How do you make money with a website?

I want to know how people make money off there websites… I’m not talking the couple of cents they make from AdWords I’ talking real money.. the kind that lets you buy cars, plans and small countries.

The last few weeks I’ve been spending alot of time looking at online business’s with a particular eye towards how to make money with them and somethings got me very puzzled how do they all make money?

I understand how Amazon for example or our local makes money they sell a product and charge for it. I understand how a job web site can make money as they’re offering a service for which they’re paid…

But how does Google make money? or Yahoo? or Flickr (well thats part of Yahoo now…)? or YouTube? or Hotmail ? the list goes on and on these companies don’t sell a “product” or offer a service in return for money… I know for example that you can buy a little box from Google that plugs into your LAN and index’s it and basically allows you to search your company network… I know that flickr has “pro” accounts that you pay for. But surely they don’t make enough from that to pay for there hosting? let alone all the staff or there fancy buildings, jets, fancy chef’s etc.

So how do they make money? Through advertising…. that’s scary… the fact that you can fund a billion dolar company only on advertising revenue is incredible… Yes I realise that Gogole makes money by selling AdWords and stuff like that but it’s still just advertising. Now I know what you going to say… “But they also get venture capital and investmants etc” yes thats true… but thats just the “startup” money and it’s not given to them with no strings attached… basically it works something like this…

  • You and your friends come up with a cool idea for a website… lets say it’s a search engine… we’ll call it
  • Now you and your friends write version 0.1 of in your bedroom/dorm room/garage/the local coffee shop and the put it online.
  • People online notice it and start using it and kinda like it…
  • You go to a venture capital firm or they come to you (depending on how famous you are…) and they say “We want x% of your company for our money and you gotta use our CEO and our CFO etc etc and run the company like we say…” (They don’t always want to run the company… but it appears many do…)
  • You then take that money and use it to grow your company as quickly as possible… you hope like anything that you can get enough people visiting your site that you can start charging serious revenue for ads… you then approach a bunch of people and say we get x million views a day don’t you want to advertise on the site and hopefully they do and they pay you something…
  • Hopefully you make some money and then you sometimes pay your investors back or they get a nice big percentage of your profits.
  • After this you get noticed by Amazon/Google/Ebay/Yahoo/Microsoft and they buy you and you buy a small island and retire.

Now had this been a few years ago… the whole thing would have stopped at the “Venture Capital guys give us money and we grow…” section… when the money got low you just went out and got more venture capital… because .com companies were the next “big thing” and anyone who invested in them were going to be very rich.
What really puzzles me is that none of the companies have a “business plan” they don’t actually know how they going to make money… for many the plan seems to be live off venture capital untill Google/Yahoo/Microsoft/Ebay/Amazon/AOL buys us. YouTube appears to be like that. Others appear to work on the… we need to get lots of visitors then once we’ve built up a comunity we’ll work out how to make money. And then there are the advertising guys who basically say we get a couple of million visitors a day and if you pay us x amount we’ll show your ad to a few of the people. I do wonder how effective online advertising actually is… but thats a whole other post…
What got me started on all this is that I had an idea and wondered if I could make any money with it… now as you can tell generally if you want to have a .com you shouldn’t ask yourself that question (hence I don’t have .com and own my own plane.) anyway I sat down and did a simple calculation of what I would need to start this company and implement my idea I guessed that I would only be making any serious money after a year so I worked out how much everything would cost for a year… deciding not to have offices and to live off 2minute noodles and water for the year… it works out that after the first year I would have to have 10000 subscribers paying me to use the website.. and it would take another year before I broke even and paid off the debts and it would take even longer before I actually turned a profit, and if I was lucky after 3years I would be making enough money (assumming I managed to keep all 10000 subscribers) a month to hire another person to help out run the site.

Now maybe I don’t know what I’m talking about and maybe my sums were wrong… but it makes you think doesn’t it? So I still want to know how do you make money with a website?