Can Free Sites Rely on Just Advertising for Revenue?

We recently looked at the advertising market for this year and last (see Story) and in 2009 we are expected to see a decline in revenue earned when in previous years, online advertising was experiencing large double digit growth. I don't expect to see the free business model disappearing but it is going to get a lot tougher as companies spend their advertising dollars wiser. The funny thing with free dating sites is, they rely largely on paid dating sites for their income by displaying ads for them. If paid dating sites ever disappeared (which I do not see happening) then the free dating sites will as well.

Barry Diller, CEO of IAC (which owns Match.com and Chemistry), at a keynote address for the Advertising 2.0 conference said

I absolutely believe that the Internet is passing from its free phase into a paid system.

Diller is positive that relying on just advertising as a business model for most websites will not be sustainable in the near future. For his proof of success, Diller points to the iPhone and its popular App Store.

The problem with Barry Diller's iPhone example is, while the App Store has done extremely well, it never had any real competition. Once Google's Android mobile phone operating system matures and more companies bundle it with their phones similar to the iPhones functionality, it should be interesting to see if the iPhone continues to grab as much market share. The App Store is a very structured environment and Apple controls everything, this is both good and bad for developers. Android is open source software and free, this will spark more innovation but could create confusion for less tech savvy consumers.

For more on Diller's keynote address, read CNET News. Read our Match.com review and our Chemistry review for more information on these dating sites owned by IAC.