There's been a fair amount of discussion lately about online advertising and its variety of forms. Most recently, Shelby Bonnie, the former CEO and co-founder of CNET, railed against the CPM form of online advertising.
… does anyone else feel like the online advertising industry is the orchestra, playing on while the Titanic is sinking?
We have a problem, folks. And I, for one, think we should start to fix it by killing off the CPM, once and for all.
I have been in the Internet media space for 16 years and will start by stating the obvious: The CPM has done more to stunt innovation and drag down quality products than any single thing on the Internet. Maybe it works in other mediums, but it sure as hell doesn’t work on the Internet.
Let’s Kill The CPM
A few weeks ago, Jim Spanfeller, the outgoing CEO of Forbes.com wrote an article titled: Publishers Are Killing Web Advertising's Potential With Misguided Pricing
...we now know that 16% of web users generate 80% of clicks and that this 16% represents the lower income and education segments of the total user base. Do we really want to be held accountable as an industry by metrics generated by the lowest common denominator and a minority of users to boot? I can't think of too many successful models using these types of metrics
(Please see: Forbes.com Chief Rails Against Online Advertising Metrics Because It's Low Class)
In both articles and in the comments section there is lots of discussion about the merits of different forms of advertising, whether CPC is better than CPM, or a combination of CPA and CPC is best, etc.
I'm not going to explain what all these acronyms for online advertising mean because they are all missing the point. And the point is simple: Online advertising doesn't work for these large publishers no matter how it is done.
The point is that we don't have a good enough "value recovery mechanism" for online news. It's a fancy way of saying publishers aren't able to get enough revenue to pay for new content. Without this virtuous cycle they are losing money.
This is the crux of why media is failing, it's nothing to do with blogging or Google. We haven't figured out a way of recovering the value of online news.
Clearly there is value in online news because millions of people read it. And newspaper and magazine web sites continue to grow in readership.
For example, Compete.com says that for August 2009, New York Times grew 9 per cent in that month to 16.7m unique visitors; Wall Street Journal is up 5 per cent 11.9 million unique visitors; Forbes is up 5 per cent to 11.3 million unique visitors; for comparison, Techcrunch dropped 4 per cent to 1.9 million unique visitors.
More readers usually means more money -- at least it did in traditional media. But more online readers doesn't add up to much at all, because the only way to recover the value of all that work is mostly through online advertising--and that's why publishers are hung up on which form of online advertising we should be using.
The problem is that none of the forms of online advertising will give the publishers what they want -- more revenue to stop the losses.
What, then, is the right "value recovery mechanism" for journalism? I don't know but this is the most important question facing the Internet today because it affects all of our futures.
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