Back when newspapers where the only game in town for ad space, they could charge whatever they wanted. Now the web has near infinite ad space, and newspapers find themselves playing the wrong game. They’ve got ad sales staff that specialize in commodity order fulfillment and not premium advertising solutions.

So what distinguishes a premium ad solution from commodity ad space? It’s a premium solution if not every site can deliver the value. Any site can slap a display ad on a page — that’s what makes it a commodity. High-end brand publishers like newspapers  really have only one way to distinguish themselves from every other web publisher on the planet — their ability to create high quality content that attracts a targeted, high quality audience.

But… there are many sites that specialize in creating “good enough” content that can attract segments of that high quality audience, and then selling that audience at a much lower cost.

But wait, you say, high-end brand publishers should be able to sell the ad next to their higher quality content at a higher price. Isn’t that the whole principle behind premium publishing?

Not when it comes to display advertising. Display advertising isn’t more valuable when placed next to premium content because display advertising has so LITTLE value to begin with. In fact, display advertising creates so little consumer value that it actually SUBTRACTS value from high quality editorial content when placed next it. Ever see those belly fat ads on top tier news sites? Dancing Martians lowering your mortgage payments? Whiten your teeth? It’s a total train wreck.

In fact, many ad exchanges are focused on bundling and selling audiences in a way that exploits this commodization of display ads and effectively cuts out the value of the publisher.

So what’s a high-end brand publisher to do?

The answer is to offer advertising solutions that give advertisers the opportunity to create REAL consumer value; the kind of value that complements and even enhances the value of high quality editorial content; the kind of value that high-end brand publishers specialize in creating.

Many advertisers have sought this kind of premium value from high-end brand publishers, and most publishers have responded with customized solutions like the classic “microsite” or one-off customized ads. But that too can be a losing proposition. Case in point from Mercedes:

It was a good day for newspaper Web sites when Mercedes-Benz USA introduced its updated E-Class cars this summer. Mercedes bought out the ad space on the home pages of The Washington Post, The Wall Street Journal and The New York Times, and had those sites create special 3-D ads for them, at an estimated cost of $100,000 a site.

When Mercedes advertises its more basic models next year, it will largely avoid newspaper Web sites and rely on networks. That lets Mercedes “be very targeted and efficient with our dollars,” said Beth Lange, digital media specialist for Mercedes-Benz USA.

The problem with these solutions is they don’t scale — they are expensive for publishers to deliver, and they are expensive for advertisers to buy. The result is most advertisers are lured back by the siren song of commodity ad network cost efficiency. So while high-end brand publishers do well for big splashy launches, they can’t compete when advertisers go into the post-launch mode of consistent, continuous, high ROI value creation.

What high-end publishers need is a way for advertisers to create premium value for consumers that scales and can deliver a consistent, continuous ROI that justifies a premium over commodity ad networks.

What would advertisers be willing to pay a consistent premium for? The holy grail of every advertiser — to become media, i.e. to create high quality content that attracts and retains an audience of current and prospective customers. Advertisers would also pay a premium to align the value that they create for the consumer with the value that high-end brand publishers create for consumers — just like on a search results page, where the ads are as valuable as the “editorial” content.

But if every high-end brand publisher tries to deliver such a solution by themselves, it won’t scale for advertisers. The key is to scale across many high-end brand sites while still delivering the kind of premium value that commands premium pricing.

That’s the next generation of premium online advertising. More in my next post.

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I spoke with Mark Josephson, president of Seevast (Pulse 360’s parent company), and Kyoo Kim, MSNBC.com’s VP of advertising, and they made a pretty interesting case that MSNBC.com’s ad networks will have several distinct advantages over other ad networks:

• MSNBC.com’s experience with boosting the advertising value of their own content makes them better positioned to boost the ad value of affiliate sites, such as political blogs — and thereby deliver higher revenue per page view than other ad networks, most notably AdSense.
• MSNBC.com has more “skin in the game” than other ad networks because they are selling their own content alongside that of affiliates.
• MSNBC.com’s ad network will offer both CPM display ads and contextually targeted CPC ads, which are Pulse 360’s core product.
• MSNBC.com will syndicate a variety of content to affiliate sites, include video content that currently isn’t even available to NBC network affiliate sites.

The next phase of the online advertising race is increasingly focused on building broad, deep, and highly efficient human sales channels. The reality is that despite Google’s automated advertising revolution, most advertising dollars are still spent based on human relationships.

MSNBC.com is betting that the human talent of its large sales force will do a better job improving the monetization of small publishers than Google’s self-service, algorithm-driven system and other ad networks that aren’t as cozy with big brands and their ad agencies. Of course, Google and the other major players aren’t sitting still in the sales force race, with Google beefing up its head count in New York and other cities to target ad agencies across the country, and Yahoo, which already has a robust national sales force, working with its Newspaper Consortium partners to perfect a sales channel for going after the growing local advertising opportunity.

MSNBC.com intends to compete with all ad networks, but they are particularly keen to recruit sites currently using AdSense.

I pressed Mark and Kyoo on the question of whether highly influential blogs, such as those read by many other bloggers, should be able to command a high effective CPM — maybe even higher than MSNBC.com’s own pages — and whether page views were the best way for highly influential small sites to monetize their value. They were understandably reluctant to promise anything at this point, but they clearly have their sights set on cracking the code for how to value blogs and other niche independent publishers — to “raise the bar for how dollars are being spent today.”

I also asked them whether they have any standards or criteria for recruiting affiliate sites, and they said they were starting with U.S. English language sites that are “well-lit,” “professionally focused” and “community- and voice-driven.” Opinion is fine but hate or other overt nastiness is not.

Pulse 360 has other large sites in its pipeline for its Publisher’s Vertical Network platform — they haven’t yet decided how to deal with issues of category exclusivity and the potential for their networks to compete with each other — Mark focused on how many different vertical opportunities there are to pursue before they butt up against that issue.

The Publisher’s Vertical Network platform is full-service, in that Pulse 360 will handle recruiting affiliate sites, technology implementation, and otherwise make the network plug-and-play for the large publisher that is anchoring the ad network, so that publisher can focus on ad sales.

I found politics an interesting choice for one of the first networks, given that many big brands have been very gun shy about advertising on highly opinionated politics blogs that could be a lightning rod for controversy at any moment. But a brand like MSBNC.com is as well positioned as any to figure out how to make political blogs “safe” for advertisers. With 2008 presidential election dollars expected to flood online, it’s an interesting bet that could well pan out.

Looking at the larger trend, it strikes me that ad networks are the new media consolidation — except that now the larger players are affiliating with the smaller players rather than buying them. Google certainly demonstrated there is much greater efficiency — and much higher profit margins — in doing it that way on the distributed Web vs. the M&A that worked best in the previous age of monopoly distribution channels.

It will be interesting to see whether MSNBC.com finds outsourcing the ad networks makes the best business sense long term when other big players like Google, Yahoo, and AOL own their ad network platforms — but if the sales force is one of the key differentiators, perhaps it does make sense to focus there rather than worry about the technology.

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