How to generate online advertising revenue by changing how we think

The natural instinct for a publisher is to put the content at the centre of product development thinking. Magazine publishers start their working day by thinking about how to make a better magazine and then work outwards from there. When they ask what their readers want, the answer can only be something that can be squeezed into a magazine delivery format.

Look at how many websites and even iPad apps are little more than facsimiles of the magazine, albeit with some extra bells and whistles.

“Not me!” I hear the progressive publishers cry. But the honest truth is, it is almost all of us. The new media model requires a fundamental rewiring of how our media brains work. Instead of putting the content at the centre of our strategy we need to put the user at the centre.

Devaluing content

A famous case study of the demise of the Parker Loading... people james-parker Pen company exposes an analogous challenge. When Bic began eating into the share of the Parker Pen business by selling cheap Biros the, Parker’s management decided to compete. They reworked their manufacturing process to produce cheaper pens; they judged that to match the price of the new upstart they needed to cut their own price.

The result was disastrous and market share continued to fall. After a while the rate of decline accelerated to a faster rate than the growth of Bic.

What had gone wrong? Parker failed to recognise it wasn’t really in the pen business at all. When a customer selected a Parker Pen it was most usually as a gift. The substitutes were not the Bic, but a rather a cigarette lighter or a letter opener. A reduction in the quality of the Parker Pen had sidelined them in the gift market and continued to leave them at a competitive disadvantage to Bic on price.

So following that lesson in the media world, the content we used to offer (mostly news) is now available for free. We have competed by offering our own news for free and have taken cost out – but have discovered that our users, instead of rewarding us with loyalty and praise, now simply take us for granted and use media brands as one of many sources of news on the Internet.

Not content, but commerce

But now for a heresy. What would happen if we put the question differently? Our business is not content. Our business is helping users to make better decisions and helping vendors to sell more.

Giving content away in an advertising-supported model does not create enough user engagement (page views/session) or repeat visiting to justify a high CPM. As a result we conclude that the ad model doesn’t work and we say, “how can we create a paid content model?”

Let’s try instead: “What sort of engagement would make advertisers pay a CPM sufficient to cover the content creation costs and give us a profit?”

By the numbers

Let’s think about the scale of that task. In the old model a typical B2B magazine with a 20,000 weekly circulation might have expected to sell ads at around £1,500 a page. That equates to a cost per thousand readers of about £75. Our current free content model is a long way short of that.

A typical niche, professional media brand’s companion website might get 100,000 page views a month. With a 70 percent bounce rate only 30 percent of that traffic is likely to be effective for advertisers to reach. Let’s imagine that we can service three ad impressions on each page – so if we sell out our effective inventory our total ad impressions will be 90,000. If we are selling our inventory at a CPM of £30 we are probably doing well.

After all that, monthly revenue will be not more than £2,700 – less than two pages of advertising in the old model. My hypothesis could be wrong by a factor of ten and we still don’t have a great business!

We need to find a way to take this model and achieve at least £50,000 revenue per month. Driving the number of user visits up is unlikely to work. The universe of relevant people is limited by the scale of the niche.

Consider this:

– Where maximum monthly revenue = M
– Monthly page impressions= T
– Bounce rate (expressed as a decimal) =B
– Number of Ad impressions/page =A
– Average achieved CPM =C

Then M = T*(1-B)*A*C

Max Rev = 100*(1-0.7))*3*30= £2,700

So. all other things being equal, by how much would any one variable have to move to achieve our £50,000 goal? The terrifying answer is we would need either 1.9 million page impressions a month or 55 ad impressions on each page or a CPM of £555.

This seems to me to be so far removed from anything that could be remotely achievable that the drive to paid content is hard to resist for most media companies.

Does this mean that we should give up on the ad model? If we could improve CPM by 50 percent, increase available traffic by 50 percent and halve the bounce rate would that help? The answer is not much. Our maximum revenue would still be just £13,000 a month.

As with content strategy, using offline thinking in the online world is always going to disappoint.

The truth is that vendors are still spending marketing money on trying to influence current and future customers. To get a growth in revenue for media companies requires a shift in approach.

In the print model we sold the size of our audience. In the online model we need to sell the quality of engagement with the audience. Look at the achieved CPMs for event sponsorship. They are huge, because marketeers intuitively understand the value of the engagement. We have to create the same response to our digital publishing offering and the first step is how to improve engagement with users and then devise a way of explaining it to advertisers.