Advertising: The One Chart You Need to Understand the Internet Media Business

One of the biggest challenges facing the internet ad business is complexity.  It’s hard to understand and harder to navigate. Publishers, in particular, are trying to sort out their options and their strategies.  They have begun to suspect that what they have in terms of people, skills and products may not resemble what they need.

In response, I am going to engage in a bit of ruthless oversimplification. My belief is that there are two main drivers that define a site’s ability to sell ads profitably: the strength of their brand; and the differentiation of their ad offerings.

Brand strength includes both size (which drives familiarity) and attractiveness.  Some brands, such as the New York Times or the Wall Street Journal are strong because of their exceptional quality even though they are not terribly large on the internet scale. Others such as Facebook are strong primarily because of their immense size. However, in a market where advertisers are trying to put millions of dollars to work, scale matters.

The second driver is differentiation. The least valuable units are standard IAB ad units. The most valuable are units that are customized for the marketer and deeply integrated into the site. This explains the market’s fascination with native advertising.  There are also a number of very good examples of customized marketing programs that brands, their agencies and media have jointly developed.

The chart below shows how these factors interact. Let’s walk through them one by one. Although it’s convenient to present this information in quadrants, in the real world media brands slide up and down and side to side in an analog fashion.

There are two vectors of value creation in internet ad sales: strength of media brand; and differentiation of the ad product. This chart shows how those two vectors interact in the real world

There are two vectors of value creation in internet ad sales: strength of media brand; and differentiation of the ad product. This chart shows how those two vectors interact in the real world

Weak Brand/Low Differentiation:  This quadrant is the audience mosh pit.  These are sites (even large ones)  that are not seen as being particularly attractive or unique that offer standard IAB ad units.  This quadrant is awash in billions of ad units that have low inherent value. This is the homeland of programmatic and data-enhanced ad buys.

This is the portion of the market where people talk about “buying audience”.  This is a huge segment both in terms of dollars and particularly units.  It effectively set a pricing floor for the rest of the market. In part this is also the murky underbelly of internet advertising.  Buyers are disengaged from where their ads actually run. There is substantial fraud–perhaps as much as 40% of the inventory is from bots and fraudulent sites. It is also where some businesses are seizing a short-term opportunity to arbitrage between the ultimate buyers and sellers.

When publishers talk about RTB standing for “race to the bottom”, this is the part of the market that they  are silently (or maybe not so silently) cursing.

Strong Brand/ Low Differentiation: This is where many of the classic content creating brands live.  They have great products and prestige. However, when they come to market with standard ad units they feel the gravitational pull of the massive “audience” quadrant pulling down their pricing. Once these sites comfortably commanded $20 CPMs. Now, agencies say that they can buy the same audience for $2 or less via programmatic. A prestige brand is worth a premium but not 10x or more. Any sites that persist in primarily offering standard ad units will see a steady erosion of their ad business.

Weak Brand/ High Differentiation:  This is a quadrant where sites get little love but can make lots of money. Often these are niche sites where readers have high commercial intent. In other times, this is where sites did lots of special sections and custom publishing.

Strong Brand/High Differentiation: This is the promised land. Strong brands that come to market with highly customized and integrated offerings. One of the most illuminating examples of a publishing company changing with times is Rodale. This story from the Content Marketing Institute highlights how a respected publisher has developed proprietary offerings that embody true partnership with the marketers.  The New York Times, under the leadership of Meredith Levien, has also had success using native ad campaigns as the anchor of larger programs.

The challenge to success in this quadrant is scalability. True “native” advertising requires lots of hand work.  The beauty of standard ad units is that they can be easily produced and bought in bulk.  The power of highly customized programs is that they resonate with readers because of their intimate integration with the site and the brand.

The other organizational challenge to success in this quadrant is the composition of the publisher’s team.  Success in this space requires marketers, programmers and sales people who are adept at conceptual and strategic selling. All of those people are typically in short supply at media companies.

In a future post, I will discuss the implications of this landscape on publishers’ go-to-market strategies.