62 Responses to “Publishers Are Killing Web Advertising's Potential With Misguided Pricing”

  1. I totally agree with Alastair when he says ad networks are a dumb idea for all the same reasons.

    In fact, outsourcing your advertising to a third party is a bad idea too. You hand over the customer relationship to someone else.

    Plus, the revenue split that ad networks take is completely out of proportion to the value they provide, imho.

  2. Jim Spanfeller

    I am very much enjoying the dabate here. Lot's of interesting takes on this issue to be sure.

    That said, what is not debatable is the efficacy of either advertising in general or advertising online. They both work. There is literally rooms full of research to prove it. What's more, the most sophisticated marketers in the world have conducted much of this research. So while some folks will decry advertising and say they never look at it and it doesn't work, the truth is simply that it does.

    I would argue that online advertising (yes those banner ads…but also video ads and expanding ads and so on) actually works better then offline advertising. There is even research to prove this by the way although admittedly we are still in the early innings of this discussion.

    This is not to say that search text links don't have value. Clearly they do, but it is a differant sort of value. But more on that in my next column.

  3. Gordon Steen explained the fundemental core problem people want to ignore, especially in this thread.

    The Web was designed for hyperlinking and good hyperlinking is contextual in nature. There must be a "contextual workflow" in place from the original hyperlink to the destination to be successful.

    For example, let's say someone operated a surfing e-zine and wrote an article on beginner surfboard. In that article, if they hyperlink to a e-commerce site that sells surfboards, this is the most effective manner to generate qualified leads and eventually a good sale.

    Graphical IAB 480×64 ad banners popping up in the same section as some "advertiser" does not have contextual background to it and the core reason why it performs so poorly. This is why I understand Gordon Steen point about clicking on these ad banners only to see some brochure or fill-out form instead of direct action related to the original clickthrough source.

    Google, Inc. already demonstrated with success contextual marketing science works. Those that want to cling to "advertising" are those who are living in cognitive dissonance, holding on to old science..

  4. Gordon Steen

    Who cares about online ads. Not me. I am looking for something useful and they don't give it to me. But its not the ads, sometimes they are good. But when you click, they don't do the job. They give you a lot of brochures and tables or if there is a contest, it doesn't work. Offline ads don't have these operational problems because they are just there. On the Internet, if big money fails once, smart people don't give it a second chance. They'll give Facebook a second chance because they are on it.

    It seems that big business just wants to spend money or be cheap, do the easy thing and like health care and the auto industry, hope no one will notice until it all collapses. Making things work properly seems to be a lost art. The Romans probably had the same problem.

  5. Alastair Thompson

    Alpha G77:

    "the cost of publishing content is virtually free"

    Sorry you have lost me and every news publisher on the planet at that point. The cost to view content is free but it costs lots to create it – especially good content. And even if you have user generated content (= free) then it still needs moderation/management/hosting etc. You are correct that it is cheaper than air travel – granted – but I think the misconception that online publishing is both easy and cheap is part of the problem that we have with advertisers. Online publishing and audience creation and retention is not that different from any other medium – it requires talent, tenacity, professionalism and money.

    "Trying to optimize your remenant inventory through ad networks is a smart idea, it doesn’t destroy pricing power for publisher because there is no pricing power to begin with for this long-tail of inventory"

    Wrong. It is not a smart idea – its a dumb idea. We have tried it and it destroys value in numerous ways. It is disrespectful of the audience, reduces the effectiveness of remaining inventory (and therefore valye) and directly if advertisers can purchase space on your website on a CPC or CPA basis they will not even consider CPM purchasing.

    Network advertising is destructive in the specific instance as well as in the aggregate.


  6. alphaG77

    Jim – I don't know what online travel service you've been using to book, but I mostly see fares go up when I wait till the last minute these days – that's because the airlines took capacity out their networks over the past few years and are able to price-discriminate between those who are price-sensitive and those who are time-sensitive by raising fares at the last minute on what are generally overbooked flights.

