The Death of a Business Model.

IF there was anyone left who hadn't figured it out, the message came through loud and clear last week: The Internet is not like television.

A study released by Web research and tracking firm Media Metrix looking at the 200 biggest advertisers on the Internet found that dot-corns bought 77 percent of online ads in July. Coincidentally, this study was released the day before management at highly touted local Internet entertainment company Pop.com -- which was relying on an advertising-driven revenue model -- told employees to clean out their desks, because the company was being dismantled.

The timing might have been coincidental, but these two news stories are nonetheless deeply connected.

The billions of dollars poured into Internet firms by venture capitalists and Wall Street investors over the past two years have largely been spent on marketing. These companies know that in order to survive, they have to build an audience quickly, and the only way to do that is to spend a great deal of money on advertising. This has benefited all forms of media, particularly radio stations, but its impact on the Internet itself is sort of like what happens when a snake eats its own tail; eventually, it consumes itself.

Using their mountains of cash from venture capitalists and Wall Street, Internet firms have been sustaining each other by buying ads on various Web sites. The problem is that the gravy train is coming to an end; as these companies go bankrupt or run out of capital, they have no money left to spend on Web advertising, and the entire system collapses.

There are other fundamental problems with the advertising model. Ads can sustain television stations and networks because there is a limited supply of them; even in the cable universe, few people can get more than 70 or 80 channels. But the supply of Internet sites is nearly endless, and increasing every day. Granted, these sites are much more targeted toward a specific demographic segment than a mass medium like television, but even within a specific niche there are dozens, sometimes hundreds or even thousands, of sites. How does an advertiser choose between them?

All of this was evident long before now. Because of its status as capital of the entertainment industry, Los Angeles was a pioneer in the Internet entertainment business. Way back in 1995, one of the most popular sites on the Web was a place called "The Spot," created by a Marina del Rey company, American Cybercast. It was a weekly serial featuring a young cast, sort of a "Melrose Place" on the Web, that hoped to support itself through advertising. American Cybercast filed for bankruptcy in January 1997.

To many local Internet executives, American Cybercast was simply ahead of its time. Once the Internet attained a critical mass, and technology improved to the point that faster downloads were possible, the Web would be just like television, and support a TV-style business model, the prognosticators insisted. Not so. Rather than being an anomaly, American Cybercast tamed out to be a harbinger of things to come.

With the exception of a few overly optimistic holdouts like Pop.com, most Web firms figured this out some time ago. They have been scrambling to diversify into other revenue models, like business-to-business, e-commerce, consumer services, or a combination of everything. Profits still elude them, and likely will for some time. Some of these companies are already collapsing, so developing additional revenue sources beyond ad sales is certainly no guarantee of success.

But one thing is becoming abundantly clear: Web sites can no longer afford to follow the lead of television stations and other traditional media that rely primarily on ad sales for financial sustenance.

Those that fail to learn from the undoing of Pop.com will likely meet a similar fate.