The Internet is maturing into the world's greatest source of entertainment and information. But its revenue potential has been much more challenging to define and pursue than that of predecessors like radio or television.
Google (GOOG) this month announced a package of initiatives to expand its revenue streams from Web content. Those included a streaming music service for $9.99 per month, an upgrade to Google maps and an arrangement allowing video producers to charge subscription fees for YouTube content.
The YouTube pilot program will offer paid channels with fees ranging from 99 cents to $9.99 a month. The early participants include Sesame Workshop, the producer of "Sesame Street," National Geographic Kids and Ultimate Fighting Championship.
Google did not say how much of a cut it will get from each subscription, but it's similar to the move last year by rival platform Vimeo.com, which is owned by IAC/InterActiveCorp (IACI) The arrangement lets producers charge per video, including for feature films.
YouTube will remain a free service, just like its parent Google, which is largely dependent on advertising. But like so many other Internet business models, it's temporary, what Internet watchers call a "freemium" strategy: Let users jump aboard for free. Once they're hooked, figure out ways to enhance ad revenue with premium services.
Such fast-changing strategies combined with the fast-evolving world of Internet content providers can be instantly bewildering. There are 44 companies in IBD's Internet-Content group. They all share some similar traits, but can differ widely in their business models and revenue streams.
Here are some basic views into the business models of some of the big names.
In the early days of the Internet, figuring out how to make money was confusing. Today, the ways in which consumers use the Internet are better understood, but still developing. Numerous research firms track all manner of data.
In 2012, U.S. retail e-commerce sales reached $186 billion, up 15% from the prior year. Another $36.6 billion was spent on digital advertising. There are now about 2.4 billion Internet users.
Google's revenue for this year is projected at just under $60 billion. More than 90% of that will come from ads and related fees through two primary platforms. Google's AdWords program enables client companies to promote products and services with targeted advertising based on search queries. They pay a fee to Google on a "cost-per-click" basis.
The other platform, called AdSense, allows websites to run Google ads next to Web content. These display ads can include video, text or images that appear on YouTube, Google Finance and the websites of Google Network members. Google and the website owners both get paid for clicks on those ads. These same techniques are integrated by Google into mobile devices, including smartphones, portable computers and tablets.
Google also generates revenues from its Motorola unit, which sells cellphones based on its Android operating system. Google has a lot of other irons in the fire. This includes its Chrome operating system, Gmail, Google Plus and Google Glasses.
"We are still only at 1% of what's possible," said Google CEO Larry Page in a conference call after posting first-quarter results on April 18. "We're really just getting started.
A social networking website for professionals, LinkedIn boasts 225 million members. Its revenue is forecast to grow 54% this year to $1.5 billion, coming from three sources.
The largest is Talent Solutions, which gets fees from companies and headhunters trying to find prospective hires. The group represented 57% of revenue in the first quarter. The fees, depending on features, range from $40 to $400 monthly per subscriber.
LinkedIn's Marketing Solutions unit, which sells ads, accounted for 23% of revenue. A third revenue source is Premium Subscriptions, where users pay a fee for extra services, such as internal emails to LinkedIn members, access to profiles outside of a person's network and advanced search filters, among other features. Fees for this service range from $20 to $75 a month.
Like everyone else, LinkedIn is also placing a strong emphasis on expanding its mobile strategy. Along those lines it recently acquired Pulse, a mobile news reader and content distribution platform. About 30% of unique visitors to the site in Q1 came through mobile apps, vs. 19% a year ago.
When LinkedIn posted first-quarter results on May 2, CEO Jeffrey Weiner announced that its sales force, for the first time, will be able to sell ads on both desktop and mobile devices.
"We're excited about the potential there and we're going to continue to invest," said Weiner in the conference call.
Facebook is almost entirely dependent on a single revenue stream: advertisers placing ads on the world's largest social network. Analysts project just over $6.7 billion in revenue this year.
In the first quarter, ad revenue at Facebook of $1.25 billion represented 85% of total revenue. Mobile ad revenue of $375 million was 30% of the total. Facebook has about 1.1 billion monthly active users and daily active users of 665 million. Facebook reported 751 million mobile users, up 54% year-over-year.
Facebook has rolled out several advertising products recently, as well as data analytics tools to help advertisers plan and manage campaigns for a greater return on investment. In February, Facebook redesigned its users' central page to make it easier to navigate. It features larger photos and a larger platform for advertisements.
Facebook's mobile ad revenue was negligible as recently as the first half of 2012. Now it's second to Google in mobile ad sales, though far behind. Google gets more than half of all U.S. mobile ad revenue, says eMarketer. But the research firm forecasts Facebook's share of mobile ads will rise to 13% this year from 9.5% last year.
TripAdvisor.com is a travel website that helps customers research and gather information. Its customers also post reviews and opinions of travel-related content about destinations and accommodations, with interactive travel forums. The company touts more than 200 million average monthly users and more than 100 million reviews and opinions posted.
Revenue projection for this year: $936 million. Almost all of that will come from advertising. Click-based ads generated 78% of revenue in the first quarter. Display-based advertising accounted for 11%. Fees from premium subscriptions and transaction revenue from customer bookings brought in another 11%.
TripAdvisor is currently converting its ad strategy to a so-called metasearch business model. Metasearch generates revenue by allowing users to search for and book hotels and other travel products directly. TripAdvisor executives say the switch might temporarily hurt revenue. But Priceline's (PCLN) Kayak and Expedia's (EXPE) Trivago also previously made the switch to metasearch services for users.
"We believe the transition to meta display in conjunction with an improved bidding system will be a positive catalyst for TripAdvisor in the long term, despite possible near-term dislocations in revenues," wrote JPMorgan analyst Doug Anmuth in a research note.
Beyond travel-related content, TripAdvisor.com websites include links to the websites of its travel advertisers allowing travelers to directly book their travel arrangements. It manages and operates websites under 19 other travel media brands.
Similar to Google, Yahoo (YHOO) gets most of its revenue from display and search advertising, and is developing its mobile and video revenue streams. The Sunnyvale, Calif.- based company, which has more than 300 million mobile monthly users, is expected to see more than $4.5 billion in revenue this year.
About 40% of Yahoo's revenue comes from display advertising. Search-related ads account for 27%. It gets another 22% of revenue from other sources including listings-based services, royalties, and consumer and business fee-based services.
Yahoo has numerous sites on which to display ads, to include Yahoo News, Sports, and Finance. It also has its Yahoo Mail service and online photo site Flickr. Yahoo increasingly focuses on the mobile industry.
"Mobile is not only at the center of users' daily habits, it is at the center of a huge industry shift in Internet access," said Marissa Mayer, CEO and president, in a conference call when Yahoo posted first-quarter results on April 16.
"More than 1 billion people access the web on their mobile devices today. Tablet use is growing even faster than smartphones did," she said. "By 2015, we expect more people to access the Internet on mobile devices than on PCs.
In February Yahoo announced a plan to team up with arch rival Google to help place ads on various Yahoo sites, in an effort to help sell Yahoo's excess inventory of unsold display ads.
Although the company has been struggling, it is one of the few Internet players with significant multiyear partnerships with Apple (AAPL), Facebook, Google, and Microsoft (MSFT). Overall, Yahoo has about a dozen major project initiatives under development to increase user engagement.
"It is still very early, but our product progress is extremely promising and it's clearly increasing our user engagement," said Mayer.
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