If you're building a startup and your revenue is all ad based, it's like eating dessert before eating the full meal. Yes, it might taste good at first, but sooner or later you'll be on the toilet...and uncomfortable.

Over the past few weeks I've read a lot of articles like this one, which reiterate how hopeless it is to build a startup around ad revenue that can survive a downturn.  I was going to say "to build a startup with an ad-based business model", but really, is ad revenue a business model?  It might be a "revenue model", but is what you are doing a business if you derive all of your income from advertising?  I wouldn't say so.  A true business produces something, or provides a service that improves the lives of the customer.  Your "MySpace of pet owners who visit the library every Thursday" or "Digg for horitculturalists" might be a good web application, it might be a nice way for you to show the world your programming prowess, but honestly, is it a business?

This is not to say that ad revenue is useless.  Far from it.  If I had a product site (Basecamp?), or a social site where money was exchanged for some service or premium features (Flickr?), I would definitely supplement whatever money I made from the main product (dinner) with some ads (dessert).  That's a no brainer.  But building a business based on ad revenue leaves you exposed to downturns like this.

If you're struggling with developing a business model, there have been some good articles written recently that might help you on your way: Three Freemium Strategies and Make Something People Will Buy among others.  I also found JPMorgan's Internet Market Research Report to be particularly insightful.

Related posts:

1. 13 Years On The Web – A Retrospective, Part II