At first glance, few companies smack of Web 2.0 hype more than Dogster, a social networking site for dogs and their owners.
Yet, since its launch in January 2004, the site – which allows users to create free web pages to share photos and tell stories about their canine companions – has attracted an affluent and growing audience.
“When I started I was hoping to make $500 a month from the small advertisers who were going to pay $50 a month for an ad,” says Ted Rheingold, Dogster’s founder. Today, he says, the site boasts an inventory of 10m paid ads a month.
Dogster’s story taps into a familiar mantra doing the rounds in Silicon Valley and other entrepreneurial hotspots where companies are trying to cash in on the social networking craze.
Do not worry about revenues, the saying goes: Just build a website that attracts a desirable audience and the money will follow.
“This is very similar to what we saw in 1995-1996,” says Dan Nova, a partner at Highland Capital, a venture capital group.
“It’s all about audience-building. I remember what people were saying in 1996. They were asking ‘Well, how can you make money?’”
Now there is a difference, however. In the years since the dotcom bust, a vast advertising infrastructure has sprung up, allowing entrepreneurs to outsource their revenue streams.
The recent deals by the popular social networking sites MySpace, which this month made a $900m advertising deal with Google; and Facebook, which last week announced a similar tie-up with Microsoft; underline the shift.
When Dogster was getting its start, Mr Rheingold relied on Google’s AdSense programme, which scans websites to places text advertisements next to relevant content, to pay the rent.
“I didn’t want to lose $25,000 on something which may or may not have been popular,” Mr Rheingold explains. “[Google] really created that buffer which allowed this to happen.” AdSense paid for office space and servers during Dogster’s first year.
Text ads from Google were not a permanent solution, however. As Dogster’s audience grew, Mr Rheingold found that the returns from Google advertising were not as high as he liked. He experimented with advertising resellers, which sell banner ads across large numbers of websites, but again found that returns were lacking.
“We’ve found that the best way to get ads that are relevant to our members is to have our own inventory,” he says.
By selling its own inventory of banner ads to companies that specifically wanted to target dog and cat lovers, Dogster is able to charge $5 or more for every thousand impressions on this site.
Although this required an in-house advertising team, it was a far more lucrative proposition than the 12 cent CPMs he was getting with banner ads or the few cents a click he was getting from Google.
Michael Sanchez had a similar experience with ClubMom, a community site geared towards mothers.
“In our case, it was very worthwhile to set up your own sales force and sell ads,” says Mr Sanchez. “The more niche or valuable the audience is the more likely an advertiser will want to advertise on your site.”
Sensing an opportunity, companies have begun to spring up that allow advertisers to bid for space on specific web sites read by their target audience.
Henry Vogel, head of sales at Quigo, one such advertising group, says platforms such as Google’s AdSense or Microsoft’s AdCenter still make sense for companies that are just getting started, or for companies such as MySpace, which has a huge but demographically diverse audience. “Google and AdSense are great solutions,” he says. “They’ve given all these bloggers and new sites ways to monetize from day one.”
But as companies begin to refine their offerings and attract a more focused audience, he says, they could find that the lack of transparency and control that comes through outsourcing an entire advertising effort is no longer worth it.
Mr Nova at Highland Capital says the boom in web advertising is not set to slow down anytime soon. “The fact is there are more and more advertisers out there than there are logical places to place ads,” he says.
The web is simply a better, more measurable platform than television, which relies on estimates of audience numbers, or cruder methods such as billboards, which target no one in particular. “It’s not just throw a billboard or a banner ad up in the hope that you get a click now and then,” he says. “It’s all about measurable return on investment.”
Emily Riley, an analyst at Jupiter Research, agrees. “After the bust, what ended up happening was online advertisers started to shift to an advertising model where pricing was driven by lead generation and sales.”
“Now people are targeting audiences and measuring performance according to content, demographics, customer location, and customer behaviour.”
Some companies are beginning to push the technological envelope in advertising by offering services that track users from website to website.
The reasoning is that a car dealership would pay more money to reach a web surfer who has just visited five web sites about cars.
Although such technologies are rife with privacy concerns, they are a further sign of the depth of advertising options available to today’s web entrepreneurs.