Local Media in a Postmodern World:

The Problem With Web Advertising
July 2008

by Terry Heaton

escaping the bombardment of adsIs it not self-evident that every human being has an inalienable right to avoid unwanted messages? This is a profound question for a culture that has evolved to become the world's salesman, for how does one sell without a perceived inalienable right to bombard others with those unwanted messages? If it's good for the culture, is it not good for its citizens?

These messages are called advertising, and you can find them anywhere you might find yourself, even in your own home. America is all about advertising, and the extent to which we all assume it's just a part of life is extraordinary, especially if you visit other countries.

As the 20th Century evolved, an unwritten bargain was struck between Madison Avenue and those who provide entertainment and information. The deal was that sponsors would pay for the programs that people watched in trade for the ability to drop messages into the programs. Hence, in the broadcasting world, the commercial was born. This was actually a good deal for everybody, including the viewers and listeners of these messages, because there was a clear understanding — especially early in the arrangement — that it was the sponsor's money that was actually paying for the program that the viewer was watching. In business, this is called a value proposition.

As a new century neared, however, this deal had been stretched to a point where the value proposition to viewers no longer existed. Commercial breaks had grown from a minute to four and sometimes five minutes in length. And a remarkable new paradigm emerged in motion picture theaters, where consumers themselves paid for the experience, only to be greeted with 20 minutes of commercials before the film actually started.

And now as disruptive innovations in technology surround us, how can anybody be surprised that people are using them to express their inalienable right and escape what economics guru Umair Haque calls the "carpet bombing of ads?"

Marketing is one of the most studied, scientific and sophisticated areas of our culture, and yet, it seems unable to take a step back and view with any honesty its impact on both people and the media. For if the deal between Madison Avenue and media is broken, who will pay for expensive productions and how will businesses get their (unwanted) messages out?

And as all of this was taking place, a new form of communications debuted, which was immediately seized by certain visionaries as a fertile ground for advertising. The first internet bubble occurred, because entrepreneurs bet that advertisers would rush to the Web. They didn't, and the crash that followed hurt a lot of people.

Slowly but surely, mainstream advertisers have now moved to the Web, where they've been greeted by revenue-starved — and therefore highly amenable — web publishers, including media companies with serious bottom line issues. Since the internet crash at the beginning of this century, web advertising has been a buyer's market, with advertisers determining the rates they will pay. This is about to change, as publishers are coming to the conclusion that their online properties are worth a whole lot more than what advertisers are willing to pay.

ESPN logoThe decision by ESPN a few weeks ago to drop its association with third party ad networks was bold and sensational, but its significance seems to have escaped many, because not much has been said. That's too bad, because it was historic and unprecedented, a seminal moment when a publisher proclaimed, "I determine the value of my product, not you." The move will have a cascading effect on all media company web properties, which will ultimately be good for everybody, advertisers included.

ESPN has shut the door on ad networks, in part, because the measurements that determine value are so grossly out of step with what it costs to produce the environment in which advertisers can attract the attention of potential customers. How did this happen?

The history of web metrics

Let's go back to the early days of the Web. There were two important factors at work that set the stage for a losing proposition for media companies. One, the earliest iterations of the Web were entirely text-driven, and who knows better how to monetize text than the newspaper industry? And so was birthed a set of newspaper terms that define the Web even today. We serve "pages." There's a "fold." Ad prices are determined by size and placement on the page. More content equals more pages, and so forth. Reach — or circulation — was the defining factor in making money.

Two, even though the Web mirrored the newspaper industry, the media companies making up the industry viewed the Web as the junior varsity, to be kind. This half-hearted perspective allowed the advertising industry to shift the newspaper metrics to a place that favored them instead of the media companies that owned the real estate in which the ads were served. ANY money was deemed found money, and so it went.

Even television stations adopted the print model without question and suddenly found themselves in the text publishing business. Many an observer noted — with an appropriately raised eyebrow — that TV reporters would have to learn proper grammar and correct spelling.

While all of these events are certainly understandable, given the circumstances, it does raise some interesting questions today.

