On the weekend, I caught up with Cameron Reilly of the Podcast network , and he was telling me about his views on monetising podcasts. It got me thinking again about those things I like to think about: how content can be monetised. Despite the growth in online advertising which is tipped to be $80 billion, I think we still have a lot more innovation to go with revenue models, especially ones that help content creators.
Advertising is a revenue stream that has traditionally enabled content-creators to monetise their products, in the absence of people paying a fee or subscription. With the Internet, content has undergone a radical changing of what it is - digital, abundant, easily copied - whilst the Internet has offered new opportunities for how advertising is done. However, the Internet has identified the fundamental weaknesses of advertising , as consumers can now control their content consumption, which allows them to ignore embedded advertising altogether. Content on the other hand, still remains in demand, but means of monetising it are slipping into a free economy which is not sustainable. I make that point to illustrate not that professional content creation is a sunset industry - but rather there’s a big market opportunity as this massive industry needs better options.
"Hey man, there’s this new thing called the Internet. Sounds pretty cool"
One of the biggest innovations in advertising (and enabled by the Internet) is of contextual search advertising. This has been popularised by Google, which now makes 98% of its $17 billion revenue from these units. This advertising dominates online advertising (40% of total) because of its pull nature, whereby key-words stated by a consumer in effect state their intention of what they are interested or would like to purchase. Whilst this is a highly efficient form of advertising, it also has its weaknesses - for example, it is not as effective outside of the search engine environment. Google makes 35% of its revenue from the adSense network , where these contextual ads are placed on peoples personal websites. Evidence from high traffic bloggers suggests they barely make enough money through this type of advertising. Another point to consider is that aspects of the Google network include significant partnership agreements like the one with AOL which accounts for 10% of Googles revenue (this is a 2005 figure which has likely changed, but Google does state in their 2007 report "Our agreements with a few of the largest Google Network members account for a significant portion of revenues derived from our AdSense program. If our relationship with one or more large Google Network members were terminated or renegotiated on terms less favorable to us, our business could be adversely affected.". AOL most recently reported for Q1 2008 half a billion dollars largely from search advertising ).
Other attempts at creating more efficient advertising which have existed for over a decade, have come in the form of profiling or behavioural tracking. However, these forms of advertising has also highlighted the growing awareness of consumer privacy being eroded, and is under heavy scrutiny by activist groups and government. Facebook is a company that is best posed to deliver new forms of advertising because of the rich profiling data it has, but it itself has faced massive backlash .
My view is that the majority of online advertising for successful individual publishers at least, has largely come from traditional approaches to advertising - a masthead blog with a sales team that uses display advertising. How effective this display advertising is is debateable with widespread banner blindness and consumer control over their content, but it would appear that this is more a case of advertisers seeing this as the least bad on the overall scale of opportunities. The fact it replicates the mass media approach of number of unique consumers viewing the content, and not the types of users, means this isn’t anything new other than being done in a digital environment.
Digital content is in need of a better monetisation system.
Targeted advertising is the most efficient form, yet consumer privacy is a growing force preventing this. What we need, is not a new advertising technology, but a new way of thinking about advertising - in a way that can help the content economy rather than riding on it without giving benefit. Contextual advertising sounds great in theory as it calculates key-word frequency of words on a website, to match it to a key word ad - but it’s proving in practice these ads are not very relevant. Yet trying to think of a smarter way to advertise, may be the wrong question - perhaps half the problem itself is advertising as a concept?
Are we running down a tunnel, only to find there is nothing there?
Content which comes in the form of news (historical and breaking), analysis, and entertainment can be monetised via a persons attention or through a transaction (ie, subscription, fee, etc). Both this approaches have different barriers.
- Attention: The key driver is increased dollars per unique person, over a period of time. The barriers to this approach is the challenge of identifying the individual in a way that gives advertising that is highly relevant and will result in a conversion. In other words, privacy privacy privacy.
- Alternative payment: Requiring consumers to pay for content is a barrier due to the paid wall. What is more problematic for digital content, is that the ability to replicate it freely makes it not just easy to do for the masses but has created a culture of if it’s not free, it’s not worth purchasing unless its really necessary. There needs to be a strong value proposition for a consumer to purchase content, and in the absense of a brand and marketing, the restriction of what value the content offers is a barrier for consumer demand as they don’t know what they are missing out on.
So as you see above, content creators are in a difficult position. Charging people reduces their opportunity unless they are really established, but even then, due to the digital environment they don’t have any control over subsequent distribution (with rampant piracy). Yet advertising is fraught with being irrelevant and hence not effective (so advertisers go to other forms) and any attempts to make it more relevant, gets held back by the concerns of privacy advocates (and rightly so). Whilst the Internet parades itself as an advertising growth machine, it’s growing in new areas but not the old areas that have traditionally been the medium for advertisers.
