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The Evolution of Display: Change Is Here, For Good

By - October 31, 2012

The first banner ad to run on the web – AT&T’s “You Will” campaign. It asked “Have you ever clicked your mouse right here?” The answer turned out to be “You Will…for a while. Then, not so much.”

 

Earlier this year I wrote a long post about the “death of display,” since then, I’ve consistently been asked about it, and in particular, to expand on my thoughts around display advertising economics, and the prospects for what might broadly be termed “independent creators of content,” or what I call “the independent web.”

Now, I love this topic, as many of you know. So in this post I’ll reprise the core points from On Thneeds and the “Death of Display”, and then riff a bit about where I see things now, and where they might be heading. Spoiler: It’s not all bad. Double spoiler: This post will be written in two parts. This is just the first.

Here’s that previous post, boiled down to bulleted form:

* The model of “boxes and rectangles” – the display banner – is failing to fully support traditional “content” sites beyond a handful of exceptions. For 15 years, independent websites have “direct sold” these units on their sites, or hired someone (like Federated Media Publishing) to do it for them. But marketers increasingly are turning away from direct-sold display units. Why? Read on….

* A new generation of “native” ad units are on the rise, which live primarily on large social sites that curate and aggregate content. Examples include Twitter, Facebook, Tumblr and of course the grandaddy of them all, Google’s AdWords. Big sites like HuffPo and fast social comers like BuzzFeed are also employing native units. Pinterest is expected to roll out something similar soon.

* With the notable exception of Google’s AdSense (which is essentially a programmatic machine, see below), none of the other large “native” platforms  help independent content creators make money, other than a “quid pro quo” deal that if those content creators engage with the platform, they’ll earn traffic back to their sites.

* These publishers hope that by accepting this quid pro quo, they will drive traffic to their site that they can then monetize with display advertising. However, as I stated before, this model is breaking down. Why?

* Because even as all those “Boxes and Rectangles” morph into far larger units, they are increasingly bought and sold in real time by machines (“programmatic buying” or “Demand Side Platforms,” also known as “DSPs” – the largest include Google’s AdX, AppNexus, and Turn).

* So far, the rise of programmatic buying  has not made it possible for most independent publishers to make enough money to create content full time. Hundreds of thousands are making money using these platforms, but if you want to run an independent content brand that employs people full time, boxes and rectangles are usually not going to be enough. Some are opting out of playing in the programmatic market, but it’s quite hard to direct-sell small sites that are not at scale. Marketers and their agencies are finding they can far more efficiently find the audiences they want using machines, at a fraction of the cost of working directly with traditional web publishers.

* If we don’t figure out better models for how to get the “content creator” paid, we risk losing the oxygen that feeds the web ecosystem. After all, what would Google, Twitter, Facebook, or Pinterest be without harvesting the hundreds of thousands of pieces of great content created every day on the web? Ditto for the DSPs, which depend on inventory created by these same independent content creators.

* At the moment, the lion’s share of digital marketing dollars and equity value is flowing to either those large content-harvesting platforms, or to programmatic platforms.

* At the end of the post, I suggest a new model that attaches value to an individual piece of content, such that the piece of content is monetized as it travels around the web, getting reposted, tweeted, shared on Facebook, pinned on Pinterest, and so forth. Such a model is incredibly difficult to create, but not impossible. I promised a follow up post.

Well, this is it (at least, it’s part one).

That took a lot to summarize, but readers know I’m passionate about getting independent content creators paid. In the past five or so months since that post was written, the direct-sold display marketplace has continued to deteriorate. Yahoo, a bellweather for display advertising, has had two more quarters of flat-to-declining display revenues that have missed Wall Street targets. In its latest earnings report, the New York Times Company noted that display revenues actually declined year over year.  We’re seeing it at Federated Media Publishing, as it has both direct-sold and programmatic businesses, and I’m hearing it from folks I speak with privately – models that depend on direct-sold “quality display” are under increasing pressure.

Meanwhile, business is great for the two platforms I outlined above. Programmatic buying platforms are seeing double and triple digit increases in revenue year over year (again, we see this at Federated, because we acquired such a business more than a year ago). As more data and insights are applied to programmatic, and better inventory secured, I  see a very bright future for this part of the market. Business is way ahead of plan at Twitter, executives there have said, and Facebook’s recent earnings highlighted the growing success of that company’s “native” advertising products - promoted posts and sponsored stories.

Unfortunately, neither of these two high-performing sectors of the marketplace help most full time independent web publishers make enough money – at least not yet.

Given all this, what is a publishing business to do? Well, as much as I’d like to say my idea of “monetized content traveling around the web” is imminent, I think that’s going to take a few years.  And while programmatic is getting better each quarter, it’s also going to take time and improvements over years before that ecosystem is fully expressed. If independent web publishers are to thrive in the near term, we’ve got to change our approach to the market. Change is scary, change is hard, but change is needed – and change is good.