If you read a newspaper, you are exposed to multiple pieces of content and all of the ads on the pages simultaneously. Your eyes can and do wander from place-to-place, scanning page-after-page, and this is a key part of the newspaper's value proposition. However, it simply doesn't apply online, which leads to our first false assumption about online media, specifically that content is served on pages. We may call them "pages," but they most certainly are not. And because we think of what a user sees in his or her browser as a "page," we cram as much as possible into that space, which frankly creates an environment of relentless clutter in which ads are in constant competition with other elements.

The page concept leads to other false assumptions. If these are not pages, then there is no such thing as a page "view." There is no "fold" either, a concept that has cost all media companies millions in online advertising revenue, because display ads (another newspaper term) below the nonexistent "fold" carry less value — as determined, I would add, by the industry itself. We stack all of our "good" content in the user's first browser view, thus digging two holes for ourselves. One, we make an unwritten statement that this is the only real value on the "page," and, two, we force users to pay the price of loading other "pages" in order to access more content. This, too, is an old newspaper trick, and the problem is that users can and do vote not to make all those clicks.

As stated earlier, online ads are often priced based on the "reach" of the website. the newspaper industry recognizes this as circulation, but ads sold based on circulation are far different from ads sold based on the reach of a website. Newspapers can pack in as many ads as they wish, simply by printing more pages and moving the content around. Online, however, more "pages" demand more content, and who's going to make it? So traffic to a website cannot be compared to newspaper circulation, because a web user is not exposed to the whole paper, so to say.

This is a good thing for the advertisers, of course, because the measurement of exposure to their ads is far more precise. The problem for media companies is that we've valued the ads based on the reach/frequency of the whole. Consequently, advertisers pay pennies online when they should be paying dollars. This is one of the reasons ESPN said, "Enough!"

Today, the revenue growth of online newspapers is shrinking, and much of it is due to the fact that there just isn't enough content to create the valuable ad impressions. Reach isn't the problem, but frequency is. A revenue strategy that is based in page views demands more pages for growth. It's that simple, and when you can't create enough pages to maintain growth, you have to raise prices, which is problematic in a buyer's market.

Another contributing factor is that the sales teams of traditional media have always been enamored with the size of their mass, despite the reality that much of it is based on, let's face it, blue smoke and mirrors. If one could apply web measurement standards to either newspapers or television (and they're trying), there's a real likelihood the legacy platform revenues wouldn't be anywhere near where they currently sit. For TV, blame the remote control.

Demand shifts to supply

big growth coming in online revenueWhat publishers need is a shift to the supply side, and here's one reason this is inevitable: The graphic on the right is a projection from The Yankee Group on where online ad spending will be in 2011, just three years downstream. Even if the estimation is high by $10 billion, that's a lot of money for ads looking for a place to reside. Given today's metrics, it is impossible to accommodate that kind of money, although it's going to be there for the taking, because consumer behavior is shifting attention to the Web. By comparison, last year's total television ad spending — the granddaddy of all mass marketing muscle — topped $70 billion.

So even if more than half of that $50 billion goes to non-traditional forms of media (it will), we are still on the cusp of an enormous change in the value of online media company content, because there is no way we'll be able to crank out enough "pages" at today's prices to match projected revenue growth. It will have to come from price increases, for the pendulum will have swung to the publisher's side of the online value chain.

But will advertisers sit still for that using today's metrics? The answer to that will be determined by what kind of online advertising "works" in terms of branding or other kinds of ads, and so we're back to the original point of this essay.

Online publishers are going to have to work together to design advertising environments that will accomplish advertiser needs — without repelling consumers — and this has to begin with a new lexicon and new metrics that acknowledge that the Web isn't a newspaper or a television station. There are no "pages." There is no "fold."

"Browser view" becomes the central focus of design. The only thing that matters online is what the user sees at his or her end at any given point. Whatever is being viewed online is done so through a browser "window," and that is how we must approach monetizing our labor. We must strive for a one-ad-per-browser-view presentation, for that provides maximum value for both users and advertisers. This includes our own promotions, for we simply cannot compete with an advertiser for eyeball attention during a browser view and expect that any value is transmitted. The only things a user should "see" are content and a single marketing message. whether that be ours or an advertiser's.

