Maybe that statement is an exaggeration but the point is that too many blogs are depending on AdSense as their major source of revenue. And I’d say that the major motivation that’s keeping a lot of blogs alive is the fact that they can make some money off AdSense.

While many small-time bloggers can make some extra cash through AdSense on their sites, don’t fall into the trap of relying solely on one source of revenue. This is especially true if you’re planning to quit your day job and think that you can survive on AdSense alone.

image credit: blmurch (Flickr)

The importance of diversification

Imagine that you wake up one day and Google bans your AdSense account. Will that kill 80% of your revenues? 95%?

That’s what happened to Incredimail, a public listed company (NASDAQ:MAIL) that saw its stock fall 30% today after they announced that Google has banned them from AdSense.

According to Maxim Group analyst, Matthew Weiss:

“This announcement is a big blow for IncrediMail as we believe that approximately 85 percent of the company’s advertising revenues are attributable to its AdSense relationship”

According to an article in the MotleyFool:

“Through the first nine months of 2007, revenues soared 94% to $13.3 million. The company is taking advantage of its popular email applications to launch Instant Messaging and social networking.”

If 85% of the revenues are from AdSense, that would amount to about $11 million dollars for the first nine months of 2007.

Use your earnings to invest for the future

While you are getting some decent checks from Google, set aside a part of it to invest in your continuing education and also for growing your revenue streams. Maybe you can plan to acquire some other websites. Or use some of your profits to hire writers and invest in building up new sites.

Or you can invest it off-line in traditional stuff like the stock market, CDs, forex, or pick your favorite investment vehicle.

Think of it this way. Look at what happened to Polaroid. They should have seen the trends occurring in the photography business with the advent of digital photography. Instead they were relying too much on their instant cameras which use film and look at where they are today.

When you think of photography who do you think of? Kodak? Polaroid? Hardly. I think the winners are Nikon and Canon.

So be sure to keep up with what’s happening in the industry.

Once again, I see that so many blogs are following the same layout as some A-list bloggers, you know, having the 125×125 ad blocks on the right hand sidebar. It’s like lemmings.

The supply and demand for these ads will eventually adjust their prices. However, there will always be suckers who are willing to pay more than the market price for them. While some popular blogs can charge hundreds of dollars per month for these ad spots, the advertisers will soon come to their senses if they are really measuring the results of putting up those ads.

Ad buying tips

If you’re considering buying an ad spot, be sure to set it up in such a way that you can measure the results. For example, you can use Google analytics and look at the referrals coming from the site that you’ve placed your ad on. You can look at the traffic coming from that referral and compare it to your average visitor in terms of time spent on your site, pages viewed, etc. Don’t just advertise blindly.

Another way is to set up a specific landing page and link it to the ad. Place an opt-in box and measure the conversion rate from the traffic you are getting. In some cases, it may be worth it. If you’re paying $30 per month for a spot, that means about $1 per day. If you’re getting 20 visitors per day, you’re paying 5 cents per visitor. Let’s say 1 out of 20 visitors opt-in, that means your acquisition cost per subscriber is $1. This isn’t too bad compared to putting up an AdWords ad.

Who says that Google won’t penalize sites selling 125×125 ad spots next? It would be in their interest to squash the competition for advertisers who would otherwise be advertising on AdWords.

It’s almost like the heady days of banner advertising in the first dot com boom. Everyone was into selling banner ads on their sites until the whole thing came apart. Some of the Web 2.0 properties may face the same fate. You can’t base your business model on AdSense alone.

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