This advertising growth is largely being driven through utility computing products that aim to make information retrieval more efficient (ie, search). However, the growth for the content creators, is not happening. As Cam was telling me, in a market like Australia - small content organisations like TPN and Bronwen Clune ’s Norgs , don’t have access to the big end of town for a sales team. And he didn’t have to tell me, those Google ads for the smaller guys, are not enough to pay the bills. That small to middle end is not being really catered for.
But before you jump on the phone and create some mid-tier advertising network that caters for a niche, think about the real problem: content creators need a better solution to monetise their content. But advertisers also need a better way of selling, other than some slick-talking sales person who can sell ads on pageviews (a broken model with weak alternatives ) They need advertising that is suited for their product, but the market now includes other products media outlets never had to compete with like marketplaces now happening online and utility computing products. Whilst the technology community obsesses about search , let’s also remember we have yet to see a new way to monetise content that is superior to the old world. Contextual advertising of text is the latest new thing area, but that technique is nearly a decade old. As I prove above, outside of the search environment, it is showing to not be that effective.
Where is the innovation going to come from? Not through technology but with a new paradigm shift like how content creators operate . New ways of thinking about the way we ’sell’ like what the VRM Project is challenging. But perhaps more fundamentally, is an understanding that the holy grail of targeted advertising has got a speed hump called privacy - and that may actually be a sign of not going faster towards better targeting, but changing the vehicle all together.
Maybe content creators should team up and form some kind of a network to make advertising with them more attractive.
Susie: That’s certainly something Cam and Bronwen have been talking about doing. But my issue with advertising is two fold: it’s not just about the content creators not being served, but also the advertisers needing a more effective way of getting their returns. The point I want to make, is the solution, is through a new way of thinking about. We are applying old world concepts to a new world that could do better.
I really don’t mind Google scanning my emails for things that I may be interested in. I’m sure I can’t be the first one to coin the acronym AAAS (Advertising as a service). Loud flashy banner aren’t a service they’re an annoyance. A subtle list of ten links directly related to stuff I’m reading or have written is a service.
geez Elias, I read all of that, waiting for “the solution”! And then you didn’t give me one, you just explained the problem. And I agree with you - advertising needs to change and content needs to change with it - not just the business model for content but the actual way we think about content.
What did you think of the TPN model I explained (albeit briefly) on the weekend? Highly targeted, content specific advertising inside podcasts? EG a podcast about cycling with advertising from bicycle manufacturers, etc? Will people still want “banner blindness” or its podcasting equivalents if the advertising is actually intelligent, respectful and, most importantly, relevant to their interests?
Charlie: Yes, Google’s model has given light to a new way of thinking. This is very much how Facebook management is approaching their advertising model.
Cameron: If I had a solution, I would be writing to a VC not for my blog
I actually think to find a solution, we need to better understand the problem. Understanding not just that advertising sucks, but why it sucks and what are examples that do work. My post above actually touches on quite a few themes, and anyone reading will have ample avenues to pursue research. It’s me thinking out loud 
What you described about the TPN model sounds excellent - I think you have a lot of potential and I’ve been meaning for quite a while to do a case study on your business. However again, this is very much a traditional advertising approach - targeting ads to a niche market. I think the solution needs to be more advanced: relevant information (targeted ads) to the person consuming the content. So that if I was to listen to a podcast, I would be getting a different ad from one you when you listen to it.
I also think some type of automation is needed. For example, a podcast is timeless - and if someone advertises at that point in time, they effectively get to advertise for all of eternity. With the power of the Internet, podcasts you offer should be able to dynamically update because this will effectively increase your inventory to infinity.
So in short, your approach is about as good as it gets in our current world. I just think we are on the cusp of something bigger in the next decade. I’ve got some ideas of where I see potential, but I’m still thinking thinking thinking.
I love ads, I love them because I think information should be free. If we value the freedom of information that the internet provides us then I think it’s important that we get online advertising right and, as you point out, there’s a long way to go.
I think you’re asking the right questions, but you’re so far ahead of the curve that you’re off the graph. Anyone who has had to deal with advertising agencies or those in charge of large corporate marketing budgets knows that the bottom line for them still comes down to reach. It’s why we still talk about page views and why ads are mostly sold at a CPM (cost per thousand impressions). Google’s innovation in advertising was not only in contextual and search advertising but also in introducing pay-per-click (a “cost-per-action”), but outside of Google it remains a risk for most publishers - you have to have the reach of Google to make it work - ever pondered how many Google ads are being displayed at any given moment?
