

Ask HN: Estimating ad revenue for a business plan? - tstegart

Does anyone know of good resources to use when writing a business plan to estimate revenue from advertising? I'm looking for updated information on how to go about estimating a CPM, what kind of revenue you can earn as you increase visitors, what a beginning CPM would be, that sort of thing. I'm in the "can this work?" phase, so I'm very interested in what a new site (not a blog) can charge, and what kind of revenue is possible based on visitor estimates. Revenue for feeds would be helpful too.
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pedalpete
I'm not a qualified expert, but it does somewhat depend on the market you are
after, how integrated ads are in the site, etc.

For example (assuming standard banner ads), if you are talking about using
adwords for content based ads, you are likely going to be looking at a $1-4CPM
(is my understanding). However, if you are more of a social network tool, etc.
it seems the CPM's are MUCH lower, in the 0.05 - 0.75 range. If you provide a
solid branding opportunity for advertisers (likely targeting a very specific
market), you could be looking at a $7-9CPM.

This is what i have gathered from my limited research and discussions with
friends in marketing.

~~~
tstegart
In my case its a iPhone app review site, but I'm sure others would be
interested in learning more general information as well. Just from initial
thoughts, potential advertisers would be mainstream iPhone publishers, smaller
iPhone developers, and companies looking to advertise towards those who own
iPhone or iPod Touches. I haven't done too much research on iPhone owners yet,
but it is also my understanding they are generally more affluent. So
therefore, if you can't find advertisers to fill the categories above, you
have a back-up market of companies who wish to advertise to affluent
consumers.

~~~
pedalpete
I don't have an iphone, so haven't checked out the app store yet. But i assume
Apple has built some iPhone review stuff into the store, seeing as they went
to all the trouble of building the 'most popular app', 'most popular free
app', etc.

I think you are building for a very small niche market and would have
difficulty gaining significant advertising dollars and page views. I should
have mentioned in the previous post that my understanding is that without a
20k+ views per day it is VERY difficult to get sponsors on your site.

The 'iPhone app review' portion could be a part of a larger service offering
'all things iPhone' (though I suspect this already exists too) - sell
cases/protectors, bluetooth headsets, etc. via Amazon and get affiliate
commissions, maybe there are other revenue streams for you as well. My gut
instinct tells me that you are in large company and will be fighting for a
miniscule portion of a moderate pie.

But don't trust my gut, do your research, you may be on to something, or your
research may lead you to even bigger fish.

Your thoughts on 'back-up market of companies who wish to advertise to
affluent consumers' misses the targeted point of the value of the CPM is based
on the ability to offer advertisers more than just a place to put an ad in
front of affluent potential customers. I believe that if the advertising is
off-target, your CPMs would be significantly lower.

Also, i doubt the app store will have the long-term success it has seen in the
short term. When was the last time the average (non-geek) friend of yours
bought an app for there computer? When was the last time YOU did? Look at
Facebook apps. All the rage when facebook launched, then everybody got sick of
them. Maybe do a comparison of how many facebook apps are launching now vs. a
year ago. That should be a good indication of where the App store is going (in
my opinion). There is very little that needs to be done natively on the device
these days. We'll likely have a hybrid of web/native but I hope a few plugins
will provide all the native code necessary to run most apps (I'm thinking
about writting a plugin myself).

But lets do a bit of research anyway to get you moving further along. I google
searched for iPhone apps and got a bunch of sites doing reviews - then put
apprater.com & appsafari.com into compete.com to get a monthly page views
estimate. AppSafari shows about 57k visits/month and apprater shows almost
18k/month. So reviewing the more successful site - that 57 views for 4.5 pages
per user - about 8.5k page views per day X $7CPM = $60 per day.

HOWEVER, I'd say that is a VERY high estimate. Maybe you can do a MUCH better
job than appsafari, but they are already in the market and have a surprisingly
high number of eyeballs for what there site offers (personal opinion). You are
also competing with sites such as CNET, etc which have iPhone app directories.

