What journalists need to know about online advertising

Posted on : 10-28-2009 | By : Vadim Lavrusik | In : Journalism school, Online Journalism

Tags: advertising, columbia, forbes, huffingtonpost, journalism, ken lerer, nyc, online

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By VADIM LAVRUSIK and SHANE SNOW

As I have mentioned in previous posts, Ken Lerer, co-founder of The Huffington Post, is teaching sessions to Columbia University Journalism Students on media entrepreneurship, often bringing in experts in the industry on various topics. Yesterday’s topic was on what journalists need to know about advertising online, and the guest was Jim Spanfeller, former CEO of Forbes.com. Also, if you’re interested, here is a post and live blog recap of last year’s talk on the same subject.

The discussion was enlightening, but we want to highlight three main points that were made by both Spanfeller and Lerer during the session:

More money online, but where?

A study released yesterday pointed out that online ad spending will overtake print in five years. Spanfeller stressed this notion, and said that more money will be migrating online. However, he thinks that search advertising is almost maxed out. He said that video ads will scale and become more engaging, along with banner ads that are more effective.

As Lerer pointed to in an earlier session, Spanfeller said that local advertising will shift online and is yet to be seriously tapped into. A lot of the local markets, he said, have been dominated by traditional local media such as newspapers, TV and radio. As these media struggle, online media organizations will be able to compete by attracting online ad dollars locally.

In contrast to many other major media companies, Forbes magazine shaved Forbes.com off as a separate entity, and as of five years ago, Spanfeller said, the latter has been profiting more than its magazine forerunner. While other organizations have absorbed their online publications into their print operation or kept both integrated from the beginning, Forbes.com’s approach has fostered much more success, both men agreed. “You have to get out from under your legacy business,” Lerer said. “You can’t be beholden to your existing financial model that’s going down the tubes.”

Format of ads online and mobile

As I mentioned above, Spanfeller thinks that online ads will become more engaging. Right now, a lot of the online ads are derivative of traditional media. The same thing could be said with content. For example, a lot of news sites are featuring talking-head video online that doesn’t work well on the Web. He said as content improves, advertising will follow.

The format and devices that they are displayed on will improve as well. At least it should. Pointing to his Blackberry screen, Spanfeller said that banner ads will not work on this format. However, perhaps video will. I think that another untapped format will be ads on the Apple’s Tablet.

Problem with ad networks

“Advertising is an integral part of the ecosystem,” Spanfeller said. “Like it or not you need to deal with it.” One of the big hurdles new online publications face, he noted, is that “easy” monetization solutions through ad networks offer terribly low CPM rates. Even Adwords will get you around $0.16 CPM, Spanfeller explained, just a few cents less than the ad networks themselves. An in-house ad salesperson (or team) is crucial to building a content business that depends on advertising for its survival. Spanfeller revealed that most of the banner ads on Forbes.com’s homepage garner up to $30-40 CPM. It doesn’t take a mathematician to figure out the difference in revenue even for a low-traffic site.

Aside from tragically low payouts, ad networks can end up serving poor quality ads or banners that otherwise can tarnish your website’s image or brand. Being able to pick and choose your sponsors and their ads brings a measure of comfort.

Spanfeller also spoke of the tension between demand creation and demand fulfillment advertising — i.e. branding versus direct response. The Web poses a challenge to publishers because advertisers no longer have to pay for brand advertising. All the metrics for determining ad price are based on measurements of response, even in impression-based advertising. If a CPM campaign’s not backing out for an advertiser in terms of being directly responsible for sales, an online advertiser will take his or her money somewhere else, and all that brand exposure is on the house.

Having a separate, focused staff for a website

One of the last things that Lerer and Spanfeller discussed was how to generate money through advertising. Sure there are other models to gain revenue, but advertising is primary. The two both talked about the need for news organizations to create separate online staff that specialize in producing content for the Web, as well as selling advertising for the Web. This was the only way that Forbes.com made money and the magazine didn’t, Spanfeller said.

The mistake that many organizations make is trying to apply old media principles to a new medium.

What else is missing? What are some tips you would include?

John Scholz

I still think local and niche publications/media outlets will hold onto their advertising dollars... because thats how people get their local information. When it comes to less populated areas or even suburbs of cities... their isn't as much demand for localized websites and people tend to stick to their local content providers... papers... radio stations... tv.

I don't have research to prove this, but it seems to me that the websites that are going to latch onto heavy advertising dollars in the future are websites that appeal to the national public.

As for your comment below... yes... I think that is a very big possibility to create portals for direct purchasing of local products... much like buying from Target.com or Bestbuy.com... but on a local level and for multiple stores through one portal. I don't know if marketers are eventually going to get spoiled and only concern themselves with impressions/click throughs... or if they are still going to realize the importance of creating a strong brand.

My favorite commercials are the ones that don't talk about the product or try to sell something, rather... do something fun and engaging... and splash the logo at the end. Pepsi's new advertising campaign for example focuses mainly and only on their new logo... but makes it visually stimulating and appealing in all facets... commercials... billboards... print ads... etc. Brand recognition is how you spark a decision in the back of someones head when they need a product that you sell.
Vadim Lavrusik

Steve,
I think this is a great point and I appreciate your thoughts. I think that especially locally small business who don't have their own websites can take advantage of a news website, who could provide the means to directly sell their product. I know that some organizations have experimented with selling products that are associated with the news organization, but why not a market place for the business community.

I think this is also essential for the piece on video advertising. Some small businesses don't have the means to create a video ad. News orgs should create a department that does this. Newspapers have had a staff that designs ads for print for years. Why not have similar folks that can make video ads for the website.
Steve Buttry

Vadim, I think this overlooks an important source of digital income, and that is that we need to start handling direct sales for our business customers. Businesses want more than eyeballs (which is our advertising mode); they want transactions and we can make that happen on digital platforms (Amazon, eBay, hotels, airlines, etc. have been doing it for years). I write about this in my Blueprint for the Complete Community Connection: http://bit.ly/RtJO7
Daniel_Honigman

I agree with Steve completely. His 3C model is great, but newspapers aren't building the framework for direct sales, either online or within their sales structure. Sales teams aren't built to go door-to-door, showing people how to use these tools, showing people WHY these tools are important. And they must.

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