Someone asked me an interesting question over the weekend: “How do these massive web sites like Facebook, MySpace and You Tube stay afloat? Where do they make their money?” Considering You Tube was, last year, purchased for over US$2B – and at face value it’s a company that doesn’t appear to actually sell anything – it’s something that many people have probably pondered. The answer of course is advertising. Revenue generated by online advertising, and ultimately profits, is what these companies survive on. Whilst You Tube is a free online video sharing service, the company itself is in the business of selling advertising space. ONLINE advertising space, I should point out.

And the business of online advertising is a great one to be in more so now than ever before. In Australia, online advertising sales have already eclipsed the dollars spent on cinema and outdoor. If the growth continues at the current rate it won’t be long before radio and magazine advertising is also surpassed. Take in to account the recent studies showing people spend more time online than watching TV and it’s no wonder big companies are shifting their advertising dollars.

Online advertising is no longer pie-in-the-sky type of stuff. Google (you’ve heard of them, right?) very recently announced an annual turnover of US$1.58 billion. Virtually 100% of this was generated from online advertising – adverts that appear on search results pages, or third party websites displaying adverts that have been “outsourced” by Google. On these revenues, they closed out a tidy net profit of US$381 million. That’s almost $400 million profit by selling online advertising space – proof enough for me that online is a powerful advertising medium (and online advertising can be a powerful business plan!).

So that’s how these websites make money. Traditional advertising mediums are up against it when you consider You Tube has recently ticked over 70 million registered users. As an advertiser, being able to reach a global audience of 70 million is fairly appealing, I would imagine.

The Internet bubble may have burst 7 years ago, but it’s definitely inflated again – this time encased by a thicker skin – and with a lot more than hot air to fill it up. Finally the Internet is old enough to have a history, and history teaches us the greatest lessons of all.