Having said all that. I've launched my start-up "HearWhere.com" into a market
where there is already an incumbent, and more joining on a regular basis (even
a YC supported competitor). I have a competitive advantage and felt the
competitors offerings were weak. I'm hoping to launch a new version of the
site into Beta late next week which will put even more distance between myself
and competitors.

What I'm saying is that if you feel you have a true competitive advantage or
opportunity to differentiate yourself in this space, then go for it. If you're
not sure about separating yourself from the bunch, than you probably have more
work to do.

An idea I read today through YC relating to Google (I can't remember exactly
which article I read) - basically said don't go after revenue, serve the
market first, then go for the revenue.

I like that you are planning ahead to make sure the revenue will be there, but
I think that may be a bit premature unless you know that the market exists
first. Don't just assume that because appsafari has 60k visits, that you'll
get the same. Getting people to switch is going to be the biggest challenge
for you, and appsafari isn't even the biggest fish to fry - CNET, Wired, etc I
suspect are all in this space as well as it already feeds into there user
base.

Hopefully somebody more experienced than myself will be able to give you
further help and direction with this, and even refute what I've said.

~~~
tstegart
Hey pedalpete, thanks for that great thought-out and detailed reply, thats
really awesome.

I've been thinking about the idea for a while, because I've noticed a lot of
dissatisfaction with the App Store's reviews, and I've identified a lot of
advantages a website would have over the App Store.

One reason is that Apple's self-imposed design requirements limit the
information that is available to people wanting to learn more about apps. The
App Store is only available through iTunes, so it keeps the same look and feel
as the music store and doesn't have all the functionality of a website.
Reviews are limited, and currently, they can be left by anyone, vastly
degrading their usefulness (not to mention it doesn't incorporate better
review mechanisms, like upvoting or downvoting of reviews to eliminate
annoying/useless ones). You can't compare two apps directly, and there is no
objective editorial content on which apps might be better than others.

Finally, there are problems of categorization in the App Store. The categories
are very static and broad. If a new series of apps come out, Apple will likely
to be slow to respond and is very unlikely to further divide categories, even
though that would be more useful. What I mean by that is best illustrated by
an example from the iTunes Music Store. There is an electronic genre of music,
but really "electronic" is too broad for someone looking for a specific type
of electronic music. A website that further categorizes this large genre would
be more useful than the iTunes Music Store to someone looking for a specific
type. Just like an apps website could make more useful categories.

I haven't yet begun much research into competitors. I have noticed that many
people complaining about the lack of good reviews in forums are not answered
with "you should check out X website." So there isn't one website thats far
out ahead and constantly on people's tongues. One the one hand, those two you
mentioned are quite far ahead, but the App Store has also only been open a
month. However, those two sites likely started some time ago by reviewing
jailbreak apps.

I will disagree with you on the viability of the platform, but thats something
that can't really be decided now, so its one thing I'll just have to believe
in. But I am curious on what a "niche" site is. I'm having trouble determining
the size of my potential market, but I'd like to think its larger than niche.

My reasoning is that people don't have to buy an app for their iPhone to want
to know which one is better than another. So many applications are available
for free that I'm confident people will want apps, and will want to get
reviews for apps. I am having trouble trying to quantify the amount of
potential users. I consider everyone with an iPhone or iPod Touch a potential
user. There will be an estimate 10 million iPhones by 2009, so 10 million
people will theoretically want to get more info on apps. At any time they can
go download a free app, and presumably, might want to choose between two free
apps.

A successful iPhone website can also be expanded to a "Android Apps" website,
so the potential audience can be expanded later.

So I'm confident I could match those sites that you mentioned. What I can't
figure out is what I would need to do to to make a living off of it. I'm going
on the assumption there will be two principals. So, for example's sake, what
would be required for each person to make $50,000 before expenses? I was
looking to create a chart, starting at low CPM/high pageviews, up to a higher
CPM with lower pageviews, just to see what it looks like. Using your example,
I would need to have 5 times the visitors to earn over $100K. So around
285,000 visitors.

Basically, its preliminary work to see if it passes the sniff test. Even with
generous estimates on how many visitors I think I can get and high CPM's, will
it be enough?

