How to fix online advertising

How to fix online advertising

Fark's Drew Curtis lays out a plan for improving online ad sales.

by Mac Slocum | @macslocum | +Mac Slocum | Comments: 2 | 11 August 2010

Opinions about online advertising shift like the stock market. When things are bullish, ad folks are brimming with confidence and new networks pop up like weeds. But then the bears roll in and online advertising is sent to the scrap heap (or the grave yard, depending on your perspective).

Fark.com founder Drew Curtis, a speaker at next month's Web 2.0 Expo in New York, hasn't given up on advertising. The model still has juice, he says. It's the pricing and the sales strategy that need to change.

In the following interview, Curtis outlines specific moves he believes will improve online ad sales. He also weighs in on the most useful online metrics and he explains why paywalls are "the kiss of death" for legacy media websites.

Why does the traditional print ad sales model not work online?

Drew Curtis: A number of reasons:

Too much inventory.
Financial desperation among legacy media companies, which brings prices down.

However the two most important reasons are:

Accurate stats -- We know how many impressions get served and how many people act on the ads. That has taught us that advertising is much less effective than previously thought. Some folks like to argue that it's only Internet advertising that is (relatively) ineffective. Those people sell ads for a living.
A change in how ads are served -- Content on the Net is served a la carte. Legacy media is served in bulk. If no one reads a particular online article, then no ads are served. As opposed to magazines, where anyone who buys a magazine is presumed to have consumed all the ads in it. Or TV where everyone is presumed to never get up during commercials. This changes the overall available inventory numbers.

Is online advertising a viable model in its current form?

DC: It's not the model. It's the pricing. That sounds obvious, but it all comes down to effective sales methods. Digital salespeople are slowly building a narrative that not all ad impressions are equal, and those that are wrapped around compelling content are more valuable than, say, impressions that rip by when you poke someone on Facebook.

One huge mistake I see many large media conglomerates make is trying to have a unified sales team pitch massively different properties. Niche content commands higher CPMs. As a result, if you're the fifth-largest media property -- CPM-wise -- inside a media conglomerate, you're pretty much screwed. Your name is never going to come up in sales pitches.

To give a more concrete example, the main reason Reddit makes no money is because the same salespeople selling them are prioritizing selling much more valuable inventory on Wired.com and other Conde Nast properties.

You'll look at ways to fix the online ad model in your Web 2.0 Expo session. Can you preview a few of your solutions?

DC: Most of these things are easier said than done. But one way or another all of these things will eventually happen.

Change the sales narrative -- Not all impressions are created equal. Not all audiences have the same value. For example, SEO-generated audiences move the needle on a traffic stats basis, but not on an advertising consumption basis.
Reduce industry-wide available inventory -- Step 1: Classify ad impressions on journalistic content as much more valuable than ad impressions on social media content. This is something media buyers already know, but few digital ad sales teams capitalize on. Step 2: Within the next few years some legacy media sites will leave the game while others stabilize their finances. Prices will rise when companies are less desperate for cash. This is already happening as it turns out
Augment with subscription content of some kind -- Any kind. I swear the main reason people sign up for TotalFark is to get a badge by their name so they can be cooler (and boy does it work!)
If you have a community, do an annual event.
If you have a content niche, sell product on it.
Cut overhead dramatically -- Legacy media was used to having individual regional monopolies with 40-percent profit margins. That is mindbogglingly high compared to almost any other industry. Most large companies thrive on much tighter margins. Every journalist I've talked to can identify dozens of areas in their organization where money is being wasted. Usually this takes the form of overpaid and unnecessary executives.

From where I sit, the revenue legacy media currently makes from selling ads against ubiquitous content is staggering compared to what we're capable of doing with our own sales efforts. This is mainly due to the power of brand and available sales expertise. I can't name them due to confidentiality, but if Fark was sold by a particular large media conglomerate that I'm personally familiar with, our revenue would leap upwards by a factor of 20 times. However, from where legacy media sits, this same revenue is far below what they used to be able to bring in. Herein lies the problem facing legacy media.

That may seem to conflict with what I said earlier about Reddit and Wired. The emphasis in that particular example was on the issue using a unified sales team to sell both a niche property and a general interest property at the same time. My Fark example is what would happen if the sales team of one general interest property (unnamed legacy media conglomerate) sold ads for another general interest property (Fark).

That begs the question: Why aren't they doing sales for Fark already? The answer: They're still getting used to the idea. Legacy media takes time to warm up to unconventional business strategies. There are also no guarantees it would work on a long-term basis, and a down market is not the best time to take chances.

What is the most useful online metric?

DC: U.S. (or domestic) audience. For the most part you can't monetize any international traffic.

But it's not really any one metric. It's more about what ratio of uniques to visits to page views is the best. Ideally, you want a large number of uniques who visit on a regular basis and consume 3-5 page views per visit.

A ratio of low uniques and high page views means you're going to be running remnant ads most of the time, and really low remnant due to frequency capping.

A ratio of uniques to page views close to 1:1 means you don't have an audience, you have SEO traffic. Response rates will be terrible. You will be able to land sales meetings without a problem, but results will be disappointing for the advertiser. Getting repeat clients will be difficult.

Can paywalls work on content sites?

DC: Yes, if the information has value and/or is not easily accessible elsewhere. That rules out legacy media for the most part. But great examples of success include Cooks Illustrated, Stratfor, ESPN's Insider product, and The Wall Street Journal.

If I were legacy media I'd use my free news sites to route traffic to paywall sites with desirable information.

But can a legacy media website throw up a paywall and succeed? No way in hell. It's the kiss of death.

This interview was condensed and edited.

Related:

Drew Curtis will expand on many of these ideas during his session at Web 2.0 Expo New York, being held Sept. 27-30. Save 20% on registration with the discount code "Radar".

tags: advertising, media, web2expony

vinay [13 August 2010 12:32 PM]

One of the most important things to consider is how do you weed out so many companies who have build business just around adsense.
So for companies like deamnd media who only have content for adsense, is it serving advertisers well ? We at
Skill-Guru
have been trying to build a niche around test taking and finding it too difficult to fight with pure content companies.

Nick Gander [14 August 2010 08:32 AM]

I'm not sure that Online Advertising in that sense is broken. I work in the UK's Banking Sector and Online Advertising is one of the most cost effective ways of driving sales. Based on a shrewd understanding of the customer's path to purchase and likely digital touchpoints we're able to make impression based ad-serving work for us, usually as part of a broader digital marketing mix.