    Revenue optimization or Yield Management works in the Airline industry when either demand is high (as it was during this last boom cycle) or when capacity is limited, which generally happens during bust cycles when the airline CEOs get smart and agree not to compete with each other for routes or market share. Yield management is critical to the airlines achieving the razor thin margins that they do – it has nothing to do with whether this is an effective method and everything to do with the industry cost structure which historically is labor first and jet fuel second.

    So here is where I believe you are mistaken Jim. In the online world, there is no way to limit overall capacity – new websites, blogs, and applications pop up everyday and any one of them has the potential to amass either a lot of traffic or a very niche and vaunted set of eyeballs. However, unlike the high cost structure of the airline industry, the cost of publishing content is virtually free. Trying to optimize your remenant inventory through ad networks is a smart idea, it doesn't destroy pricing power for publisher because there is no pricing power to begin with for this long-tail of inventory. Online IS different than offline because marginal costs of ad-space creation tend toward zero. The only way for publishers to optimize their revenue in this world is to either drive as much traffic to your content as possible and therefore collect what you can from as many impressions as possible or to have narrow casted content that engages its target audience and for which you can sell premium ad space. Depending on the value of the content to audiences will determine which strategy is best and in fact, for most publishers the optimal strategy is to price what you can and collect what you can on the rest.

  7. Alastair Thompson


    We have been turning a profit for around five years and are in the politics, business and localised news niches. We earn revenue from other sources as well as advertising.

    I would add that while we are getting by – even in the recession 0 its getting harder to earn a profit from advertising for precisely the reasons that Jim explains.

    Rick says:

    "The real judgement on profitability will always be size and objective. A small site highly targeted niche site that generates 1,000,000 uniques a month and at least 10,000,000 pageviews can be profitable if sales is managed well."

    We are profitable on a smaller scale than that and do not have 10 staff but are not far from it.

    As for Google… Google adsesnse for text has a place – Google adsense banners are just as destructive as all other networked performance media.

    Our experience with Google Adsense for text vs networked banners was that the former delivered around five times as much revenue. Meanwhile their is a factor of ten between what Adsense for text delivers vs premium display.

    Basic problem with networks – they are lazy. They do not understand or address audiences. They are the equivalent of carpet bombing and equally unsustainable.


  8. Having used ad networks and Google, I'll admit Google is "better". But it's no different, either. They may pay slightly better (assuming better contextual ads are displayed), with slightly better click rates. But still not at national ad levels.

    .4% CTR is the average, now, for the web as far as I know. My site averages about 1%, including several high % click ad placements (without giving away what they are, as I prefer to remain anonymous).

    I don't view the click as a good basis of payment. It is as much a variable based on the kind of ad and its creative as it is a judgement on my users interest.

    However, I recognize the value and uses of ad networks. They have "a place". You just have to figure out how to use them effectively, as Alastair has done with Google.

    It isn't rocket science at all. It's common sense. Any average person with a decent knowledge of statistics can be an effective inventory manager if they have common sense regarding business.

    The real judgement on profitability will always be size and objective. A small site highly targeted niche site that generates 1,000,000 uniques a month and at least 10,000,000 pageviews can be profitable if sales is managed well.

    But if that site has a staff of 10 or more, it's going to be hard to be profitable.

  9. Alastair Thompson

    Dear Jim Spanfeller,

    I am a publisher – small premium niche high value demographics – and I dumped adnetwork banners more than a year ago after I realised that they were.

    1/ earning me considerably less than Google text ads
    2/ undermining my ability to sell real display ads

    Since dumping them we have had to look closely at how we do use our ad inventory. We use a mixture of house ads, pro-bono ads, ad swaps for merchandise/tickets etc. and unless we are fully booked tend to give our paying advertisers considerable extra exposure.

    All of the above strategies have enabled us to get back into selling ads for real $$$ and in the process help us to be taken seriously. Notably we have also seen our average click rates rise back from around 0.18% to around 0.4%. Looking after your ad inventory makes it more effective. Its not rocket science.

    Ad networks are in my view parasitic and suicidal for online publishing. I only hope many more people read your wise words.

