July 26th, 2007

Online Publishers Need To Stop Selling Space


I wrote a long post trying to explain why the page view/CPM model for valuing online media is so problematic, particularly for traditional media companies like newspapers that are trying to transition their business models online. But Jordan Bitterman of Digitas summed it up in two sentences (in a Fortune piece about future of the Washington Post):

“You’re almost always going to be able to find inventory,” says Jordan Bitterman, director of media for Digitas, which buys Internet advertising for American Express, AT&T and General Motors. “So the buyer has more leverage than in the print category.”

Advertising in traditional media, whether newspapers, magazines, or TV, is all about selling a scare resource — space.

The problem is that on the web there’s a nearly infinite amount of space. So when traditional media companies try to sell space online the same way they sell space offline, they find they only have a fraction of the pricing power.

That’s why the newspaper industry is worth about $60 billion offline but only $3 billion online — they only have about 5% of the pricing power that they did when there was only a finite amount of space in for printing ads.

Newspapers sell classified “listings” in print and they sell the same listings online. But in a newspaper, there’s only a finite amount of space for those listings. Online, on Craigslists and dozens of other “listing” sites, there’s an infinite amount of space.

So what’s the lesson for newspapers and other traditional media companies trying to transform themselves into online publishers?

Stop selling space.

Google doesn’t sell any space. It sells user intentions, i.e. what’s on people’s minds. And that’s a scare resource — there’s a finite number of people thinking about buying a digital camera today.

So what else is a scarce resource online? Locality.

There are only a finite number of people in ever city and town. Only a finite number of customers for every local business. Online a finite number of people in a particular locality seeking news and information online.

Wherever there’s scarcity, there’s opportunity.

  • Well, in a way you are right, but the internet world is not infinite because of the interfaces we use, i.e. google. If you are a consumer searching for a service or product, you are faced with your first page results, and as a business owner you want to be on the first page results, or risk not being in the "space". Yes, you can sit pretty on page 2, 3, or 10... and get very little traffic from either paid or organic search. Also, the aspect that you are bidding on specific keyword phrases that land you in various ad spaces, punctuates that point even more, because you are competing for ad serving on the first page results for a list of terms.

  • I must admit that we have been selling space, but we do this across every page of the web site. We found that most of the advertisers in our sector had difficulty with the concept of paying for several thousand impressions.

    Also you may want to check the spelling of every in the sentence ".. finite number of people in ever city and town"

  • It's not "we've got them here, too" that will sell. It's "you can't reach this particular group of people as efficiently anywhere else as you can here" that will sell (but phrased tighter -- in a nice little jingle, maybe).

  • Howard,

    Holding up Google as an example is not intended to focus on their performance based pricing, but rather on the scarcity of what they are selling in terms of keywords as a reflection of user intentions.

    Newspaper.coms need to make a clear case why it's better for advertisers to reach someone on their sites vs. the dozens of other places on the web where that person goes.

    "We've got them here, too" isn't going to yield a lot of pricing power without differentiation.

  • Look, I have no qualms with the idea that performance-based advertising will dominate online advertising.

    But "space" advertising isn't going to die.

    While Bitterman's audience is all over the web, there are only a few places where it's aggregated and compacted. One of those places in on the local newspaper.com. CPM rates will continue to rise significantly over the next several years.

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