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Web advertising on content is no more, nor any less, effective than web advertising in a printed magazine.1) Things like AdSense? You're right. The real money is in sponsored content. Just ask BuzzFeed, Forbes, Huff, etc. There's a saying from advertisers when you confront them about traditional print/broadcast advertising success "when sales go up, it just works, you don't question it".
> That is why advertising on content needs to shift to a performance based model
2) Not all advertising is about direct click through to purchasing. Coca-cola, Pepsi and every car manufacturer in the world spend billions a year on advertising simply for brand recognition alone. No one is buying a coke because they saw an ad on Facebook, but they sure as hell associate drinking a coke with happiness because that brand association is pretty ubiquitous nowadays.
I think the OP is insuitating that they should have never been a $3mil business in the first place, which is consistent with your story about your purchase behavior. How many ChuckMcM's are there gonna be have to be that purchase products on Digikey in order to provide $3mil worth of business?