Fascinating post by Jupiter Research analyst Eric Peterson, which outlines the Bloglines business model for 2005 – courtesy of a chat Eric had with Bloglines Chief Mark Fletcher. Eric wrote:

“The essence of his answer is “AdWords on Steroids” (my translation, appropriate given their proximity to the BALCO scandal in Northern California). The idea that any article or feed I’m interested in will be littered with content that can be mined and transformed into relevant pay-per-click advertising. Mark’s point was that while Google and Overture sell advertising based on a limited number of keywords, the content in feeds is rich with information that can be mined to laser-target the advertising.

He commented that the aggregate of subscriptions could also be mined to provide additional inventory, e.g., if I subscribe to Engadget and Gizmodo there is A) a strong chance I am a personal technology person and B) I am probably subscribed to other blogs that are gadget-relevant. These additional blogs would then be candidates for gadget ad inventory, QED.

While I’m not a huge fan of advertising in blogs I am a huge fan of good technology being supported by good business models. I think Mark’s idea makes sense and is a better idea than injecting advertisments into my feeds, a practice I personally feel is intrusive. Mark indicated that they hope to slowly roll-out this advertising model early next year.”

If you look at this in tandom with my previous post, in which I estimate that Bloglines has close to 50% of the RSS Reader market share, then the ‘contextual ads’ strategy makes perfect sense for Bloglines given their very strong user base. Plus they are already mining almost all RSS content in the blogosphere – anyone who has at least 1 Bloglines subscriber is being polled by Bloglines on a regular basis. To make a blunt comparison, they are the Google of RSS in terms of both user market share and ability to mine content.

Indeed the foundation is laid for Bloglines to build an advertising network that will be even more contextual than Google’s. Which means more people will click on the ads, because they’ll be more relevant… which means more revenue per advert than Google… which means advertisers will be clamouring for spots… which means a potential goldmine for Bloglines.

Now there is a rather important proviso to go with that scenario – which is that Bloglines currently has only a fraction of the quantity of users that Google has! But as I mentioned in my previous post, who’s to say RSS isn’t about to explode onto the mainstream in 2005?

It’ll be very interesting to watch how this pans out in 2005, not just for Bloglines but for other RSS-based businesses.

P.S. Regarding my previous post, I emailed Boing Boing to ask them if they’d be willing to provide some of their Feedburner stats. As yet I’ve not heard back, but in the meantime there’s a lot of interesting comments that people left on my post about RSS Reader market share. Check it out!