What's eating online publishers?

Published in NETT magazine May 2010

Internet publishers bemoan the ‘commoditisation’ of the banner ad. What really happened is hyperinflation. And it’s the publishers’ own fault. But there is some good news, especially for small players.

Major online publishers complain about the recent ‘commoditisation’ of the banner ad.

They paint ‘commoditisation’ as a pestilence striking the crops of simple, honest farmers of online eyeballs.

As I see it, there are two things wrong with this view. One, the obvious one, is that publishers brought this phenomenon upon themselves. The second is the misuse of the word ‘commoditisation’.

Now, there’s nothing intrinsically wrong with a commodity. Just ask anyone in Western Australia. They love the commodities they’re sitting on, and can’t dig them up and ship them off to China fast enough.

What has blighted the price of ad impressions is better described as hyperinflation.

Hyperinflation is what happens to a currency when a government simply prints more banknotes, without a corresponding growth in the real product or productivity of the economy. Pretty soon you need to take a wheelbarrow full of hundred dollar bills down to the corner store for the loaf of bread that used to cost pocket change. Internet publishers found that internet penetration became saturated and the growth in their audience started to plateau. Addicted to years of double and triple digit growth, publishers started to manufacture more ad impressions, while the underlying commodity that advertisers remain happy to pay good money for – viewing time multiplied by size of audience – remained flat or grew slowly.

How did the publishers manufacture more impressions? A whole grab bag of tricks – photo galleries, multiple-page articles, aggressive auto-refresh, anything that increased the amount of deliberate or inadvertent page requests in a typical visit.

The advertisers are not stupid, nor the publishers immune from the simple laws of economics. The price of impressions (CPM) plummeted.

Large publishers have been heard to argue that the price plunge shows that what advertisers now want, and what will save the publishers from their current predicament, is a more accountable pricing model (Cost Per Action) and better use of data-driven targeting.

They’re effectively saying they need to become Google - targeted online advertising that offers tactical marketers proven results. Google works. Businesses know what they’re getting, they’re happy to pay for it. There’s no question whether the commodity Google sells is value for money. The price is set by the market in real time, via auction.

If these publishers aspire to even approach Google in their ability to use data and achieve goal-based performance... they’re dreaming.

The good news for online publishers is that they don’t actually need to become Google, or compete with Google, in order to survive.  The proof of this lies in the one ray of sunshine for online publishers in the current market – strong demand for video inventory. Video inventory is not somehow more demographically targeted, or more conducive to clicks and conversions than banners. It largely serves the same purpose – eyeballs, recognition, brand awareness. Strong demand for video inventory shows continuing faith in online advertising whose main function is strategic and awareness-focused, rather than tactical and performance-focused.  

The challenge for publishers is what it always has been. Recognise your audience and create content which appeals to that audience. This is particularly heartening for small publishers, who tend to be close enough to their audience to know them extremely well.  And small publishers can build really successful businesses. Sound Alliance is the outstanding example. They started a dance music website ten years ago. Last year they enjoyed double-digit growth, $15 million in revenue, and the longest average session times of any online publisher measured by Nielsen.

Clicks, shmicks – their formula is only about compelling and relevant content. It’s not rocket science, or applied mathematics – leave that to Google.