This is the third and final segment of a recent interview I gave to Gerry Reynolds, a retail analyst, and which is published in Syntagma with permission. Read the other two parts here : #

Gerry : I’d like now to look in more detail at the essence of the business, its income, i.e. advertising. What are the main parameters of online advertising?

John : Online advertising is relatively new, so it still has more than a shade of the Wild West about it. It’s improving all the time, though, and growing very fast.

For small publishers, the breakthrough was Google’s Adsense, which is a text-based system aimed at generating clickthroughs, which in turn produce income linked to the market price of certain keywords sold by auction as “Adwords”. You can see examples of Adsense at the foot of each of the first three posts on any of our sites.

If that sounds complicated, it boils down to “pay-per-click” instead of pay-per-sale. The pay you get per click varies from a few cents to more than $10, depending on the product or service involved.

If you think of Adsense as plain old classified ads with an electronic counter attached, you’ll get the point.

Gerry : But Adsense is going out of favour now, isn’t it?

John : You do need high trafficked sites for it to work, which is why it’s the darling of the Google gamers, the SEO wizards who seed their sites with high-priced keywords to generate traffic and clickthroughs.

Most decent blogs will have traffic of between 10,000 and 50,000 page views a month. That’s not enough to make useful gains from Adsense. Significantly, though, it’s enough to generate hundreds of dollars a month from “text-link ads” which are paid for in advance by actual advertisers. There are now agencies which sell the ads for you and take a 50 percent cut for their pains.

Gerry : Does Syntagma use these agencies?

John : We do, but we also sell our own text-links off our inventory. They tend to give better value to the advertisers because we can be flexible with discounts, especially where a lot of space is available.

Gerry : So text links are the most important form of advertising for you?

John : In our first two years, they have been. The cumulative income from hundreds of text links over 40 to 50 sites, can be very impressive indeed, especially compared with affiliate shareouts, which depend on sales, and CPM ads which give small sums for each ad impression.

Gerry : What other systems have you tried?

John : I’ve tried them all. On high traffic sites, Adsense and affiliate links do well, because they are a numbers game. But the bulk of sites will be below, say, 100,000 page views a month. These need to be monetized in a different way to bring home the bacon. However, if these sites are in the right topic areas, they can generate good monthly incomes from text links.

Gerry : What are the right topic areas?

John : Click through our inventory contents list in the sidebar of Syntagma and you’ll see those that sell out on text link ads positioned below the header.

Gerry : So anyone can do this?

John : In theory, but not quite. Many “blog” networks have closed because the owners didn’t have the stamina to see the job through. Syntagma has a good reputation in the space, which we’ve earned over two years, and is seen as a mature player. That attracts advertisers to us.

In our first year, income was sparse and I funded the operation from my credit card. In the second year, when I had learned the lessons of profilgacy, oneupmanship and other money-draining practices, I slimmed the whole shebang down to an optimum size and reach, which now makes money.

I don’t want to beat my own drum, but it does take tenacity and a great deal of shrewdness to stay in the game when you’re losing funds every day. The secret is to stay in the mainstream in terms of market niches, but to do it differently from everybody else, so you stay ahead of the crowd.

Gerry : You don’t mind giving your secrets away?

John : I’m always glad to help anyone who’s starting out or who is currently not succeeding. There’s enough money in online business for everyone who wants to claim it. Each success story expands the envelope. It’s not a finite pot. It’s a very dynamic marketplace, and we’re all pioneers here.

Gerry : What are the other forms of advertising that you may use in your third year?

John : I’m always experimenting, sometimes below the radar and on sites not part of our list.

Sponsorship of sites by substantial corporations is a possibility, and I’ve had talks with a few such players. Also, Google is developing an ad network with the aim of filling neglected inventory all around the internet with their ads. It’s a great concept, especially if it gets away from the necessity of hosting dedicated ad serving software, which is a nightmare for relatively small operations. That’s the Next Big Thing in the space, and all the other majors are following suit right now.

Gerry : You seem to have an aversion to spending one penny more than you have to on anything.

John : I operate a “blood from stone” policy. In a low margin business, you need to find the sweet spot where profits are generated from minimum costs. So far, I’ve been successful in this. I don’t intend to overreach the limits imposed by basic cash-flow techniques, nor make assumptions that I can’t nail down.

Syntagma’s motto is Dr Johnson’s phrase : “Example is more efficacious than precept”. Which can be translated as “successful actions speak louder than words”, or “A warehouse full of bacon is a better investment than a forestful of wild boar”.

Gerry : What about subscription models of funding?

John : They have been tried, mostly on crack information sites, and usually with disastrous results. The New York Times is coming off a part-sub model right now, and so are many other newspaper titles.

People expect their online experience to be free, for the simple reason that when they click away from a page there’s nothing left, unlike with a newspaper or magazine. It’s fairly simple psychology. That’s why we sell the fleeting use of their eyeballs. There’s nothing else to sell online that has real value.

Gerry : I love that, “the fleeting use of their eyeballs”. Are people aware of what you’re doing to them?

John : Good God, no. Everyone’s very protective of their eyeballs. If they thought we were renting them out, they’d shoot us.

Gerry : And so on to year three.

John : From October 20, yes.

Gerry : Is it going to be a good ‘un?

John : The best so far, undoubtedly, but the words “chickens” and “hatched” loom large in my consciousness.

Gerry : As ever!

John : As ever and a day.