    As for those above who have remarked that online advertising doesn't work – I will not waste my breath. Clearly it does work. One of the real problems in this industry is the hostility of many marketers towards a medium that they do not yet understand.

    Alastair Thompson

  10. Luis Zarnowski

    Finally, results are results. There is no difference in a click, and definitely the most important issue for all the search engines and adnetwors is the content, that the thing and the pricing depends on its importance and appeal, so anyone who wants to use it for theis benefits should paid the price settled.

    Lets think in long terms.

  11. Twitter is the ultimate self-indulgent garbage. 140 characters to say – what, exactly?

    It's like reading the headlines of the paper and telling me you know what's going on – no depth means you don't really know what's going on, but you've indulged yourself enough to claim you do.

    Twitter cannot pass along enough value to be of use to anyone.

    "Hey, I'm sitting on my deck having a margarita", or something to that effect is 95% of what I got out of Twitter. Thanks, I'll pass.

    Of the "good stuff", there wasn't enough room to elaborate.

    Facebook, on the other hand, combines the "best" of Twitter – a commentary portion – with the ability to post articles that have actual depth.

    I have used Twitter. It's the 2009 version of disco and cocaine. Everyone thinks it's great, but in the end we all will realize it's garbage.

  12. Wessel van Rensburg

    "hate twitter – it’s crap" – care to tell why?

    In my experience people who dismiss Twitter with one liners have not really tried it. They have looked at it, perhaps signed up to it, perhaps even posted something about their breakfast, but they have not really given it a go. I only got it after the third attempt myself.

    Like with a bicycle, you cant say the experience is crap if you have'nt actually cycled.

    If you have used it – fair enough.

    Your right, many good bloggers supplement their income through advertising, very few can afford to give up their day job. This makes them amateurs in my book.

  13. Sigh.
    Wessel, I didn't discount "amateur" stuff. I said professional stuff is better. It is. Huffington is professional. Encumbered or not by print, it is professional.

    I actually visit a number of blogs (hate twitter – it's crap), but all are of a highly polished, professional, quality. There is a difference between a high school kid who throws up a video or blog to accomodate their interests and a committed professional. Many professionals, today, began as "amateurs" who used the internet to break into media via a means that was not available in traditional media.
    In almost (I said almost) all cases, advertising is what allowed them to move to upper levels of the blogosphere by providing them at least a subsistence level until they became more widely recognized (or in Huffington's case, they were already millionaires).
    At any rate – the description you provide doesn't alter the case FOR advertising. In some ways, it makes the case.

    I agree – the audiences are different, and the media are different. And while each media has certain idiosyncracies that open opportunities for a variety of different revenue generating opportunities (who could've foreseen XM Radio in 1955?), the fact remains there isn't much difference when it comes to the math and management of advertising.

  14. Jeff Sable

    The internet, the mobile internet, and even email are completely different media than TV and print (and radio and other "older" media). Demographics on newer media are not relevant. 1:1 marketing/advertising is. How many advertisers and publishers reading this article are truly leveraging the cost effective technologies available for 1:1 communications? Having worked with online advertisers and online publishers for more than 10 years, I suspect it is a very small number.

    Jeff Sable

  15. Wessel van Rensburg

    "I’d have to say that the best stuff remains the professional stuff "

    That is plainly not the case. Sometimes it is, and these professional outfits do make money of advertising.

    See Techcrunch and Huffington post. (Note both highly specialised and not cumbered by having to print).

    But certainly not always. In almost every field or niche you find amateur bloggers and their community of commentators better or at least up to the task.

    Fashion? See Fashiontoast or even better StyleBubble.

    South African politics? See Constitutionally speaking.

    And even when blogs are too niche and don't give you the whole picture, following the right people on Twitter will get you to the best content that interests you m- an aggregated picture if you will – and you'll get it first. Much more than following any magazine could. (I got to this article through Twitter).

    Read this, its interesting in this regard.


  16. Having been in this for 10 years, I'd have to say that the best stuff remains the professional stuff – that which is worth advertising on.

