The Pareto Principle is nonsense.

In response to the current discussion on Techmeme and TailRank hipmojo writes that the Pareto principle is in play on the internet and that no matter how much we want it to be otherwise 80% of online advertising will go to 20% of the web sites.

When the dust settles, the top 20% of websites will get 80% of ad revenues. It’s that simple. Portals might change in shape, form or nature, but whatever they represent loosely will still get the bulk of revenues and traffic.

With respect, that is nonsense. Since the advent of Google Adsense the shape of internet advertising spend has mirrored the flattening of traffic I speak of on the edgeio blog. Almost half of Google’s revenue comes from Adsense. And about 75% of the dollars earned through Adsense stay with the publishers whose sites the ads run on. Clearly the lions share of the money spent through Google is shared about 50-50 with the publishers in the “foothills”.

It may be worth listening to the Google Earnings calls on Earningscast to validate this.

That is why Google talks so much about “inventory”. That is, traffic from outside google.com. The size and cost of this inventory is a major variable and the need to grow it helps us to understand deals like the one with YouTube.

If you roll the clock back to the pre-Adsense days when DoubleClick ruled, and online advertising was only going to large sites, it is a huge change in monetization and traffic flows. Give Google credit for this.

One of the things my piece argues is that there is a new trend on top of this established one – publisher monetization of their own content through direct relationships to advertisers (job boards, sponsorships and Techmeme like ad units being examples).

Sure the portals are still big but the collective foothills are as big now, and will be a lot bigger in the future.

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