Yes, you read that right. Monetization does NOT equal revenue. I’m tired of hearing about Web “applications” that are promising venture capitalists that their ad-supported business model is going to be successful and yield that 15x return their looking for.

Monetization is…

Monetization, as I define it, is using advertising to make some money off of your Web site. It is not recurring revenue that results from users willingly paying for the service.

This is a dangerous model to put much faith in for a number of reasons. The first is the visceral reaction the general public has to advertising. When was the last time you thought to yourself, “Man, I really liked the annoying Flash ad. I must go see ‘Legally Blonde 7: Divorce Rules.’ ”

Advertising is effective as a brand awareness driver. If you’re letting advertising dictate your purchasing decisions, then that’s a separate issue. What advertising is not, however, is a model on which to build a business. Because the only one getting rich off of ads is Google.

Revenue is…

When a Web application is so valuable that people willingly pay a monthly or annual fee for the pleasure of its use, that is revenue. Revenue is profit. Revenue is a viable, sustainable model for growth and success.

When a Web application offers functionality that either increases my productivity or adds value to my life, I’ll gladly pay for it.

So, when I saw that LinkedIn recently completed a founding round of $53 million, I nearly choked. Not only does this value the company at $1 BILLION, but it also gives them plenty of ammo to fire across the bows of upstart SocNets. According to the LA Times, LinkedIn has been profitable for a couple of years. So, where does this revenue come from? I don’t pay for it. Nor will I.

Online Advertising

So, in the chart I’ve embedded from the Interactive Advertising Bureau, the growth rate of online advertising revenues has been astonishing. In Q1 of 2008, online advertising revenues were approximately $5.8 billion. So, why do these companies need so much venture capital? I think it’s because that “revenue” is only being realized by the ad networks and not the apps them selves.

It kind of pains me to link to Valleywag, but they did the dirty work for me on this. Time recently announced its 50 top Web sites and Valleywag made some quick and dirty analysis (really, is there any other kind?). Of the 50:

  • Ad-supported:36
  • Google ads: 18
  • Microsoft ads: 1
  • Yahoo ads: 2
  • In-house ad sales teams: 3
  • Sell goods: 2
  • Sell physical goods: 1

So, of “Web sites,” advertising is obviously a good way to make some revenue. But for businesses, it’s all about subscription models and real users paying real money.

How will you make your profit?

Back into the flow of things. Here’s what I’ve noticed lately.

What’s changed?

Not a whole lot. Innovation appears to be on a temporary hiatus. Yahoo is trying its best to be the belle of the ball, but is ending up only as the last-call cougar. I don’t care if it’s Googlehoo, Microhoo, Yahoogle or whatever mashup you want to call it, it’s still going to be “contextual” ads in the way of my Internet search.

I like Google not for its results, but for the fact that to search for something, I type it into my Firefox space and it gives me what I want. So, whatever happens, keep making Mozilla rich so I can keep using the quick search.

Social networking fatigue

I’m not fatigued of the act of social networking, I’m fatigued of the myriad Web sites I feel it necessary to register as /geekgiant or what have you. Here’s my proposal.

We all love Twitter (when it works). We’ve all settled on FriendFeed as a way to abandon RSS sharing. And we all seem to have a LinkedIn profile. Let’s call it a day. It’s time for the Web to be used for something useful. How about a network for managing emergency responses. Or how about a CMS that has a reality check built in for poor writers. Another idea I have is for a Customer Relationship Management that is usable by, well, everybody.

Just an idea.

Where to go

I think that what the IPO bubble was to Web 1.0, consolidation will be to Web 2.0. We’re going to see makers of widgets get absorbed into the social networks they serve. I think we’ll see some of the proprietary Web app creation tools such as Coghead or Bungee Labs dissolve and I think that some of the blogs will consolidate as well.

We’re in the birth of a new economy. The Web is the platform for innovation and I’m excited to see where we go.