A good post by Fred Wilson on the online ad business model. He talks niche vs scale.
I will conclude by saying that an advertising model is a viable revenue model option if you are building a service that has a lot of scale. But if you don’t have millions of users a month, you should think hard before going in this direction. via A VC: MBA Mondays: Revenue Models – Advertising.
My favorite visual for the niche vs scale tradeoff is this chart on the tradeoff between monthly impressions and eCPM that you need in order to have a $50 million dollar run rate business.
If you have 1 million monthly impressions, you need about $4k eCPM. On the other hand, if you can only monetize at $1.00 eCPM, you need about 4 billion monthly impressions.