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Tuesday, March 25, 2008

Online Content: Hitting the Wall

from Omid Rahmat





Hitting the wall is a term that will be familiar to anyone who has attempted to run a marathon. Online content is flagging a little these days, and may need to get a second wind. I am, actually, more optimistic than not, and believe that the most likely impact of any recession is that it will bring a new flood of businesses and advertisers who see cost benefits and broader reach in swapping more traditional marketing routes for those online.

For content businesses, this should be great news. Iíd argue there are a lot of ifs and buts. Itís not bad, but no matter how great, or valuable your content, it is always going to be sold at less than full market value, under present circumstances, and an upswing in online ad sales may not help for a number of reasons.

First of all, there is an awful lot of money, time and effort going into the development, acquisition and exploitation of online ad networks. SoCalTech had a story about a local company just a few weeks ago: Specific Media. Today, Forbes announced it is going to develop its own ad network; recently, IDG said it is trying to corral blogs to build its own network. Any company with a decent size ad sales team seems to want its own network. So, you have the big portal types Ė Google, Yahoo, AOL, Microsoft, etc. Ė selling ads to fill out their networks. You have a cataclysm of organization in the second and third tier selling similar and competing programs to the same advertisers. You have agencies that use these networks, big and small, selling their own media management and media buying skills, which kind of double up on the efficacy of the online ad networks, and now, you have publishers, building their own competing networks. You have to wonder, why do I need so many middlemen and so many layers to sell, in the main, excess inventory?

I use the term excess inventory because, online ad networks are not premium resellers of ad inventory. They could argue otherwise, but when you are just one of many sites on their list, you cannot expect any great devotion.

Essentially, the bulk of online advertising is sold on the basis of stack up your inventories as high as you can, and sell them for as low as you can. That canít be good for anyoneís bottom line. I canít imagine what it means in terms of the dynamics between ad agencies and their clients in the future, either, as online ad networks become more competitive and look for new strategic real estate by going direct to larger ad buyers.

Unless you are a premium brand in content, with very specific assets, say a New York Times, or a Forbes, you are in a bit of a pickle. Yes, the offline brands are also the most prominent online brands where it matters most, among blue chip advertisers. Interesting. Hence, another impact of the recessionary impasse we may be courting? More offline brands doing more online, squeezing the pipeline for up and coming online content businesses. The big brands get the premiums, while everyone else gets the dregs.

Secondly, and as a direct corollary to the above, the kinds of ads that are doing best online are lead generation campaign, or calls to action. These are not premium creative, or branding campaigns. They are short term, goal oriented, and instant gratification type programs. In theory, this is not bad. Advertisers can expect measurable ROI, or nice spreadsheets that show measurable ROI, with this kind of advertising. You get something similar with direct mail marketing campaigns. If I am a provider of content, I donít want to be the lead copy for a direct mail campaign. But, thatís what I am, for the most part. By the same token, if I am an advertiser, why do I pay big bucks to be positioned on a page that had Google AdSense links the day before? Itís a bizarre situation when your ad pages cannibalize themselves.

In the print world, you donít have the same problem because you donít print pages that donít have ads. It can make for a small magazine, but online you just put the content up, and your inventory is your inventory. It is almost speculative in nature: you have the cost of creating content in the vague hope of generating revenue. Is it any wonder that offline publishers have such a hard time with their online presence?

Finally, the content market has become so fragmented, and blogs have created so many unique vertical communities, that it is hard to break free of the insularity that these online cloisters create. Thatís a bit of a sweeping generalization, perhaps. Targeted verticals work great in trade journalism; itís nice to know that there is a place that targets Southern Californian tech ventures. They work great for very specialized interests; if you like to dress up and spend money lavishly on strangers there are a number of politically savvy all-female institutions that will address your needs and can be contacted online.

However, the blogosphere is very fragile. Sometimes itís like the popular kidsí table at high school, other times it is the Medici family picnic, and some times it is The Gong Show for opinions expressed in a highly opinionated manner. Blogger brands are volatile, and too often associated with specific personalities. I am also wary of the big publishers attempts to woo bloggers to their network. If you are a blogger, you have no friends in publishing unless they put up the kind of money you need to sell out. They probably wonít. Of course, with blogs the results are so personal that the personnel involved tend to have extremely inflated valuations of their business worth, too.

So, back to my original point, you have:

  1. Cheapening of the value and efficacy of online advertising.
  2. A pricing bubble for general inventory because of leveraged pursuit of this inventory by competing networks. Ad networks are trying to buy into sites with promises of glorious revenues, but it seems unsustainable.
  3. Content sources that are hanging by a small thread from a thin ledge controlled by fickle and peripatetic audiences. You average blog is at the mercy of the popularity contest that is the blogosphere.
  4. A likely recession and a likely emergence of stronger offline brands online. If you have a built in audience that knows you, and respects you then, you are less likely to be as desperate to please, and more likely to have friends in high places at the relevant ad agencies and marketing organizations. Not to mention, years and years of inertia and martini fueled friendships forged on the island of Manhattan (I may have watched Mad Men too often, but it is surprising how little changes in the world).

The shark will have been jumped the day a blogger is valued at over $100 million (I wanted to say $50 million, but apparently, that has no shock value). Thatís when the wall is going to hit hard. Weíll get through it, but it is going to hurt like hell.

Addendum

Since I wrote this during the weekend, ESPN pulled the plug on its ad network relationship, and the debate has been stirred up even further about the efficacy of ad networks. Bearing in mind that Google AdSense is an ad network, unless you leave inventory pages free of ads, you are invariably going to end up with some kind of network ad sales as filler. Heck of a challenge to figure out how you optimize the value of your content under these circumstances. No one seems to have all of the answers, as far as I can tell, and that may be the real challenge and opportunity, beyond the wall.

 

Omid Rahmat was CEO of Tomís Guide Publishing, which was sold to a European publishing house in 2007. Presently, he resides in Thousand Oaks, where he is working on Why Be Happy, a new online publishing company.


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