How do we do it? In short, we’ve got to be far smarter about how we “feed” those platforms – making sure the value we get is equal to or more than the value we’re giving. We’ve got to be smart about how we interact with both social and programmatic platforms, and align ourselves with companies that put publishers first. And lastly, we’ve got to rethink how we bring high-touch marketing onto our sites – we need to more rapidly adopt new advertising products, new architectures for our sites, and a deeper understanding of how to partner. We can no longer relegate marketing to second-class real estate. If high quality sites on the independent web are going to thrive, we will have to embrace change. That’ll be the subject of my next post.

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  • Terence Kawaja

    I couldn’t agree more. Note commentary from my 2010 Science-ification of Media preso at 21:16: http://www.lumapartners.com/presentations/the-science-ification-of-media/

    • johnbattelle

      Indeed Terry, you’ve been at the forefront. Thanks for your insights along the way, and as we push into the future!

  • http://twitter.com/chrisamccoy Chris McCoy

    John – we’re working on a sponsored identity model (both publisher and the actors within the content) that’s starting to see traction among top writers for ESPN, some major brands, and even NFL quarterbacks. Will email you about it.

    I 100% think it’s part of the future of content.

    I also think long-tail, premium content will be crowdfunded. We started experimented with this a few years back, then realized we needed to map the “sports graph” (relationship a fan has to a team) first in-order to scale new publishing models for sports: http://www.digitalmediaminute.com/article/5487/sports-online

    At top of funnel though, we’re seeing significant demand for the sponsored identity model.

    I agree though–this is a tech problem and not a marketplace value problem. Current content management systems of today–especially the ones owned by platforms that like to own everything–aren’t fair to publishers. There’s a solution to this. I hope we can be a part of it long-term too.

  • http://www.facebook.com/people/Zach-Coelius/13902805 Zach Coelius

    Nice teaser. Very interested to see where you go with this. As one of the “programmatic” guys I think you have made us a bit of a straw man.

    We need to make publishers more money. I totally agree. When we started with RTB in 2008 we were paying .25 cpm and evaluating 20 million impressions a day. Four years later the RTB market has grown to more then 50 billion impression a day and average display CPMs will cross $2.50 this fall. That growth of inventory is publishers moving with their feet to sell on exchanges because we pay them more then their other channels.

    With that said, we have a lot more work to do to get those rates to a place where small publishers can make a living from their ads. We need bigger ads. We need
    better attribution. We need marketers who understand the value of building a brand online. But the progress we are making with programmatic buying is not the zero sum game you seem to describe where our success is bad for publishers. Unless we can continue to make more money for publishers those of us on the “programmatic” side of things will fail.

    • johnbattelle

      Thanks for the thoughtful comment, Zach. Actually, read my post again – I am not setting up programmatic as a straw man. FM is seriously in this game now, as you know. I am stating a fact though – that programmatic as it currently stands isn’t enough – as I said…yet.

    • Math guy

      Hmm. 50 billion impressions at $2.50 CPM is $125 million PER DAY. RTB is a $50b per year industry?

      • johnbattelle

        I was going to ask about those CPMs too, Zach. They seem high to me….

  • http://www.facebook.com/tgarland1 Todd Garland

    John/Zac what do you guys think about selling premium display through a programatic system? can different “tiers” of programatic exist like this?

    With regards to native – do you think it can scale for folks who aren’t the big 3 (fb, tiwiier, adsense, etc)?

    • johnbattelle

      I can’t speak for Zach, but I do think programmatic will enter premium display, through private networks and other means. And yes, i do believe native will scale past the big platforms. FM is going to certainly have something to say about that!

      • http://www.facebook.com/tgarland1 Todd Garland

        I think it will be interesting to see if native will stay exclusively premium or whether we’ll see self-serve supplement premium sales as we see in display. Exciting times indeed.

        • johnbattelle

          I think any scaled unit will drive through programmatic, yes…look at Facebook…

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  • george

    Great piece! I see the effectiveness of display advertising (DA) eroding. Perhaps as more and more advertising shifts to mobile, someone will visually realign DA to match user behavior – currently, it just doesn’t execute well on mobile, and it’s really a sterile experience. You’re totally right, needs innovation to better monetize.

  • http://twitter.com/HotelDesigns Patrick Goff

    As a producer of content who has struggled to make money to survive I look forward to reading part 2 and to the day when content is valued

    • johnbattelle

      Part Two is up on my site now, second from top…

  • joey89924

    With regards to native – do you think it can scale for folks who aren’t the big 3 (fb, tiwiier, adsense, etc)?
    http://www.hqew.net/product-data/1N5819

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