September 2009

Anyone in the ad-supported-blog business knows sales and revenues are on a downward spiral. Some people would argue this is a sign that advertising isn’t a viable business, but I think it’s not so much a problem with what is being sold, rather how it’s being sold. What was once a largely creative realm has been boiled down to a simple numbers game, one that everyone playing loses.

Lets start with a little history: It wasn’t too long ago that blogs were completely free of advertising and blogging was seen as nothing but a hobby. As the medium developed, blogs grew in popularity. Some incredibly talented people found blogs to be the perfect outlet for their creativity, and many tried and true writers began to embrace the freedom of self publishing. Readers began taking note as well and started turning to blogs because of their unfiltered voice and transparent biases. The more popular some blogs got, the more they cost to keep online. Sooner or later people started putting ads on their sites to help with those costs. As more blogs began to implement advertising there were cries that this would ruin blogging (a claim that might end up true though not in the way the protesters had predicted).

Over time acceptance grew to the point that not only do many off-the-shelf and hosted blogging platforms include built in advertising options, but there are also legions, well, at least a few “professional bloggers” who make a living from the ads on their own sites. Additionally there are many companies (like my own) that are supported almost entirely by revenue from ads on blogs.

Today, a publisher generally has three main options to sell ad space on their site:

1. Direct Sales: This would be when a site has an on staff sales team whose job it is to sell ads on that site alone. This option generally produces the most income from ads (more ads sold, at a higher average price, with 100% of the price going to the site) but it also has the largest overhead – at the very least the salary of that sales team but often rent on an office too. This is the best option, though the cost of barrier to entry puts it out of reach for most publishers.
2. Ad Networks: This is the option employed by the majority of blogs to sell the majority of their ads. Kind of outsourced direct sales. The way this works is one company represents a collection of sites and sells ads across all of them. The ad network becomes something of a representative by acting as a go between for the sites and the advertisers, and takes a commission for this work – generally 30-40%. Again, the bulk of ads on blogs right now are likely sold through ad networks.
3. Remnant Ads: While the previous two options are ‘active’ in that a living person is specifically selling those ad spaces, this is a ‘passive’ option in that unsold ad space is being filled at the last second from a pool of ads waiting for just such an opportunity. Remnant ads are often sold by ad networks as well, but I differentiate them because the spaces aren’t being sold so much as filled when there is no better option, and the prices are usually rock bottom, sold for pennies on the dollar. An advertiser might get an ad space that normally sells for $10 CPM for under $1 via the remnant route. Think of this as the bargain bin at a department store – sure there are deals, but generally it’s just one step above giving away things no one wants.

While some ad networks ask for exclusivity, it’s not in any publishers interest to agree to this and most likely a site will use some combination of all three options.

Online ads are nothing new and a good deal of content has been ad supported since before the first bubble. Originally web ads were sold largely in the same fashion as print ads, and websites were just considered digital magazines. Between 1998 and 2001 I worked for playboy.com. I remember one of the ad guys telling me that advertisers didn’t understand the internet and the more he told them the more confused they got. Traffic and hits and clicks meant nothing to most people at that point and he had to explain what he was selling in the context of the print ads they were already familiar with. Though print ads weren’t completely straight forward either because “circulation” is kind of a made up figure as well. In the magazine world there is an assumption that one single printed issue will be seen by several people. This means actual readership is some number x the copies printed – that “some number” depended on a whole host of other factors (largely what was on the cover). He said most of the advertisers still didn’t understand but bought the ads anyway because they wanted to reach people reading Playboy no mater what form it was taking.

This is an important bit – people bought the ads on the website for the same reason they bought the ads in the magazine, they wanted to reach people who were fans of that specific brand.

Since then we have gotten a lot smarter about web traffic. Hits are now ignored and impressions, page views and uniques are looked at more closely. Many sites not only charge for how many times an ad is seen, but how many times its clicked or even how long it’s visible on a screen. We pat ourselves on the back saying this is better, and in some ways it is, but just because you have new information at your disposal doesn’t mean it’s the most important thing to consider. New doesn’t always mean better. Focusing on traffic alone actually causes problems as it directs the attention of the sales teams towards generic numbers and away from the power of the individual brand. Remember, the main reason people were buying ads on playboy.com was not because of how many people where reading the site, but because of who those people were.

It’s common sense that showing your ad to 5 of the right people is more valuable than showing it to 100 of the wrong people. Old school advertising people knew this and that’s how they sold ads. Getting your ad in front of a specific audience was what was important, how many issues of that magazine were printed was just icing on the cake. The web used to be the same, you wanted your ad to be associated with a specific site because of who else was reading that site, how much traffic it got was just bonus info.

I have first hand experience with this from the buyer side of things as well. When doing marketing for bands while working at various record labels throughout the 90’s, we knew which magazines the kids we were trying to reach read and bought ads in those. We rarely asked how many issues were printed – that info didn’t matter. We knew that some of the most popular magazines had limited and exclusive print runs ensuring that only the coolest of the cool even knew the magazine existed. The audience was the important thing to us and we spent a lot of money on ads with that focus.

Getting back on topic, and present day. To people selling the bulk of advertising on blogs, who is reading isn’t very important – it’s all about how many. Sure the occasional demographic info is tossed around but really the headcount is what matters. And from their standpoint this makes sense. If you want to sell ads on a site it takes a lot less time to spit out traffic numbers then it does demographic info. Rattling off a few figures is easier than explaining the content of the site, what has been said about it, the passion of the writers or the dedication of the readers. And if the numbers alone for one site aren’t big enough, combining tens or hundreds of other sites multiplies those numbers into serious wow-land. 10 million eyeballs is better than 25K, right?

