What Does 'Advertising-Supported Revenue Model' Mean?

Companies that operate online and have little or no physical presence traditionally used several different methods to make money. These revenue models include digital content, e-catalog or online retail, web portals, fee-for-service and advertising-supported. Online companies that employ advertising-supported revenue models typically provide free content partially funded by advertisers. This model is similar to the one that television and radio broadcasters use in that they provide both content and advertising messages to their audience.

In an advertising-supported revenue model, the online company publishes free content – videos, articles, pictures, quotes --that drives hundreds, thousands or millions of visitors to the site on a monthly basis. Advertisers pay to get in front of these visitors. Businesses generate their revenue from the fees advertisers pay for this access. The money received from advertising fees fully supports the business, covering all its expenses and, potentially providing profits. This model was the original revenue model for search engines.

In the past it has been difficult to measure the number of unique site visitors or charge for page views by visitors which makes it difficult for online publishers to determine the ideal advertising rates. However, more companies have developed software tracking tools that enable online content providers to track not only the number of unique and repeat visitors, but also their referral source, the amount of time they spend on the site and the actual pages they visit.

Unlike broadcast television and radio, advertising-supported online companies generally cannot access detailed demographic information about their visitors. However, as e-commerce outlets and social media becomes a more significant referral source, advertising-supported content providers have been able to obtain broader and deeper knowledge regarding demographics.

Companies often charge advertisers on the number of click-throughs to the advertiser's website or may charge a set fee for text or banner ad placement based on the number of site visitors. In the past the dominant model that may online companies used to charge advertisers was the cost per impression, or CPM, which charged the advertiser for every instance their ad appeared. The cost per click, or CPC, model has surpassed CPM. Because CPC advertisers only pay when a user takes action, CPC provides a more definable level of effectiveness.

Due to the competition for advertisers, some companies have moved from sole reliance on advertising revenue to mixed revenue models. These include subscription-based approaches where users pay a fee for access to a special section of the website that often has no or minimal advertising. Companies also may offer packaged content for sell or services related to content as digital content or fee-for-services.