Have you ever heard someone say you should not rely soley on Adsense for income? Although Yahoo’s publisher program has helped some webmasters sleep better at night, there is some truth to this statement. Seth Godin pointed out to me, what happens if Markus put all the dating sites out of business, who would pay for his ads?

Diversification isn’t so simple as it sounds. An entrepreneur I know said he usually lost money on the projects that were in areas he wasn’t very good at. Once you become an expert at something you usually understand and recognized the subtleties that help create windfall profits. When you can’t recognize these things you lose money or get lucky and just break even. (Beware of the “this looks good on paper” thing.)

This and my own experiences leads me to believe specialization is the best way to make lots of money and diversification is how to avoid losing it. Thus, its not a bad idea to strike a balance between the two.

How does an independent, self-employed web developer diversify? Does it mean create 100 Adsense sites instead of 3?

I’ve diversified my own income through affiliate marketing, building my own products, and consulting. Other oppurtunities could include web design, search engine optimization services, and selling ad spaces to advertisers who aren’t paying by impression (in case your SE rankings tank.)

Here is the problem with diversification: even though you are working in a related area it isn’t directly contributing your main business. Last year I got side tracked on other projects that lost money. Worse, I lost time. This happened because I devoted entire months to projects rather than working on them on the site while focusing on the things I really was good at.

This is my solution to that problem — keep your foot in the door, but don’t go all the way inside. Google uses the 70-20-10 rule (incidently my top searched keyphrase for this blog.) What this means is that Google employees spend 70% of their time on the core business (Adwords, Adsense, Search), 20% on related projects (Froogle, Google Local, etc.) and 10% on new businesses (Google Talk, Google Maps etc.)

If my advertising earnings bottomed out tommorow I could still pay my rent, my hosting, and all my other bills. It would be a pain in the ass, but it would be done. If you are risk averse and can’t bare to leave your current job (I know a lot of web site owners fall into this area) consider this approach. The truth is, you will be safer than a job where you could get a pink slip tommorow. Short of a worldwide economic collapse you’ll do just fine.

If you have found a project that you truely believe you have to devote 100% of your time to, and the payoff will be big, don’t let diversification scare you away. Plenty of people have made it with a single website from Amazon to eBay to PlentyofFish.