Long before Nigerian prince scams and the rise of e-commerce, the Internet was full of unknown financial potential. Every entrepreneur worth his or her angel investment had a different plan on how to capitalize on this new online landscape and million-dollar ideas were a dime a dozen. Among the most popular of these was a little scheme we refer to as “passive income.”
In general, passive income refers to income earned essentially by doing nothing — like the interest you earn from investments or rent you earn from a piece of property. In the early days of Y2K, some entrepreneurs decided to carry this concept over to the Internet. The idea was that you could earn a living simply by setting up a website, doing something to make it profitable (sell an e-book, make it a credit card affiliate site, etc…) and then just letting it sit there and collect money while you traveled the world or worked on that novel. It seemed too good to be true for some, but to many overeager investors, it also seemed just crazy enough to work.
Unfortunately, the dream of “money for nothing” has proven disastrous for many business owners and investors. Thousands invested their savings and time into building a passive income site, only to see that money disappear before their very eyes. And while online passive income continues to be promoted by unscrupulous “financial gurus” well into 2013, it’s still just as dangerous today as it was back then. For example, here are four good reasons why you shouldn’t try to earn money passively online.
1) The market is saturated. One of the biggest problems with passive income is that these days, everyone is doing it . Companies only have a finite budget for their affiliate programs, and when there are 10,000 websites trying to get a piece of the pie, your portion is going to be a lot smaller than it was 10 years ago. Sites that generate their own income also face the same problem. Everyone is selling an e-book or a professional guide these days, so getting noticed in the sea of competition has gotten much harder.
2) Google has cracked down on passive income sites. Generating passive income in this era requires you to manipulate search results a bit to make your site more appealing than the competition. As you can probably guess, Google doesn’t like this at all.
Starting in 2011, the Internet search giant started issuing a series of updates designed specifically to destroy the authority rankings of “shady” web pages, which includes a lot of passive income sites. Consequently, it has become incredibly difficult to make a passive income site visible — and thus, profitable — online these days.
3) You can’t get repeat customers. Online businesses live and die on their ability to convert customers into repeat customers. Setting up a site to accept credit cards , investing in an AdWords campaign and then letting the site go stale while you relax by the pool isn’t going to earn you any repeat business. In time, the stream of one-off customers will dwindle and you’ll be left with nothing but a money pit.
4) Online income is active income. The dream of online passive income may be dead, but that doesn’t mean that it’s impossible to earn money online. You can still make a profitable online business, but to do so in this market will require real, actual effort. Just like with any other business, you’ll need to develop strategies that will keep you ahead of the competition, to engage with your customers and to relentlessly pursue growth. And that’s not passive at all — that’s active.
As far as the Internet is concerned, passive income is a dead religion. While it’s still possible to build an asset online that will earn you enough income to live on, doing so will require much more than a few thousand dollars and a weekend’s worth of effort. You’re going to need to work long days and late nights to get your business off the ground — just like everybody else. So before you buy into some Internet marketer’s sales pitch, make sure you know exactly what you’re getting into. If you can’t afford to put in the effort, you’re better off leaving your money in that IRA where it belongs.