The Efficiency of Internet Advertising

First, the bad news:

Ethan Zuckerman worries that the economics of print advertising in the past are unsustainable. And he’s right. Online has exposed the lie - the fraud, if you like; the fantasy, if you prefer - of print advertising.

That myth is essentially that every reader of a publication - not just buyer but alleged reader - is exposed to every ad. So every advertiser is charged for every reader of every ad. Great while it lasted, eh?

But the internet punctured that illusion because on the web, advertisers pay only for the ads a reader sees (and, in many cases, clicks on). So online, a paper or magazine can no longer charge every advertiser for every reader. This has exposed the essential inefficiency of print advertising (like TV advertising that is ignored or skipped). But it shows the inherent efficiency of online advertising.

So if online advertising is more efficient and measurable, why isn’t it worth more? Scarcity, or the lack thereof, that’s why. In print (and broadcast), the proprietor owned one of the only outlets. And there were only so many pages, minutes, or eyeballs. So media set the price.

Online kills that golden goose, too, because it creates practically endless abundance. Don’t like my rate for an ad avail, you can always - always - find someone else to take it. Google (GOOG), as I point out in my book, built a business on managing abundance rather than controlling scarcity. In a sense, it also created scarcity in that there are so many people who search on any given word in a day. But when it expanded to AdSense on outside sites, it killed its own scarcity and benefited because it created a vastly larger network with much greater volume: Smaller rates in a larger universe beat larger rates in a small one, once the walls around media came down. This, ladies and gentlemen, is why I have argued to news people that they should ask what would Google do? Because Google did it.

That’s the bad news. But there is potential good news. There are new opportunities and models online that might - just might - support news, though on a vastly different scale. We won’t know until we try. That is what we should be exploring. I’d be eager to hear your notions of what could be done, but here are a few ideas (ones I’ll be working on in CUNY’s New Business Models for News Project; more on that later):

* New advertisers. Newspapers and TV served only the largest advertisers because only they could afford — and, they thought, benefit from — the scale of mass media. There is a huge population of smaller businesses that need to reach and relate to people and could do so effectively and efficiently online. In my book, adman Rishad Tobaccowala said that in advertising, you tend to take on the traits of your clients and Google was lucky to serve an entirely new group of advertisers who’d never advertised before and didn’t have agencies. So the rules, the ads, the value all changed.

There’s money in that scale but it has to be served and sold entirely differently. These advertisers don’t need CPM ads. They need to meet new people, the right people. They need to enhance relationships. They have information they need to be available in the right place at the right time. They need to sell things. They may need data. So new ad models need to be created for them.

But ad outlets can’t afford expensive face-to-face sales for all of them; they need to invent new means to sell. I’ve suggested that if we have citizen journalism, for example, we could also try citizen sales. This requires work, trial and error, but I am confident there is real potential in this huge new population of businesses.

* New services. Continuing this thought…. Media organizations can and must devise new services for marketers. Perhaps, for example, a local media company should act as an agency for every local business, helping them get good search-engine optimization and making sure they appear on Google maps. What else?

* Networks. I harp tiresomely on the Glam model but I do believe that news organizations cannot own all they do and will reach scale with less cost and less risk and more speed by building networks with a core of people — journalists on the news side, business people on the sales side — who support much larger organizations outside of organizations (see Clay Shirky).

* Commerce. When I was last in London, I was shocked to hear that the Telegraph makes a third of its profits from merchandise sales: wine, garden sheds, and hangers (honestly). The Wall Street Journal has started selling wine. It’s not insane. People come to ads in papers to buy; now they can skip a step (being careful, of course, to pick categories where they don’t raise channel conflict). I can imagine local news networks creating buyers’ clubs. I can also see that in some categories, if advertisers don’t advertise, papers may begin to compete.

* Entering into new businesses. I’ve argued in the past that newspapers should have gone into the real-estate business, as agents were surely going to dump papers and as the real value in real estate is the data: what houses are for sale. Ryan Sholin just talked about premium classifieds: basic ads are free but you pay extra to make them stand out. Perhaps you also pay extra for services (we video your house; we hold the open house). If you’re going to enable the marketplace of real estate in your town, it’s time to look at new ways to do it. Maybe there’s an opportunity to disrupt the market and take it over. Seth Godin says real estate agents - with plenty of time on their hands now - should start papers. Well, I say, turnabout is fair play. What other businesses are ripe for disruption?

* Contributions. If you look at news as an ecosystem instead of a product, a company, a single brand, and see many people contributing to that ecosystem in many ways, then some people will contribute for free because they care. No, they will not replace journalism. But they will add to journalism. They know things and share them generously. Then there may be a need to aggregate and curate that, to add value to it by making their knowledge easier to find. But as we do an audit of all the information in the entire ecosystem of news today and in the future, some of it - much, even - will come from generosity. It counts.

