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Newspaper online advertising has not benefited greatly from the recent upswing in online ad spending, according to the New York Times and most of the recent newspaper company quarterly results. This is no surprise because most newspaper websites sell space for commodity advertising — display ads and classifieds — and thus are hard pressed to compete with ad networks that specialize in selling commodity ad space by the megaton (or giving it away for free, in the case of Craigslist).

Back when newspapers were the only game in town for ad space, they could charge whatever they wanted. Now the web has near infinite ad space, and newspapers find themselves playing the wrong game. They’ve got ad sales staff that specialize in commodity order fulfillment and not premium advertising solutions.

So what distinguishes a premium ad solution from commodity ad space? It’s a premium solution if not every site can deliver the value. Any site can slap a display ad on a page — that’s what makes it a commodity. High-end brand publishers like newspapers really have only one way to distinguish themselves from every other web publisher on the planet — their ability to create high quality content that attracts a targeted, high quality audience.

But… there are many sites that specialize in creating “good enough” content that can attract segments of that high quality audience, and then selling that audience at a much lower cost.

But wait, you say, high-end brand publishers should be able to sell the ad next to their higher quality content at a higher price. Isn’t that the whole principle behind premium publishing?

Not when it comes to display advertising. Display advertising isn’t more valuable when placed next to premium content because display advertising has so little value to begin with. In fact, display advertising creates so little consumer value that it actually subtracts value from high quality editorial content when placed next it. Ever see those belly fat ads on top tier news sites? Dancing Martians lowering your mortgage payments? Whiten your teeth? It’s a total train wreck.

In fact, many ad exchanges are focused on bundling and selling audiences in a way that exploits this commodization of display ads and effectively cuts out the value of the publisher.

So what’s a high-end brand publisher to do?

The answer is to offer advertising solutions that give advertisers the opportunity to create real consumer value; the kind of value that complements and even enhances the value of high quality editorial content; the kind of value that high-end brand publishers specialize in creating.

Many advertisers have sought this kind of premium value from high-end brand publishers, and most publishers have responded with customized solutions like the classic “microsite” or one-off customized ads. But that too can be a losing proposition. Case in point from Mercedes:

It was a good day for newspaper Web sites when Mercedes-Benz USA introduced its updated E-Class cars this summer. Mercedes bought out the ad space on the home pages of The Washington Post, The Wall Street Journal and The New York Times, and had those sites create special 3-D ads for them, at an estimated cost of $100,000 a site.

When Mercedes advertises its more basic models next year, it will largely avoid newspaper Web sites and rely on networks. That lets Mercedes “be very targeted and efficient with our dollars,” said Beth Lange, digital media specialist for Mercedes-Benz USA.

The problem with these solutions is they don’t scale — they are expensive for publishers to deliver, and they are expensive for advertisers to buy. The result is most advertisers are lured back by the siren song of commodity ad network cost efficiency. So while high-end brand publishers do well for big splashy launches, they can’t compete when advertisers go into the post-launch mode of consistent, continuous, high ROI value creation.

What high-end publishers need is a way for advertisers to create premium value for consumers that scales and can deliver a consistent, continuous ROI that justifies a premium over commodity ad networks.

What would advertisers be willing to pay a consistent premium for? The holy grail of every advertiser — to become media, i.e. to create high quality content that attracts and retains an audience of current and prospective customers. Advertisers would also pay a premium to align the value that they create for the consumer with the value that high-end brand publishers create for consumers — just like on a search results page, where the ads are as valuable as the “editorial” content.

But if every high-end brand publisher tries to deliver such a solution by themselves, it won’t scale for advertisers. The key is to scale across many high-end brand sites while still delivering the kind of premium value that commands premium pricing.

That’s the next generation of premium online advertising. More in my next post.

Source: Why Newspapers Aren't Getting Their Share of Increased Online Ad Spending