This story was written by Keith Dawson for UBM DeusM’s community Web site Develop in the Cloud, sponsored by AT&T. It is archived here for informational purposes only because the Develop in the Cloud site is no more. This material is Copyright 2012 by UBM DeusM.

Where Monetizing Is Headed

The advertising-supported Web is on its way out; here's how we will pay for what comes next.

A number of signs are pointing to the decline of advertising as the monetizing engine of the Web. In-app purchase, subscription, and freemium may be the replacements.

Consider these straws in the wind:

Facebook's valuation is suffering because the company can't articulate how advertising will pay the freight as its billion-strong user population shifts to mobile devices. Last spring, before Facebook's IPO, Michael Wolff explained how Facebook needs to demonstrate a transformative idea on the scale of the one Google came up with -- i.e., search advertising -- if they are not to drag the entire ad-supported Web down with them.

Even leaving mobile -- where advertising can't seem to help being useless, intrusive, and annoying -- out of the picture, click-through rates on the traditional Web have been declining for years.

Venture capitalists are discounting advertising. Chris Dixon informs us that the double handful of VCs capable of funding an Internet startup's A round have a new rule of thumb for ad-supported business models. Where once they wanted to see a million users signed up, they are now demanding 10 million. The million-user criterion is now applied to those companies with transactional business models -- e-commerce, in-app payments, etc.

The new Web that is taking shape -- what are we up to, Web 4.0? -- looks cleaner, leaner, better designed, and ad-free. BuzzFeed's John Herman examines the new crop of minimalist Web sites and services being introduced by some of the leading lights of Web 2.0: Svbtle, Branch, Medium, and App.net. They are all mobile-first, with responsive designs that adapt to screen size or to window resizing. They are all clean and beautiful and there is nary an ad in sight.

Among the backers of these companies are the guys who started Blogger and Twitter, and some of the most prominent among the Silicon Valley venture capitalists. They share a vision of a re-invented Web where content, updates, comments, and moderation happen in new ways, with little reference to the Web we have known.

The wannabe subscription-based Twitter replacement App.net, for example, just hit their Kickstarter goal of half a million dollars, then blew past it -- the campaign ended with over 12,000 backers pledging more than $800,000. (I was one of them.) Founder Dalton Caldwell articulated a belief that ad-supported social media are fundamentally antagonistic to users and developers.

Building your app around advertising monetization is looking less and less like a winning strategy. We have discussed one viable alternative model here, in-app purchase. Subscription is a model yet to be fully proven; the current crop of Web 4.0 startups should provide us with plenty of data before too long. We know freemium can work well based on the examples of Dropbox and GitHub.

As a developer, how do you read these tea leaves? Are you backing away form monetizing by means of advertising?