* Public support. Another slice that will add up to a new pie of news will be publicly supported journalism - Pro Publica (whose stories have run in The New York Times) and Spot.us. This, too, will not replace news as we know it. But it will add to news as we come to know it.

* Education. Michael Rosenblum has turned educating people in the new tools of media into a profitable business model. It’s not a big source of revenue in and of itself but it indicates a new relationship of support. If I were the Washington Post, with a profitable education arm, I’d be thinking of more ways I could educate my community and benefit both from the cash and from the new activities - like making video reports - the community can partake in.

* Efficiencies. The internet brings tremendous efficiencies to journalism. Do what you do best and link to the rest means any news entity can save a fortune on eliminating commodity news. Getting rid of print will also reduce the cost structure of news dramatically. We can’t just look at the revenue side of the equation; we need to look at new structures for the entire operation.

So Ethan is right to fear that CPM advertising will not support journalism. The danger is that the industry thinks it can transport its content and business models to the web and make it work by will. They can’t. They must reinvent the business.

Comments

[sylviechen:]

Wow! So many ideas, so few true facts from the writer.

Comparing newspapers with online advertising is like comparing the Yellow Pages with directory assistance - an irrelevant comparison. Shame on the author.

Newspaper ads worked off of two models (page advertising and classifieds). Page ads tend to be large to capture attention during page skimming. Classifieds work on the search concept (people are actively looking for something).

One can say that Google's Ad Words is a form of classified ad although Froogle is a form of intelligent page ad, ranked by price. As for ads displayed on web pages, these are increasingly dependent on ad metrics that measure how long people stay on a site, where they came from and go to, the context of the page and other metadata.

With social network sites like Facebook, you also have behavioral data gleaned from membership information, links to others, applications used, time spent and so on. Newspapers never had this information but with the decrease in privacy regulations, in the online world, rich profiles are now the norm.
More sinister, companies such as Phorm and Nebuad are selling services to internet service providers that track every site you visit, 24 hours a day.

While the author is right for all the wrong reasons about online advertising replacing newspapers, one must remember that profiling readers of a newspaper is too difficult when compared with the Web traffic. The future of advertising is the Web because there is very easy to determine the who, when, what and why behavior of a viewer when compared to a reader.

After all, society spends more time viewing images than reading words.
That's the future and that's why newspapers will fade away.

Jan 21 11:53 PM

[Donald Johnson:]

How can papers sell more ads to smaller lower advertisers, many of which never have been able to afford to buy display ads in the print editions of their large metro papers or even in their local community weekly papers?

I bought $1,500-per month worth of pay-per-click ads for years, and they helped me sell both subscriptions to my little consumer magazine and baby products we sold on a related e-commerce site. The ads also helped us build a very active message board for our readers and prospects. I've since sold the properties.

It's important to understand the function of AdSense. It attracts prospects to an advertiser's web site where the real selling is done. Almost all businesses with more than a couple of employees have web sites of varying degrees of effectiveness.

And what prospect doesn't know how to search the web and click on a link? Only the poorest and least functionally literate aren't using the Internet, and they aren't very good prospects. So no one worries about them.

This means, I think, that the key is to help advertisers improve their click through rates and the number of click throughs and, most important, conversions, overall. The question is whether the marginal cost to improve click throughs and conversions is less than the marginal benefit?

How do you improve on what seems to be working so well for advertisers?

First, you have to decide whether pay-per-click advertising is really working well and, if it's not, find a way to make it work better. The folks at Google, Yahoo, Microsoft, AOL and About probably have the answers and are working on the better widgets.

I doubt that many newspapers publishers are even asking the question.

But say they have. Here's what they may be thinking. They could restructure their web sites so that when a reader clicked on a AdSense ad, they would be taken to the advertiser's web site as they are now.

The newspaper would sell the advertiser on its ability to help make the advertiser's site a better selling tool. Somehow a newspaper would help improve conversions. It would compete with web developers and ad agencies. The questions are, how would a newspaper do this price competitively, and given that it's late to the party, what would be its competitive advantage?

Would it offer low cost, highly effective web site skins.

Would a paper buy a shopping cart company like X-Cart or Shopsite and compete with ISPs as a host and e-commerce partner?

Would a paper sell merchandising consulting services and help an advertiser improve its product and services offerings?

Would a paper modify its prostituted real estate and auto sections models and write and run press releases for the advertiser?

I began this comment thinking I might have an idea. Now I realize, I don't have the answers. I just don't see how a unionized, bloated corporation with high overhead could beat all the unemployed ad and marketing people who can do the same jobs for small advertisers for a lot less money, say $50 an hour, or $1,000 to $5,000 per project.

Need to noodle this some more.

Jan 23 12:13 PM