The scrollbar is our friend. Since there are no "pages," we are free to work with the mechanisms inherent to the medium. In the print paradigm, the scrollbar is a nuisance that interferes with its objectives. That which requires scrolling has less value, so what's placed down the "page" is progressively irrelevant, including the ads. The scrollbar is not a nuisance; it's a valuable tool to help us in our mission of both providing news and information and supporting ourselves through adjacent ads. We simply need to design in a way that incorporates the scrollbar and give people content, not just a seemingly endless list of links.

Every ad placement has the same value, and it is high. The answer to the online frequency problem is to stop declaring that different placements have different values, because from an architectural standpoint, they don't. What should matter is the lack of clutter, which will dramatically increase the effectiveness of the message. Instead of disrupting the user's experience by blinding him or her with "engaging" ads, why not be respectful and kill two birds with one stone? As the pendulum shifts to a seller's market, we'll have the opportunity to raise prices, because all of our ad placements will be effective instead of just sitting there.

The cost of interaction is a paramount design fundamental. The portal website is colonial in nature, at a time and in a place where people are increasingly forcing their way out from under the thumb of cultural overseers. We may be enamored with the idea that people need us to guide them (pure colonialism), but the truth is they don't. The extent to which media companies stick with the portal concept is puzzling, unless the user has the ability to create the portal. The biggest problem with portals is they demand a high cost of interaction for users, who must follow preset navigation and childishly load page-after-page to find what they want. This is ultimately self-destructive, for the people formerly known as the audience (TPFKATA) are godlike in their control of information consumption.

At first glance, these concepts may seem foolish, but they are being implemented at sites like TMZ.com, where a "news-as-a-process" paradigm exists. Fifteen items are stacked in a left column, while ads are placed between some content items to the right. Only one ad can be found per browser view. The scrollbar is the navigation tool, and the cost of interaction is very low. TMZ makes a ton of money on Thursdays by selling roadblock ads by the hour to movie studios who want to drum up business for new weekend releases. Roadblocks, in this context, mean that every ad position in the entire user experience is dedicated to a single advertiser. It's very effective and a model that can be duplicated with any local media company.

Isn't it smarter, after all, to sell online ads by daypart? We know when people come and go, and we should price our traffic accordingly. We can sell roadblocks by the hour in the same way, for example, by offering them to a car dealer with a big weekend promotion upcoming. We'll make more money than we currently do, because every impression has equal value, and it's priced accordingly.

Vertical Niche Ad Networks

Jarvis Coffin"Supply and demand is transformative," says Jarvis Coffin, CEO of Burst Media, one of the third-party ad networks trying to do business in a changing environment. "It shapes and reshapes value," he wrote in an email, "and it is doing so right now online with Ad Networks as its manifesting agent. For instance, ESPN.com's recent move to purge networks from its pages signals that value is undergoing a correction at the media brand end of the market: it says brand value is proprietary."

Coffin went on to note that the sudden explosion of vertical niche ad networks is "telegraphing that while value may be proprietary it is not exclusive: the media integrity of quality niche content online is real and must be reckoned with," which he views as a positive thing.

In the end, he concludes, it means increased pressure on ad networks to produce results. "No more setting up a table and selling umbrellas on the street simply when it's raining. It means regular customers and merchandise; which means an increasingly dependable marketplace; which means increased customer confidence."

Publishers need the same customer confidence, which isn't likely to happen with a continued emphasis on what we've known and practiced since 1995. So the pressure is not only on ad networks but also publishers, because, when all is said and done, we are the ones who must create advertising value for all that projected spending. You can't raise the price unless the value is there, but if it's there, we can demand and get what we want for the products we create.

Along the way, however, both the supply and the demand sides are going to have to deal with the scorched earth that their old paradigm has left behind, for the power that consumers now wield didn't exist when the original carpet bombing approach was in vogue. For everybody to win, treating web users with respect is job one.

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© Terry Heaton