The Ad - Endum to all those Web 2.0 startup dreams.....

From NMK.....

Research from US firm BlueLithium has shown that while Web 2.0, user-generated content sites perform less well than traditional sites when it comes to conversions, the cost of advertising on such sites is so low that they are nonetheless more competitive when it comes to the cost-per-conversion:

When comparing ads shown on non-UGC sites to UGC sites, the ads shown on non-UGC sites had a 32 percent higher conversion rate. However, due to the lower cost of advertising on UGC sites, the cost per conversion for non-UGC sites was 58 percent higher. Therefore, on average, UGC sites generally provide a considerably lower cost per conversion.

A companion study based solely on the top 250 most-trafficked sites in the US found similar results:

The study showed that the conversion rate of ads shown on non-UGC sites from the comScore top 250 was 175 percent higher as compared to UGC sites. However, given the significantly lower cost of the UGC media, the non-UGC comScore 250 sites have 7 percent higher cost per conversion as compared to UGC sites.

In other words there is a ceiling to the rates UGC / Web 2.0 sites can charge for Ads, and it is pretty low and very dependent on the relative economics between Web 1.0 and Web 2.0 sites. And as competition increases this won't get better...

Wonder how many just-launched Web 2.0 Ad based business plans will survive very low Ad rates ?