Wrong.

Not when you consider the earlier logic about right and wrong people.

Or if you consider that higher numbers doesn’t always mean more readers.

The problem here is cyclical and self encouraging, driven by short term goals. Reps are ignoring brands/content and selling ads based on numbers alone, which leads advertisers to think that numbers are the only important thing, which encourages publishers to ignore everything except their traffic in hopes of selling more ads. High page views does not equate to good content, useful design, or a quality site – don’t believe me? Look at MySpace. Gimmicks like breaking an article or photo gallery up into 10 pages multiplies traffic but doesn’t make the content any better. Multipage logins filled with ads increase numbers but not the quality of the site. Putting more ad units on a page increases the impression count but does anyone really believe those ads are being looked at? Focusing on numbers alone doesn’t offer a very good ROI, which leads to disappointed advertisers which leads to slashed prices from the reps in hopes of cheering up the advertisers. But they continue selling the same ad spots based on the same numbers so the returns continue to disappoint and prices continue to drop.

The industry has a short memory and this mindset quickly becomes universal – if advertisers are buying ads for 5 campaigns based on traffic alone, when they get to the 6th they aren’t asking about who reads the site, all they know to care about are numbers. The sales people have trained the buyers to focus on one single issue, so much so that they don’t even know there are others to consider.

The reps either don’t understand or don’t care about the value of the brands, and thus don’t pass that on to the buyers. This is a huge problem because loyal readers are actually the most valuable thing and the hardest to create. The authors and publishers of blogs work very hard to craft their content to develop a community that is interested in and cares about a particular set of topics. The better blogs can quickly become the premier source of info for many niche topics. This is an invaluable community to reach if you have a business catering to that niche. You might even be willing to pay a premium to reach them because those are the right people, and you know getting your ad in front of them will result in much more business for you then having it in front of any other audience.

This asset is being trivialized by the numbers only approach. You might think there is no way this could really be getting ignored, but it is. I’ll give you a few first hand examples from my own experience selling ads for Metblogs over the years. Keep in mind that with Metblogs we publish local sites, written by people in a city for other people in those cities. It’s local for locals, and if you want to reach people who are obsessed with their cities, Metblogs is a damn good place to find them.

• When we direct sell ads, we regularly get anywhere from $25-$45 CPMs. This is hard proof that advertisers will pay those rates to reach our audience. The most we’ve ever gotten from an ad rep is $16 CPM, but more often the CPMs range between $6-$10.
• We’ve had advertisers tell us they approached our reps with a budget and expressed interest in some of our specific local markets, but the reps told them their money would be better spent on a package of sites covering a wider range. They later found that under 20% of the ads they bought ended up on sites with a targeted local audience. This didn’t make those advertisers demand better targeted ads, it showed them poor returns on the investment in blog ads and they cut their budget for the next round.
• We’ve had ad reps tell us they have advertisers who want to reach blog readers in Nashville, TN but until we get over a million uniques on our Nashville blog in a month they can’t sell the space. There are only half a million people who live in Nashville. Nashville is only one example, this exact thing has happened in many cities – reps requesting traffic numbers greater than the entire population of a specific city.

These aren’t isolated instances, and in talking to other blog publishers, local and otherwise, I hear similar stories again and again. What this tells me is the reps either don’t understand the assets they are selling, don’t believe in the value of the assets they are selling, or don’t care to learn about those assets. None of those options paint a good picture, and it’s easy to see how over a long enough time line prices will continue to drop as the sites are devalued over and over again.

Going back to the beginning, the reason I say that direct sales are the best option is because publishers can explain exactly who their audience is and why someone should advertise with their brand. Unfortunately that is very time & labor intensive making it impossible to do that and run their sites, which is why I say it requires a dedicated sales staff. But that isn’t the magic end all solution to make this all better. A dedicated sales staff is trying to sell ads to the same people as the ad reps, and if the ad reps – industry wide – are preaching the numbers only gospel to advertisers, then not only do the staff sales teams have the job of selling ads on their own sites, but now they also have to either try to reeducate the advertisers or just pay by the same rules as the ad reps. Again, neither of these options are ideal in anyway.

I don’t want to sound like I’m blaming the ad reps for this, even though that is kind of what I’m doing. What I’m attacking is more the model and approach. Reps are in the business of selling ads, but the problem is the tools they have, especially the CPM concept itself, focuses on selling ads right now now without consideration of how that will effect selling ads next year. They are also in the business of selling a whole lot of ads, so its much more efficient to do package deals and boil many individual sites into one traffic pot. This is great for selling one batch of ads right now, unfortunately it’s the worst thing you can do to promote long term value and growth.

This decline will continue until everyone goes out of business unless something changes. Something needs to change, and honestly there are too many smart people involved in this business to just let it die without trying something different. Funny enough, as I was finishing this article TechCrunch published a piece by Shelby Bonnie called ‘Lets Kill The CPM’ which I think comes to the same conclusion I have though via a slightly different route, and ends with the same call to action. Something has to change. I’ve been talking about this problem with people for a while now and standing around on the street corner complaining hasn’t worked out so well for us so we’re going to take the steps and try to provide a solution. Or at least an alternative option, that we believe will be better. We’re still finalizing some of the organizational structure but I hope to have an announcement about that soon. I’m excited to see Shelby talking about this, and hope this leads to more announcements by more people in the very near future.

(For more history on advertising as a medium I highly recommend this wikipedia article or the AMC series Mad Men.)