I think too many people have fallen into the trap of thinking "If we build it, they will come (with money)."
This simply isn't the case. You must build something valuable, and capitalize on the value. Unfortunately, traffic isn't quite as valuable anymore.
Think about it, there are a lot more startups now, each with their own eyeballs. The supply of eyeballs has gone way up, which in turn means that with a static demand the value of the traffic has gone down.
Many startups begin with the thinking "We'll build something a lot of people like, and sell advertising from all of this traffic we'll receive." As I've just explained, the value of traffic is much lower with the increased supply. Startups capitalizing on traffic are entering a very competitive market.
Sure, a few companies will gain a massive amount of traffic and do very well (think digg, reddit, etc...), but the majority will need to find another way to be profitable.
Why would demand be static? Do you really think that demand for marketing doesn't increase? That would require having only a fixed number of people wanting to sell, and for them to only be willing to sell to a fixed number of customers.
The reason I believe it is valid to assume a static demand for demonstrative purposes is because I believe that the supply has shifted much more significantly than the demand has over the past 10 years or so, to the point that the change in demand is negligible.
This is just from first-hand observation. I don't have any evidence or reports to show this. It's only my hypothesis. If there are any reports showing a different supply/demand relationship please let me know.
This simply isn't the case. You must build something valuable, and capitalize on the value. Unfortunately, traffic isn't quite as valuable anymore.
Think about it, there are a lot more startups now, each with their own eyeballs. The supply of eyeballs has gone way up, which in turn means that with a static demand the value of the traffic has gone down.
Many startups begin with the thinking "We'll build something a lot of people like, and sell advertising from all of this traffic we'll receive." As I've just explained, the value of traffic is much lower with the increased supply. Startups capitalizing on traffic are entering a very competitive market.
Sure, a few companies will gain a massive amount of traffic and do very well (think digg, reddit, etc...), but the majority will need to find another way to be profitable.