By DHZ

With today’s tremendous growth in the number of websites, it would be natural to ask, instead of “how to make money from the web”, what makes the web capable of making money. Such a broad perspective also has surprising implications for web designers and long term trends of blog/site monetization.

What exactly does a website sell? Traffic. The website sells its exposure to various advertisers and affiliate marketers, seeking to make them buy. It’s exactly like buying a spot on a vast land, attracting people there with some sort of function, and then putting up a sign saying: “buy this”.

The “land” of the web, which is the website itself with its unique postal code (or IP address), is an absolute necessity for starting a web-based organization. But it is also dirt cheap. Domain names often go for less than $8, and the best ones not more than a couple thousand. Sure, there are some that are worth millions, but the low entry for most people and the almost infinite allowable combinations of characters in the web address make land capital in the web cheap – and not limiting in any sense.

The capital investment, or the hosting, is also extremely cheap – ranging from $3 to $10 per month for a start-up site. The entrepreneurial service and the labour are simply from the webmaster, and, depending on the opportunity cost of maintaining a website, is probably the most expensive thing there is.

Then, we have an economy based entirely on labour. Anyone with a computer and at least some means to obtain a couple dollars can buy some real estate and build an attraction in the world wide web. The only significant investment, at the initial stage, is labour.

What happens when ANYONE can enter a trade? Things get repeated by those who cannot come up with an original idea (And there’s nothing wrong with that, as when you have way too many people entering, most ideas are already taken up to the fullest extent). So blog posts get reworded, game services copy from each other, and even spamming become rampant.

This phenomenon, a low barrier to entry and a high uniformity (and no, changing the style of the banner and recombining existing theories doesn’t make your website unique), gives rise to the theoretical framework known as perfect competition. In such a framework, many, offering the same thing and competing for the same vast pool of demand, try to make money. The result? ZERO ECONOMIC PROFITS. (Note that zero economic profits does not mean zero profits). Why is that?

Let’s say that Joe, an average worker, discovers that he can make money online. He sets up a blog and generates advertising income, and makes twice as much as he would’ve made doing a day job. So he quits his job to become a full time blogger.

All of Joe’s neighbours sees that Joe is making so much money, and each starts their own website. They put up content, set up adsense, and wait to be indexed by Google.

But wait – now there’s more competition. And everyone earns less than Joe. And so people keep on joining, increasing the competition and decreasing individual revenue. Until…

Mary, discovering one of Joe’s self-testimonials, decides that she would want to make money on her spare time too. So she sets up a site. And guess what? The competition is so strong that she simply says: “screw this, this is not worth my time”, and walks away.

When competition no longer increases because more and more people think like Mary, economists predict that the profit everyone makes will be exactly the “worth of their time”. Therefore, ZERO ECONOMIC PROFITS.

But wait, the web isn’t an exactly perfect market, is it? I mean, even after all this, the initiator, Joe, is probably earning more and more because people seek his posts, spread his reputation, and worship him as a God. The starter wasn’t negatively affected by the actions of the followers at all.

That teaches people, quite simply, that those who enter early will be able to escape from the vicious cycle of competition. What about the rest?

Well, that depends on what people think their time is worth.

And the sad truth is, most people don’t value their time very much. Those that cannot think of getting a job that pays less than $30/hour are content working an hour each day – that’s 30hours/month, for something like $20. That’s less than $1/hour.

And that’s exactly what you’ll get. So stop following writers who say otherwise.

Unless you become a Joe.