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Finding the Right Mix for Online Revenue Models

21 Sep 2012

Online ad inventories continue to increase exponentially, eroding CPM's and forcing publishers to look at alternative revenue streams. Many are even beginning to view advertising as ancillary, flipping the traditional print publishing model on its head. Publishers face two threats to the advertising business:


1. Ad networks and exchanges

2. New sources of ad inventory (games, mobile apps, online communities, etc.)


What's more, new tools are available to allow agencies and small businesses alike buy ads across a multitude of platforms, devices and sites while targeting users based on their behaviour. Two of the core value proposition of publishers, audience scale and segmentation, have been commoditised. Publishers have two choices, innovate or contract.


Magazines, newspapers and blogs do have a core value proposition intact, however. Their reputation gives them influence in a marketplace. The question is how to capitalise on that influence and which revenue streams have the best profit potential.


Social commerce

Commerce accounted for 80 per cent of total revenues for F+W Media in 2010, while advertising was only 14 per cent to 15 per cent.


"When I started here , our emedia group was really focused on aggressive Web development around the magazines to build traffic and attract advertising," F+W CEO David Nussbaum said in a previous interview with eMedia Vitals Editor Rob O'Regan. "But as an enthusiast publisher, we would never aggregate the kind of traffic needed to compete with the big boys. And I also believed that advertising was becoming a commodity."


One emerging theme in the commerce revenue stream is the use of social media. People buy things that their friends recommend, and for the first time ever, word-of-mouth is being measured. Social commerce creates scale in niche communities by turning one purchase into many. F+W has implemented TurnTo's social commerce platform and is seeing 15 per cent of purchasers share their purchase with their friends.


B2B and news players are turning to data sales to help leverage their niche audiences. U.S. New & World report has been able to successfully monetize ranking guides, such as its renowned "Best Colleges" and "Best Hospitals" list. Crains New York had developed its data sales business into 10 per cent of its digital revenues in 2009. Since social media is a bit more fluid in the B2B space, publishers are using "context-aware" commerce to improve revenues.


Commerce isn't just for niche players. Large and mid-sized consumer publications are getting into the retail game as well. While brands like Best Buy get into the content racket, consumer brands are responding in kind. Esquire launched the retail site CLAD, and Dwell has partnered with e-commerce platform OpenSky. (Disclosure: I worked with OpenSky CEO John Caplan at About.com from 1999 until 2001)


As this revenue model becomes more widely adopted, many begin to question whether the practices employed erode at editorial integrity. Alexis Maybank, co-founder and chief marketing officer of Gilt Groupe, discussed their commerce strategy recently at Mashable's Media Summit, saying "The question is, of course, whether the user in question is naturally more engaged, or whether brands and retailers can drive users to their content and get the average user to exhibit the same behaviours."


Marketing services

Marketing services currently accounts for 60 per cent of TechWeb's revenues, and many other publishers are taking notice. The challenge with marketing services is getting the business to scale. Media companies need to decide what marketing services to offer, how to enter the business (build, buy or acuire), develop abusiness structure to support marketing services and maintain profit margins.


The issue of profit margins is a challenging one. The cycle from disruptive new marketing offering to commoditised service is quite short. Firms pursuing this revenue stream will have to invest in R&D so that new products and services are regularly introduced to help maintain margins. For instance, IDG is capitalising on disruptive new mediums by offering mobile marketing services as well as social media capabilities for lead generation.


Donations

eMedia Vitals covered the launch of Texas Tribune two years ago, looking at their nonprofit model for political journalism. "[Texas Tribune] raised $3.6 million for launch, including $1.1 million from foundations and $1.5 million in corporate and individual donations. Houston Endowment gave us $500,000 and the Knight Foundation gave us $250,000. We have more than 50 founding investors [T. Boone Pickens is one], plus corporate sponsorships that are $2,500 each. And then we have 1,500 individual donors. It's the underwriting/public broadcasting model," said founder Evan Smith at the time.


According to a recent blog post, The Texas Tribune has raised over $10.3 million in pledges during the two years they've been operating. Paste magazine also turned to donations to help it through a time of need. It wasn't enough to save the magazine, but the brand continues to live online. The experiment is notable because when asked to donate, over 9,000 readers donated more than the full rate subscription price. Mother Jones was also able to boost digital revenues by 61 per cent last year thanks to increased donations. The St. Louis Beacon was able to raise more than $3 million, due in large part to donations.


Paywalls, subscriptions and paid apps

This subject has been covered thoroughly on eMedia Vitals here and here. The short of it is that success is about identifying loyal users and getting them to convert instead of implementing a "hard wall" where all content is blocked.


Licensing

International news site GlobalPost has seen syndication and licensing grow to 20 per cent of net revenue in 2010, according to CEO and co-founder Philip Balboni. The company acts as a wire service and has deals with providers such as Copyright Clearance Center, Newstex and NewsBank to extend their content value.


PoetsandQuants.com diversifies revenues by licensing content to customers, especially large clients like business schools. "I see licensing as another way to make a little more coin but is not a solution to the big problem, which is that the actual value of original content has been greatly diminished," said John Byrne, CEO of start-up C-Change Media and former editor in chief of BusinessWeek, in a previous eMedia Vitals interview. "To me this is just an additional revenue stream; it's something that you wouldn't otherwise get."


Syndicating content to Amazon as Kindle Singles may be poised for a breakout with the new Kindle Fire shipping in time for this year's holiday season.


Studio One Networks and High Gear Media are innovating in the space by using advertising to support free syndication of topic-based content to publishers, through both licensing deals and advertising-supported programs. Studio One gets distribution to 600 media partners, including players like CBS and Yahoo! as well as popular blogs like Madame Deals, which uses two of the content programs as filler content.


KPI's and blend

Scout Analytics CEO and eMedia Vitals contributor Matt Shanahan has been advocating Average Revenue per User (ARPU) as the KPI to measure overall revenue-generating efficiency of media portfolios, and I agree with him. Developing a blended business model plays into this, as it diminishes the importance of RPM (revenue per thousand pageviews) due to the lack of dependence on advertising. RPM is a flawed metric as a KPI because of the dramatic decline in CPM's. Business performance can't really be measured accurately with RPM in such a volatile ad market. ARPU, instead, offers a holistic view into the revenue that your business generates.


You should be looking at each of these revenue models and tracking them at the user level as well, a nice little ARPU pie chart. This will help measure the impact of business decisions like hiring or laying off editors, using independent reps for sales, launching a new product or putting up a paywall. You prioritise based on what is going to get you more users to monetise and what is going to in increase ARPU.


Source: emediavitals

 



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