~~~
pedalpete
a few things I'll have to disagree with you on.

1) I never questioned the viability of the platform - this is definitely
something that can be made. I do question the viability of it as a business if
you are relying ONLY on ad revenue. However, adding additional revenue streams
will increase the value and possibly serve your market better than
advertising. My initial reaction is not 'this is going to be a star', but you
could have a viable business here, I'm not your target market, and can't
relate to what you are doing. You probably don't read mtbr.com or
pinkbike.com, I do, you might not have thought those to be viable businesses,
but they are.

2) I'd suggest re-reading your paragraph which starts 'My reasoning...'.
firstly, who reads reviews for something they aren't keenly interested in? and
the only people I know who have iPhones have them, but use them just like any
other phone, meaning they don't install apps, or read about iPhones etc.. I
have a blackberry and don't install applications, I don't look at blackberry
focused sites AT ALL, and I am a geek! secondly, you can't just take the total
number of phones and say that is the potential market. Everybody uses toilet
paper, but the market opportunity is not 9 billion people.

iPhone and Android are not the first players in this market. I'd take a closer
look at sites that do what you are thinking of doing for Windows Mobile,
Blackberry and Symbian devices (even though you have identified
differentiators, look at what has been done to help define opportunity size).
These devices already have a larger user base with 118 million devices sold in
'07 so 10 times larger than iPhone currently. Also, don't be fooled by Apple
marketing/PR and the way the numbers read. 10 million devices sold is more
like 7 million users. I had gone through 3 iPods before most people had bought
their first one, fanboys buy the newest thing they can get. Also, the planned
obsolescence of mobile devices is 18 months, so when they say '100 million
sold in two years', that likely means 50 million users. It's not how many
devices HAVE been sold that matters, it how many devices came onto the market
in the year (or 1.5 years) that is the important figure in mobile (I've done
some mobile consulting).

So i actually just tried this with Blackberry and Symbian, and interestingly,
the largest sites I found (quick search) has about 40k montly visits. Similar
to the size of the top iPhone reviews site. This suggests to me that
opportunity size is in the 30-80k range.

Something to think about...are more people going to use read/write reviews
BECAUSE your site is better? or are you going to be getting users from other
sites because your site is better. It's an important difference, and will help
estimate market size.

For my site, I postulate that finding live music and deciding to go see a
concert is a poor experience, but that if people had a better way to find out
who's playing, sample the music, etc. they would go see more shows. So for my
site, I say 'with a better experience more people on a whole will use an
online tool to accomplish this task'. Rather than saying 'I'll be able to grab
x amount of users from other sites which do similar things, but don't offer as
good an experience'.

You've defined the opportunity where current sites are missing the boat, so
that's good. You've got a target you are aiming for. You'll find more
opportunities as you dig into this I'm sure. You'll also find challenges to
things like categorization and taxonomy - who knows, maybe you've already got
a solution to these challenges. What I think is interesting is that I suspect
that as you go down this road, you may find greater opportunities than you are
originally planning. Categorization can be VERY challenging, it is something I
am struggling with on my site (your electronic music example is perfect!). So
if you have identified a method for managing categorization, maybe the app
review site is just an opportunity to flush out managing categorization, and
maybe that will be your long term business.

I can't answer your last question about 'will it be enough'? Only you and your
partner can decide that. If you have the ability, I would suggest building
something and getting it out there while hanging on to your day job. Building
is often the easy part, the challenges can come in actually getting people to
use your site.

If you build something great, maybe you can make a living, maybe you can get
investors involved. If you don't build anything, you likely won't get either.

Costs of developing something like this should be very low (hopefully you will
code it up yourself). This would probably be a good opportunity to try
something like google app engine.

~~~
tstegart
People are jumping in and getting press as we speak:
[http://www.techcrunch.com/2008/08/16/great-review-site-
for-i...](http://www.techcrunch.com/2008/08/16/great-review-site-for-iphone-
apps/)

:)

~~~
tstegart
Actually, its kind of encouraging that a site with exactly 33 reviews can get
on TC.

