In case you haven't noticed -- and it's certainly difficult to ignore -- the World Wide Web is a moving target that's changing at an unprecedented rate. If you squint just a little, youcan see it morphing right before your eyes.

While fortunes are already being won and lost (sometimes in months where yesterday's businesses used to take years), the ways to make money online are still evolving. While the future opportunities are huge, to date the Web has created more "misses" than "hits." This month's Video Web column looks at the revenue realities and potential of the Web, as we ask the multi-million dollar question: What relevance do the Web's financial realities (virtual and otherwise) have for video professionals?

The Big Picture
In terms of direct revenue opportunities, advertising and transactions (direct sales of merchandise) are the two most widely tracked indicators. While there's broad agreement among the analysts that the Web is still just emerging as a player in these markets, the trends reflect the intensity and the innovative qualities of the Internet's awesome growth. Remember, there was absolutely no commercial "action" on the Web just two years ago.

For example, Steve Olson, a research analyst at the San Francisco investment banking firm of Volpe, Welty & Company predicts that "By the year 2000, the Internet will become the data dial tone; and, as such, Internet access will become as ubiquitous as the telephone." He continued, "There's just no question that the Internet is big, getting bigger and is not going away." Although Olson agrees with most estimates that transactions on the Internet were only about $700 million in the last year, or about 0.14% of the $2 trillion dollar retail market; he points out that his prediction of the Internet increasing to only 1.2% of the retail market in the year 2000 would mean a total online transaction revenue base of more than $14 billion! Talk about an emerging giant. And you thought informercials were a good way to make money.

Cummings Multimedia Entertainment's Alternative Entertainment Network shows the promise of new online video "channels" that redefine narrowcasting.

I agree with Olson that the most significant "gating factor" limiting the viability of transactions is security and that is purely a perceptual issue. After all, most people never bat an eye when they read their credit card numbers over a cordless phone or when they hand their credit card to a restaurant waiter who disappears with it for minutes at a time. In truth, these are far greater risks than e-mailing your credit card without security. And now that all of the biggest names in the financial world are creating secure transaction environments online, this perceptual problem is certain to be cleared away.

Another "gating issue" is compelling content and creative offerings that depend on the creativity of people like you and me. It's the developers ("developers" is the Internet's name for producers) who are doing creative online design work, who are the ones charging top dollar, and who are doing very well financially even in these early days. More on this below.

One very lucrative site that has proven the viability of using the web to create a unique transaction environment is the online bookstore, Amazon.com. If you haven't heard of it, you should check it out. They have received critical and online consumer acclaim because they offer ten times the inventory (over a million titles) of even the biggest bookstores with the enhancements of all kinds electronic search and other customer-friendly features.

Advertising
Another major financial model is web advertising. As many of you are aware, many sites that planned on early advertiser support have been struggling to make ends meet. However, it's very early in the game and much of the data reflects old media paradigms that don't reveal the true potential of building advertiser supported businesses on the Net.

According to Jeanne Dietsch, Vice President of ActivMedia, Inc., a market research company specializing in online commerce, "Most advertising revenue projections average $200 - 300 million for 1996... but they accept as fact the totally unsubstantiated claim that 66% of ad revenues are captured by the top ten sites." In ActivMedia's research which is based on returns from over 1100 commercial web sites, 11% of web marketers (tens of thousands of sites) offer space advertising, with those who supplied revenue figures having an annualized average of $51,000 (assuming no growth at all). Dietsch calls this "fairly strong evidence that web ad revenues are not dense, but rather they are spread widely, as one would expect from a narrow-casting medium like the Web." This makes the Web advertising market look more like targeted magazines than the TV advertising market to which it is more frequently compared.

This means that web advertising revenue can also be considered an ancillary revenue opportunity, and in today's developing market it should not be expected to carry the whole revenue "ball." For example, this is reflected in my own experience. Because I don't have a sales force, I operate the Media Mall web site (at this point) more as a marketing vehicle and labor of love. However, the advertisers who have supported us have done so because they recognize the high quality niche audience we deliver. And because the cost of continuing to grow the Media Mall site is low, I can continue to attract an ever-increasing audience (15,000 hits last week), and develop more advertising revenue over time. So even though I don't expect ad sales from Media Mall to make me rich, it's certainly satisfying to know that we can deliver value to advertisers as well as to our readers despite and because of our relatively small, narrow-casting niche. And while we develop visibility, increase traffic and reap other benefits, its nice to have part of the expenses offset by ad revenue.

For more information of online advertising, check out the extensive Internet Advertising Report by Morgan Stanley investment analyst, Mary Meeker.

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