So should we wait until a better model comes along and let larger publishers and news organisations continue to set the advertising agenda or do we get in there and start DOING something? I think it DOES begin with us getting together and creating a network of publishers that has some pull for advertisers. Does it involve some “slick sales man” selling flashing banner ads? Eek, hell no! But we have to start the conversation somewhere and I think we have a much better understanding of what works/doesn’t work online than traditional publishers - I’m yet to visit a major news site this week without a large ad consuming my screen *sigh*. There is much room for improvement, but things aren’t going to change unless we get in there and start making a difference that supports independent publishes out there who are doing just that already.
I have no doubt we’ll have some answers shortly
Oh and I should point out that “targeted ads” like the one Cam mentioned are not a traditional advertising approach by any means. Traditionally advertisers have a “big net” approach - which is what TV, radio and print amount to - a general audience who may/may not be interested in your product.
Elias, Bron’s right - most advertising we are familiar with takes a shotgun approach. Anytime you watch TV, listen to the radio or read a newspaper or magazine - the ads are just shotgun. The exceptions are niche magazines - WIRED is a good example. And I happen to like a lot of the ads in WIRED.
I think your model of one-to-one advertising, targeting the person, is terrific in theory - I can’t wait for that day to come. But in your post you were deriding technology solutions and this is DEFINITELY a technology solution. And it carries all of the privacy issues you also referred to. So I don’t think that’s going to be on our doorstep in the near future. In the meantime, what can us internet content types do?
I remember I once received some spam in my old Hotmail address. Typically, I yell at my computer when this happens, and hit delete. But this one was for a Tablet PC. By the strict definition of the word, it was spam. But because I was interested in buying one of these new Tablet PC’s, that actually became relevant information for me. So I saved that e-mail, and kept it for reference.
I think we can all agree on that - that’s the direction we need aim for. What the hard bit is, is trying to work out what the end consumer “wants”. Having them consume niche content, is a clever way. But is there another way to do this? Specifically, I am thinking of a model where a user “converts” their attention into a monetary amount elsewhere, and with that ‘credit’, they can then use it to purchase content. This reduces the pressure of the publishers to serve up niche content as they try to guess what the consumers wants are, and through some complex I’ve-got-no-idea-how-yet system, relevant advertising can be targeted without comprimising the users privacy as its done in a central trusted place.
I totally agree about Google pioneering the cost per action.
One of the many links above, which I point to give a better understanding of my views (http://liako.biz/2007/06/thoughts-on-attention-advertising-and-a-metric-to-measure-both-keep-it-simple/) is that I actually think the cost per action is a bad model - why should a publisher have to pay for the cost of a product that is poorly communicated through the ad? Google translates action as being engagement - but I don’t agree that engagement necessarily means the consumer actions - because that’s putting the burden on the publisher for something that’s not their fault. If a publisher can ensure that a consumer has seen the ad, that is all they should be forced to do. Like I end in the post I link to above, if I promise you that I will stand on the Sydney Harbour Bridge naked and can guarantee 10,000 people from the North Shore of Sydney can see me - I should (like a publisher) get paid for that. Not if people toot their horn. The offline impact of ads is not factored into the cost per action model, which means the advertisers are taking publishers for a ride: http://avc.blogs.com/a_vc/2008/04/the-hidden-retu.html
To clarify, what I meant about Cam using a traditional approach - think about industry magazines. Niche publications that have specific types of advertising. Also think about radio with sponsored shows. I didn’t mean to bash Cam’s model - if anything I think it rocks.
Like I said, I’m thinking thinking thinking and trying to identify the need, the opportunity, and the problems. Thanks for the comments - your perspectives add to my own and help me clarify my thinking. I’m not just an armchair critic looking in - the agencies you talk about are actually my clients
Cam - sorry missed your response.
Short answer: this post is more about the industry, not about you guys - I just included you for context. I think you guys have rocking strategies, and it justifies a blog post in itself on the merits of your model.
Targeted advertising is not new - think of all the Sensis products as an example
Sensis has products?
Elias, have you ever considered the artist selling themselves and their art to their audience, instead of the artist selling their audience to advertisers?
The audience would probably swell in appreciation.
It depends if you’re serious about artists selling their art to their audiences vs just wondering how content creators can monetise their content such that its consumers can be captured as a communications channel for commercials.
The lingo changes depending upon whether you’re an artist or an advertiser. Those appreciated begin with ‘a’. Those held in contempt begin with ‘c’.
Here’s a recent blog post of mine about how the market for art is undergoing a revolution (not a disintegration):
http://www.digitalproductions.co.uk/index.php?id=114