Jakob Neilsen has posted what I beleive to be an extremely import article, which discusses the effect that search engines have on revenue for commercial websites. Mitch Ratcliffe at ZD Net also has a good blog up about the need to pay people for their contributions to websites.

How are these two ideas connected?

People do very little without motivation. Money is a great motivator. What Mr. Neilsen’s article is pointing out is that it is getting increasingly difficult to make a profit on the Internet. Quite some time ago, search engines replaced DNS as the way people find sites. Now, to get found in search engines, it is requiring an increasingly larger amount of money to be fed into the gaping maw of per-click search engine advertising. When Yahoo! first started their paid review system, it was acceptable. You paid once, and that was that. Users could find your site. Now, you need to pony up cash each time someone comes to your site, unless you are lucky enough to be in the first page of the organic search results.

With more and more websites seeing visitors come directly into one page, and not leaving that page, they need to monetize their website on every single page, and make enough money for every single page to pay for that expensive per-click advertising. If a user does not find what they were looking for on the page that the search engine sent them to, they go right back to the search engine. Your site’s “stickiness” is no longer important.

Unless you are selling a product with a great profit margin, you are in big trouble. Content websites do not have a great profit margin on a per-visitor basis. Take a news-related website. Let’s say they make five cents per page view, on average, from advertising. They can’t very well be buying their hits for a dollar each, can they? In other words, producing content online is increasingly less profitable, thanks to search engines.

The end result, I beleive, is that many if not most professional websites will go under. It is already happening to many newspaper websites. Their print sales are being ruined by online news, and their online sites are being forced to have paid subscriptions or to lose money. Users are increasingly going to blogs, wikis, and other amatuer websites for their news. I will admit, I have always been predjudiced against blogs, wikis, and other “community created” websites when it comes to objective (or “as objective as possible”) information. Why? Because most of them are not making money and have no editorial control. Blogs are primarily done as vanity projects, for someone to put their thinly disguised opinions up as “news” with links to like-minded blogs as “proof” and solicit comments which stroke their egos. Wikis are great examples of groupthink, which a bunch of like-minded people democratizing Truth. When this replaces professional, reletively objective websites, we are in trouble.

There is a solution out, and that is for the content websites to find ways to generate traffic in a way that works around the search engines. RSS and traditional email newsletters are one way; you need only get the user to your site once through a search engine to get them to subscribe to your RSS feed or email newsletter. Search engine optimization is another path, as it allows you to get traffic through organic search engine results rather than paying for the placement. As Mr. Neilsen points out, increasing website usability is another solution: multiply the amount of money you make per visitor enough to offset or exceed the increased costs of getting the visitor, and you’re in good shape. There are lots of ways. Confederations of content sites are another idea; it is probably much easier to get someone to pay a subscription fee (even a higher one) to have access to a group of websites (or better yet, incofrmation from a number of websites aggregated into one site) than it is to convince them to pay a fee to a number of different sites. For example, I would be very willing to pay, say, $100 a year for access to The New Yorker, The Economist, The New York Times, The Washington Post, and say, Encyclopedia Brittanica than I would be to give each one of these sites $10 per year. Indeed, I would love to see content websites bundled up like cable TV packages.

In any event, this is not some Chicken Little, “sky is falling” scenario. This is actually happening right now. Try buying space on Google; prices are going up, much faster than the profit margins of any product that I am aware of. The entrepenuers who try breaking into business online are going to find that their marketing costs are a lot higher today than it was five years ago. Doing business online is not as cheap as it used to be, and the inexpensive nature of online business was a major driver behind the Internet’s explosive growth to begin with. The Internet reminds me more and more of the California Gold Rush, where the people who made the real money were the people selling picks, shovels, provisions, etc. to the prospectors. Search engine advertisement is now more critical than ever, and sadly, it is now a recurring, variable cost directly tied to the number of customers you have. Imagine if a store in the mall had to pay a fee to the mall for each person who walked into their doors, instead of a flat fee for rent each month. That is where we are headed, and it totally changes the game. Or worse, if everytime someone resolved your IP via DNS you had to pay a fee. Because more and more, that is what search engine advertising is looking like.

Tell me what you think.