Nothing to ad

Got a business plan for a digital media application and looking for funding? Better take out that part about, “and they we sell ads against it” and come up with Plan B.

According to a panel of venture capitalists at the Digital Media Conference in Washington, DC, Thursday, ad-supported is not a viable online business model.

gupta“We’re really looking for consumer-pay models,” said Arun Gupta of Columbia Capital. “We would really shy away from any digital media idea that is ad-supported at this point. Ad-supported can be part of it, especially if you already have some traction building value in other ways. But ad-supported is the gravy, it can’t be the meat.”

Ditto Kuk Yi, managing director of Best Buy Capital, the electronics chain’s VC arm.

“You need pretty massive scale to make ad-supported work,” according to Yi. “If you have a viable business that is not based on selling ads it’s pretty easy to layer the ad piece on top of that. But it’s very hard to build a busine ss that requires the ad piece to be there.”

Kuk-YiBest Buy Capital invested in an early-stage games compan, Yi said, that creates paid games that get embedded on social networks and mobile platforms. Another company in its portfolio is generating revenue of $1.5 million a month selling virtual goods online.

“Ads may eventually be  part of both of those but that can’t be the whole business,” he said.

Grotech Ventures general partner Don Rainey offered a somewhat sarcastic dissent.

Rainey“You can do ad-supported if you have 2o or 30 million visitors a month,” he said. “The trick is getting to 20 or 30 million visitors.”

Rainey added that, unlike years past, VCs in the digital media space these days are looking for ideas “that are actually good ideas, and can scale and become big ideas.”

Ahh, for the good old days. — TMW