Advertising and Making Money Online

David Heinemeier Hansson gave an amusing talk at Startup School ’08 and it echoes something I’ve been thinking about for some time. A lot of web sites out there get very, very popular and yet there is no indication they plan to make money. Many more web sites fall back on advertising as their primary business model.

ZingLists isn’t terrifically popular, but I’ve given a lot of thought to how it might generate some revenue and least pay the hosting bill. Up to now, I’ve taken the easy route and put Google ads on the list summary pages. They aren’t very intrusive and once in a while they’re actually useful, displaying an ad that helps you cross something off that list.

There are really two problems with relying on advertising as a business model. The first is my problem. Relying on someone else to sell the ads (Google) means you essentially have a single customer. If something happens to that customer, all of your revenue disappears in a puff of smoke. Google disabled my account about a week ago and I can’t get them to tell me why. It’s the whole account, too: AdSense, Analytics, Gmail, Calendar, everything. I have no idea what the perceived problem is, though my best guess is click fraud. That sucks, though, because I can’t control an end-user’s behavior, and if I don’t show them the ads, I have no chance of generating revenue. So Google AdSense (or any single provider of ads) is not a real business model.

The second big problem with advertising is this simple question: why are you in business? Is it to sell advertising or to write software / provide a service? If it’s the latter, I’m sorry to inform you that generating revenue by selling your own ads means you are in fact in the business of selling ads, not writing software. This is not a business I want to be in.

Domain squatters are like car salesmen

Much to my surprise, one of the hardest things I’ve had to do while starting a new company is come up with a name for my product. Naming things isn’t one of my strengths, but the domain squatters have made this task much, much harder.

The biggest problem is that you can sit down and come up with a list of dozens of potential names, and then find that only a handful aren’t already registered by someone. The ones left are generally not very good. 37Signals says not to worry about getting the perfect domain, but I’m not yet convinced that you can ignore word-of-mouth (people literally speaking your domain name to their friends).

So if most “good” names are taken, that means buying one from a squatter. This brings me to my main point: negotiating with a domain squatter for a name is a lot like dealing with a car salesman. Usually, when you buy a car, the first offer or two from the salesman is outrageously high. He just hopes you haven’t done your research and that you’ll bite. Even armed with research, sometimes they won’t deal. The best thing to do is to get up and walk away. If they really want to sell a car, they’ll blink.

This is what happened to me. I made the lowest possible offer to start negotiations for a name I mostly liked, but wasn’t in love with. The reply was $800. Within two weeks, and mostly because I stopped responding to his offers, he came down to $150. I walked away, and he blinked.

The problem for squatters is that most domain names aren’t really worth anything at all on the open market. They’re only worth something to someone who has an idea or a partially finished application and needs a name. If the price is outrageous enough, we’ll just come up with something better. That gives us tremendous leverage: when the market for buyers is just a handful of people in the world, it’s essentially impossible to get them into a bidding war. So really what we’re trying to do is figure out the absolute lowest price the squatter will sell at and not hold on to that domain out of spite.

Unfortunately, even at $150, that means he can hold 14 or so other names that never sell and still break even, so this problem isn’t likely to go away any time soon.


I arrived in Silicon Valley in mid-1997, in the middle of the dot-com IPO boom. started trading on the public markets in May of that year, well before they would turn a profit, and saw a 30% jump in their stock price that day, even after pricing it 28% above the high end of the price range.

My first company was pure Internet bubble speculation. They’d been around for years already, taken several rounds of venture capital and had wildly changed their strategy from hand-held communications software for Apple’s Newton to more general client/server software trumpeting the then-favorable “push” buzzword. As it happened, my girlfriend at the time worked for Pointcast, one of my company’s favorite targets of ridicule in the press. Of course, neither company ended up doing anything in the long run.

I stayed in the Valley for nine years. I think my experience there is probably fairly typical. One employer blew up spectacularly. A few ran out of money. A couple were acquired. None were news-worthy successes. I do know one guy who did really well and several others who did just OK.

I’m fairly confident that, had I stayed, eventually the stars would align and I’d ride one of the exit strategy trains to (modest) stock riches. Maybe I wouldn’t retire, but it’d buy a nice house and I could stop thinking about if sending my kids to the public schools was the best thing to do. Now, though, my priorities have changed. I don’t want to keep playing the start-up engineer game. I have ideas of my own and things I want to try, but lack the money connections to fund them. With a family to support, mac & cheese and ramen isn’t a realistic option.

So we left Silicon Valley and came back to Ohio. The cost of living here is far lower, we have extended family nearby (so my kids will know their grandparents) and I’ve managed thus far to retain some consulting work back in the Valley.

That can’t last forever, though, which brings me, finally, to the point of this blog. I’m going to strike out on my own and work on some product ideas, supplementing our income with consulting. I’ll admit it: this blog is probably more marketing than anything else. It can’t hurt to get my name out, let people get a feel for who I am and what I can do. If even one client finds me from this, it will have served its purpose. If new or potential clients read this, I hope it allows them to be more comfortable with an unknown engineer, until I’ve had the opportunity to prove myself through my work.

My plan is to keep topics here fairly technical. Some of them will likely revolve around my projects, others may comment upon experiences and lessons learned with clients. If I have something worthwhile to add to something I read elsewhere, that’s fair game, too.

I am eager to see where this leads.