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?