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Customers, not advertising, might pay for the future of the internet

Startup founders are steadily losing interest in advertising. An analysis by Silicon Valley startup accelerator Y Combinator found that number of applicants mentioning advertising as a source of revenue has fallen by more than half since peaking in 2009. By contrast, founders are gravitating to paid subscription models, often called Software-as-a-Service, to fund their startup dreams.

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Founders are pitching fewer free and ad-supported business models in favor of charging customers. (Y Combinator)

Y Combinator analyzed all the words in tens of thousands of applications it has received since 2005. The data released this week shows a stark reversal from a time when Silicon Valley startup revenue was once almost synonymous with ads. Turning eyeballs into cash meant collecting as much as traffic as possible.

That’s still true for tech behemoths like Google and Facebook. Google is expected to net 30.9% of all digital ad revenue in 2016 followed by 12% share by Facebook, reports eMarketer. Their combined ad revenue is worth about $30 billion. Yet the marketplace is changing rapidly as content migrates to social media and mobile devices (as Yahoo and others have discovered to their detriment). Facebook is now leading the way on display advertising, claiming 25.1% of total display ad revenue compared to Google’s 13.5% in 2015.

That’s left precious little oxygen for new startups that need a business model. Businesses with SaaS business, on the other hand, can tap into recurring revenue that gives founders a steady stream of income with just hundreds or thousands of users, instead of the millions needed to make online advertising lucrative.

The image above was taken by el-toro and shared under a Creative Commons license on Flickr.

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