Money, Pricing & Model

When does an ads-based model actually make sense versus just charging users money?

A starting point

Ads make sense when you can reach genuinely large scale, your users won't or can't pay, and you have enough attention or intent data to make advertisers pay well per user. For almost everyone else, charging users directly is simpler, healthier, and lets you build a real product instead of chasing traffic. Be honest that ads only work at scale most startups never reach, so treating it as your day-one model is usually a way to avoid the harder question of whether anyone will pay you.

Go deeper

Hand-picked from around the web, each with a note on why it earns your time.

3 resources 3 link-checked Watch Read

Watch

▶️ Video

✓ Link checked Free Beginner

Why we picked it CGP Grey walks through how a single video actually earns ad money: the real time auction, CPM (what advertisers pay per thousand views), and why the number swings with who is watching. It is plain, concrete, and shows why ad revenue only adds up once the audience is genuinely large. A good first look at the mechanics before you decide whether ads can carry your product.

This Video Is Worth $13,568.99 (How Ads Work on YouTube)

On YouTube (CGP Grey) by CGP Grey About 5 minutes

Ad slots are sold by live auction, so what you earn per view depends on advertiser demand and who your viewers are, not a fixed rate.
CPM is measured per thousand impressions, which is a quiet reminder that meaningful ad revenue needs volume in the thousands and beyond.
Seeing one video's real payout makes the scale problem concrete: small audiences produce small ad money, no matter how good the content is.

Watch on YouTube youtube.com →

Read

✍️ Essay

✓ Link checked Free Intermediate

Why we picked it Chan's piece is the honest version of the ads question: advertising is a real model, but it degrades the product once you are stacking thousands of impressions on people, and it only pays off at genuine scale. She walks through how Chinese platforms layered in subscriptions, tips, and purchases instead of leaning on ads alone. Read it as a starting point for deciding whether ads should be your first model or a later, secondary one.

Outgrowing Advertising: Multimodal Business Models as a Product Strategy

From Andreessen Horowitz (a16z) by Connie Chan About a 12 minute read

Ads get less effective and more annoying as volume climbs, so a single ad based model can quietly work against the product you are building.
A mix of revenue streams (subscriptions, tips, in-app purchases) often serves users better and gives flexibility a pure ad model cannot.
Reaching for ads first usually assumes a scale you do not have yet, so charging users directly can be the more honest early fit.

Open a16z.com →

📄 Article

✓ Link checked Free Beginner

Why we picked it This lays out Meta's actual advertising revenue per user, and the regional split is the reality check most founders skip: even the most efficient ad business on earth earns roughly 68 dollars per user a year in the US and Canada but only about 4 to 5 dollars in the rest of the world. If your audience is largely in India or other lower ARPU regions, the per-user math on ads is brutal, and this gives you the numbers to run it yourself. Treat it as a sanity check on how many users an ad model would actually need.

The Facebook ARPU Explained

From FourWeekMBA by Gennaro Cuofano About a 7 minute read

Meta's worldwide ad revenue per user runs in the low tens of dollars a year, with US and Canada near 68 dollars and Rest of World around 4 to 5 dollars.
Those gaps mean the same product needs far more users to earn the same ad revenue when the audience sits outside high spending regions.
If a user is worth a few dollars a year in ads, you can back into the traffic you would need, and often it is much larger than a subscription would require.

Open fourweekmba.com →