manage campaigns for a greater return on investment. In February,
Facebook redesigned its users' central page to make it easier to
navigate. It features larger photos and a larger platform for
Facebook's mobile ad revenue was negligible as recently as the
first half of 2012. Now it's second to Google in mobile ad sales,
though far behind. Google gets more than half of all U.S. mobile
ad revenue, says eMarketer. But the research firm forecasts
Facebook's share of mobile ads will rise to 13% this year from
9.5% last year.
TripAdvisor.com is a travel website that helps customers
research and gather information. Its customers also post reviews
and opinions of travel-related content about destinations and
accommodations, with interactive travel forums. The company touts
more than 200 million average monthly users and more than 100
million reviews and opinions posted.
Revenue projection for this year: $936 million. Almost all of
that will come from advertising. Click-based ads generated 78% of
revenue in the first quarter. Display-based advertising accounted
for 11%. Fees from premium subscriptions and transaction revenue
from customer bookings brought in another 11%.
TripAdvisor is currently converting its ad strategy to a
so-called metasearch business model. Metasearch generates revenue
by allowing users to search for and book hotels and other travel
products directly. TripAdvisor executives say the switch might
temporarily hurt revenue. ButPriceline 's (
) Kayak andExpedia 's (
) Trivago also previously made the switch to metasearch services
"We believe the transition to meta display in conjunction with
an improved bidding system will be a positive catalyst for
TripAdvisor in the long term, despite possible near-term
dislocations in revenues," wrote JPMorgan analyst Doug Anmuth in
a research note.
Beyond travel-related content, TripAdvisor.com websites
include links to the websites of its travel advertisers allowing
travelers to directly book their travel arrangements. It manages
and operates websites under 19 other travel media brands.
Similar to Google,Yahoo (
) gets most of its revenue from display and search advertising,
and is developing its mobile and video revenue streams. The
Sunnyvale, Calif.- based company, which has more than 300 million
mobile monthly users, is expected to see more than $4.5 billion
in revenue this year.
About 40% of Yahoo's revenue comes from display advertising.
Search-related ads account for 27%. It gets another 22% of
revenue from other sources including listings-based services,
royalties, and consumer and business fee-based services.
Yahoo has numerous sites on which to display ads, to include
Yahoo News, Sports, and Finance. It also has its Yahoo Mail
service and online photo site Flickr. Yahoo increasingly focuses
on the mobile industry.
"Mobile is not only at the center of users' daily habits, it
is at the center of a huge industry shift in Internet access,"
said Marissa Mayer, CEO and president, in a conference call when
Yahoo posted first-quarter results on April 16.
"More than 1 billion people access the web on their mobile
devices today. Tablet use is growing even faster than smartphones
did," she said. "By 2015, we expect more people to access the
Internet on mobile devices than on PCs."
In February Yahoo announced a plan to team up with arch rival
Google to help place ads on various Yahoo sites, in an effort to
help sell Yahoo's excess inventory of unsold display ads.
Although the company has been struggling, it is one of the few
Internet players with significant multiyear partnerships
withApple (AAPL), Facebook, Google, andMicrosoft (MSFT). Overall,
Yahoo has about a dozen major project initiatives under
development to increase user engagement.
"It is still very early, but our product progress is extremely
promising and it's clearly increasing our user engagement," said