Inspired by this great post from Valleywag on how Time Magazine’s [arbitrary] list of Top 50 web sites make money, it’s time to explain how we see the problem with publisher models on the web.
The list tells us that 36 of the 50 of them are ad-funded and that 18 of those rely on Google paid listings through the AdSense programme. Only one sells stuff.
This list is utterly arbitrary and is not based on the most visited sites in any way, but it does bring alive a massive issue with how publishers – including lots of new ones – approach monetisation on the web. ‘We have great content/services,’ they say. ‘We’ll publish it in a really attractive way. People will come. Advertisers will pay to reach those people.’
The size of the bucket marked ‘ad money’ is very fixed
It sounds easy enough and it is a model that has stood them in very good stead since the 70s when Rupert Murdoch turned up and showed people that there was actually money to be made in the newspaper business.
But here’s the thing and it’s a big one: there is NOT an unlimited amount of money for advertising. In fact, the size of the bucket marked ‘ad money’ is very fixed. In good times its grows by about 2% and it shrinks by about the same amount when times are tough. So, anyone planning on launching anything that is ad-funded must understand that they need to persuade advertisers to take money from wherever it is at the moment and give it to them instead.
People have been misled by the fact that online advertising is growing by 30% every year and will keep doing so for a couple of years yet. This has led to the conclusion that, therefore, by publishing more – and better – web sites, media owners will take a greater proportion of that growing spend.
Google’s, in our view, is not an advertising model – it is a retail model
But that’s not true and here’s why: online display advertising – on which most traditional publishers base their revenues – accounts for just 21% of the [UK] market. That’s about £600m for every display ad-funded site in the UK to fight over. That growth is also in a market where supply – that is the amount of ad impressions in the market is growing by far more than demand. We figure that the average CPM a big digital media agency now pays will be about £6.60. It’s getting cheaper because supply is growing every minute and because the value of a banner in terms of conversion is falling all the time too.
As a result of all this, newspapers are finally beginning to realise just how threatened they are as businesses. In the grief process they’re still only at anger (hence the growing anti-Google stance), but they need to get through it much faster and – at acceptance – start innovating. Complaining that Google uses media owners’ content to make money for itself is absolutely no bloody good. Instead, minds must be applied to how to monetise the traffic that Google sends their way.
One place to start is to realise that Google’s, in our view, is not an advertising model – it is a retail model. It is the high street for online retailers. If you take your ads off, you close your shop and you stop selling things. This is how plugged into businesses’ bottom lines media owners must become to compete.
Re-examine subscriptions
So we’re particularly interested in how publishers too can plug into a retail rather than an advertising model. It can start with examining how they can offer CPA, rather than CPM-based pricing to advertisers. The minute you do that, you’re forced to focus on driving volumes of converting traffic to advertisers – otherwise you don’t get paid. The other thing to do is re-examine subscriptions. If there is too much free content out there making charging for your stuff impossible – then you need to stop worrying about it and concentrate on developing services (whether content or functionality) that people are prepared to pay for. Then work out how – and how much – they would pay for it. Does it stack up? No? Move on. Yes? Push on.
Media owners still don’t realise what a radical change they face. When they do, they’ll realise that radical solutions are needed
Filed under: Display advertising, Publishing
