Interactive Marketing Blog

The digital divide came alive as I read this article from NYT which reveals some of the most excruciating dilemma that companies trying to spread across the globe are facing right now.

It’s the classical debate between growing traffic and monetization. Online advertising has majorly been the bread earner for most of the web properties; be it for google, facebook, myspace, yahoo etc.

So most of us settle in by this thought – more the traffic, more the probability of generating revenues with a unending explanation of CPM and CTR and henceforth.

But what if the growing traffic pose as a major threat to your growing business? What do you do then – Do you crumble and pull back or cringe by holding back your frustration to a future monetization possibility?

For the start, here are some of the figures that can be pulled back into the whole equation:

• Facebook is booming in Turkey and Indonesia yet their CTR is falling back like pack of cards.
• YouTube’s audience has nearly doubled in India and Brazil and many such cases where web properties are doing exceedingly well in emerging markets.

But here’s the Paradox; lets call it International Paradox:

Web companies that rely on advertising are enjoying some of their most vibrant growth in developing countries. But those are also the same places where it can be the most expensive to operate, since Web companies often need more servers to make content available to parts of the world with limited bandwidth. And in those countries, online display advertising is least likely to translate into results, much so to break-even in order to keep operating in such markets.

Reality is as noted in the article, this intractable contradiction has become a serious drag on the bottom lines of photo-sharing sites, social networks and video distributors like YouTube. It is also threatening the fervent idealism of Internet entrepreneurs, who hoped to unite the world in a single online village but are increasingly finding that the economics of that vision just do not work. (Excuse the word play to dramatize the circumstances, but practically that’s what is happening right now).

More so, number of companies have started to pull the plug in order to remain profitable. Top of the mind examples from our Western counterparts are Veoh, a video-sharing site who recently decided to block its service from users in Africa, Asia, Latin America and Eastern Europe, citing the dim prospects of making money and the high cost of delivering video there and Joost who is also contemplating on similar thoughts.

Considering this case in question, I don’t have much data to hypothesize the practical strategy but from Indian perspective (in this case I’m considering that most emerging  markets are going through the same problem), I think infrastructure is the major drag. Until and unless, steps are taken towards it, I believe we are going to see more examples like Veoh and Joost.

Another point to mention here is that most of the web properties are early startups which don’t have deep pockets and their cash burn rate is also very high. And in times like these, when advertising dollars are not sufficing the operating costs, I don’t think continuing with future possibilities is easy.

Any thoughts?