How to make money with an online news web site

You may think the recent round of layoffs at ad-supported news and discussion Web sites shows that they are doomed to lose money unless they find new sources of revenue. Au contraire -- well-run news sites can be profitable even if banner ads are their only source of income, and many already are, including the Open Source Development Network's Slashdot and Freshmeat sites. Here's a report from Robin Miller, editor-in-chief of OSDN.com:
The best way to make money with an online news site is to use a revenue model closer to those used by free alternative newspapers than to those used by large-circulation dailies. This is not a bad thing, since many small weekly papers produce excellent journalism. But it does hurt those people working for formerly fat-staffed online publications.
The harsh reality of web publishing is that it is a do-or-die, nickel-and-dime business. Anyone with a few thousand dollars can start a web site, just as anyone with a little writing and computer skill, and enough money to buy five or six 10,000-copy print runs of an eight-page tabloid, can go into the alternative weekly newspaper business. These low entry barriers hold ad rates and potential readerships down; there are always dreamers starting new web sites and small weekly papers, and even the ones that don't survive for more than a few months provide audience and revenue-thinning competition.
When you look at web publishing from this perspective, the wonder is not that big online newsrooms are now seeing radical staff-pruning, but that they were ever as full of bodies as they were at the peak of Internet hysteria, when many otherwise savvy managers seemed to believe that the World Wide Web had some sort of magic that suspended all economic laws.
I remember looking at the excellent (now bankrupt) APBNews site, and marveling at its 142 staff members, 400+ freelance stringers, and extensive use of multimedia presentations. It was a fine-looking site, but according to my profitability calculations its audience -- several tens of millions of pageviews per month -- would only support 10 or 15 editorial staffers and, perhaps, 20 or 30 stringers.
How to make money
By contrast, Slashdot.org, one of the sites I oversee, has a total of 10 full-time workers. Slashdot generates about 30 million pageviews per month, which makes it one of the world's most popular "tech" web sites.
Our entire Open Source Development Network, including Slashdot, has fewer than 50 full and part-time production workers (writers, programmers, designers, and editors) and consistently produces over 100 million pageviews per month -- and steady growth. Our newest wholly-owned site, NewsForge.com, produces content that generated over three million daily pageviews in January 2001, and is run by a total of four full-time people, which is exactly half the number of people who work on the Internet.com site that is our closest competition in the Linux and Open Source Software news niche.
This staffing level is nowhere near the number of workers per reader you will find at a large daily newspaper or general circulation magazine. Our sites can and do generate a consistent positive cash flow, based on actual production costs vs. revenue generated from advertising and sponsorships.
Many sophisticated graphics designers, like the folks at the famous design studio Razorfish (which is currently going through a series of layoffs), laugh at our crude layouts and lack of illustrations. We build our sites this way on purpose; text is inexpensive to produce and takes little bandwidth. Our sites are not designed to win awards, but to require the fewest possible clicks for readers, and the least possible amount of labor on our part, per story.
Our backend software is entirely non-proprietary, licensed under the GPL. Our in-house developers wrote much of what we use. Some was also written by outsiders who use our code or similar code to produce sites of their own. In contrast, commercial software companies like Vignette routinely charge site networks the size of ours million-dollar (or higher) annual licensing and maintenance fees.
Remember, we're in a competitive business. Just as the alternative weekly isn't the only newspaper in town, our readers too have lots of places they can go for information. So we look for ways to save money in every phase of our operation, and proprietary software simply isn't in our budget.
Another way we save money is by avoiding multimedia "enhancements" to our sites. We aren't in MSNBC.com's league, but we don't have to be.
I enjoy playing with digital camcorders as much as anyone else, but I face these hard realities:
streaming video can cost as many bandwidth dollars per thousand viewers as our ad sales people can consistently drag in as revenue;
fewer than 10% of all Internet users have connections fast enough to make streaming video practical for them;
it's a heck of a lot faster and cheaper to produce a high-quality story with words, and perhaps a few still pictures, than it is to shoot and edit quality video.
So for the moment, online multimedia is whipped cream, not ice cream, and should be served sparingly -- if at all.
These are the basic rules I use to run my online news web sites. So far they seem to work, and have insulated us rather well from the current "soft" market for online advertising. Layoffs on the fat-staffed news sites are simply bringing them down to where they should have been all along, and should not be viewed as a great disaster. To my way of thinking, the economic conditions we face now are normal, and the Internet "hype" years of 1995 - 1999 were a temporary aberration we should not expect to see again in our lifetimes.
Here's everything I just said above, summed up in a single paragraph:
Keep your site simple; use Open Source software instead of high-maintenance proprietary software packages whenever possible; don't let your sense of hubris get the better of you and make you believe your site will get more readers than it really deserves; and don't hire more people than you can afford to feed.
Follow these rules and you can make money with online news even if ads are your only source of revenue. And working hard and lean *never* stops you from doing some damn fine reporting, as long as you have both energy and imagination and are willing to use them every day.