Just when it looked like the decade-old argument over the merits of charging for online content was over – advertising-based business models now rule the Web – a well-known cyberspace pioneer has fanned the flames again.

In an op-ed piece last week in The New York Times, Jaron Lanier, who is credited with inventing virtual reality, argues that the web has decreased opportunities for writers and artists and other creative professionals, and that web boosters needed to "grow up" and start demanding direct payment for their work.

The column brought a sharp response from John Battelle, my friend and former compatriot, and the founder and chairman of the ad network Federated Media. "If I, or we, choose to make our content affordable by letting the right sponsors pay for it, sponsors who respect, value and wish to support that content, how on earth is that model somehow presumably corrupt?"

On this point (as in most things) I couldn't agree more with John. I don't think Lanier's premise – that creatives are net losers in the online revolution – is true, and it's clear that in the online publishing world, advertising is proving to be a much more powerful business model than subscriptions. At NewWest.Net, we've never seen anything to indicate that's changing anytime soon.

Yet relying 100 per cent on online advertising does have its risks, and we're soon going to witness the possible downsides.

It now appears very likely that the US economy will enter a housing-driven recession next year as the ratcheting up of variable rate mortgages accelerates foreclosures and takes money out of consumers' pockets. The advertising business, always vulnerable to economic downturns, looks set to take a big hit (the stock prices of the big agencies are already down dramatically) and that could prove to be an ugly wake-up call for the countless advertising-supported web businesses that have sprung up since the last ad recession in 2001.

Many prognosticators say that online advertising will be hit less hard than its offline counterpart, and that may well be true. It's also the case that online ad spending is likely to continue growing overall through any downturn; it won't match the 20-30 per cent year-over-year growth of the past five years, but it will still grow. I take some comfort from that.

On the other hand, loose declarations like one I saw the other day about Google being "recession-proof" strike me as nonsense. Why would Google, which derives essentially all of its revenue from advertising, be immune from a broad-based reduction in ad spending? It may well be that Google search is the most cost-effective means of advertising around, but advertising cutbacks are often driven by short-term fiscal necessity, not longer-term cost-benefit analysis.

Online ad-based businesses that are less robust than Google could be in for some serious trouble. In the dot-com bust of 2000-01, online ad revenues plummeted, killing off many a company. The dynamics are different this time around, but if anything there are more companies chasing online ad dollars then there ever were before, and the medium continues to wrestle with core issues such as traffic measurement and the stubborn refusal of many types of businesses to shift substantial dollars away from television and print.

So in one respect at least, I think Lanier is right, albeit for the wrong reasons. Total reliance on online advertising, whatever it may mean for content producers, is a dangerous strategy for online businesses. Indeed, one of the reasons that newspapers and magazines have always liked having subscription revenues is that they were less cyclical than ad revenues. Multiple revenue streams, almost by definition, provide at least a hedge against negative macroeconomic events.

At NewWest.Net we've adhered to that philosophy not by charging for online content, but by developing related offline businesses such as conferences and local events. They are not immune from recession either, but they are a form of subscription, or direct-from-consumer revenues, and thus will likely be impacted differently – and with any luck, less dramatically.

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Jonathan Weber is the founder and editor in chief of NewWest.Net, a regional news service focused on the Rocky Mountain West in the United States. He was previously the co-founder and editor in chief of the Industry Standard

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