    I don't see the future as amateur at all. If anything, it needs more pros – the amateurs are what have killed it so far. Most of online's ad buying and selling, up until now, has been done by people with limited experience in ANY media.

    I will point out that, when I first arrived at AOL in its heyday, after spending 15 years in TV, I had a neophyte 27 year old tell me, when I shared some wisdom on pricing and inventory management:
    "you come from an industry that's a dinosaur. We're building something new, so what you contribute is not worthwhile". This person is still in the business and has failed several times at what they do…..but keeps getting hired!

    It's the ignorance of what works that hurts the most. When a 26 year old buyer or planner tells me they need "reach" in an online buy, I always shake my head.

    Reach doesn't work online. And I'm the dinosaur?

  17. Wessel van Rensburg

    Rick, that is the scary thing – perhaps (unless your highly specialised like the FT) there isn't an alternative.

    Perhaps the future is amateur.

    Perhaps many publishers should get out of the publishing business.

  18. Wessel,
    I've read this over and over again. It's long winded and obtuse.

    What is the solution, if this is the problem?

    I agree – advertising is a tax on consumers to get them to relate to the brand. They pay more for a "name". But this is standard behavior, and has been through the years. Nothing new there.

    They haven't developed a "blind spot" at all. Online advertising simply isn't being valued in the same manner as traditional media (to be fair, cable was treated this way for the first 15 years of its existence – now it is considered as good as, or better in some circumstances, network TV).

    Advertising still works. The question is how to make it more effective and more valuable online.

    I have yet to read anything – aside from the non-applicable Google comparison – which shows that there are other solutions on how publishers can make money WITHOUT advertising.

  19. Wessel van Rensburg

    "It’s the quality of the products, services, interactions with an organization that builds an authentic brand character. If this sounds radical, or if you’re still using marketing to try and manipulate perception, you are walking on thin ice. For your consumers and observers, there is no such thing as a “brand experience,” only a human experience which may be associated with a brand. The meaning of the interactions themselves must be addressed…

    Curated perception has long been a free-for-all land grab aimed squarely at focusing the attention of a market. Because information is now instantly and freely shared, those brands with the largest gaps between fabricated perception (traditional marketing) and the authentic character of their actions (products, services, human interactions) will be the quickest to sputter and implode. This is true no matter what new platforms are employed to manipulate awareness, or what tools we use to examine them. Brand experience is an illusion, human experience is real. The problem is not perception, but rather the consequences of human behavior. The solution is found through trying to change perception, but through creating more constructive human interactions and positive, authentic experiences."


    This is of course just a long winded way of saying advertising is a tax on an unremarkable product.

    Does it have bearing on this debate? I think it does. Online – where information can easily be shared – "the former audience" are narrow and broadcasters themselves and seem to have developed a substantial blind spot for traditional advertising?

  20. Online/Video Gaming has "users", and they have advertising. The issue isn't how you define the eyeballs, it's how you reach an audience. Billboards are read by "users" of the highway system, not audiences.

    As for the "fact" (which I would dispute as a fact) that 80% of the clicks are driven by 16% of the user base and that they are lower income and education – where does that leave TV or radio?

    Most TV viewing is by lower income and education levels, and that's well documented. So should they just stop advertising to these people?
    Furthermore, why is the click the final determinant – where do radio and TV get their value judgement? They have NO means of providing immediate value feedback, like the web.

    I agree that the internet has far more excess inventory, however. But as I stated earlier, this is a result of how the impressions are served – individually as opposed to bulk. This singular difference is one reason some people from TV or Radio have a hard time "understanding" how the web works.

    It's a simple thing to overcome – impressions are impressions if you're just talking about the math. But some people have a hard time getting past the fact that TV and Radio have "units" which are comprised of impressions. This is why they are terrific reach vehicles, and the web is not.

  21. Wessel van Rensburg

    Ed Dunn has it bang on with his comment above. This statement:

    "For example, we now know that 16% of web users generate 80% of clicks and that this 16% represents the lower income and education segments of the total user base. Do we really want to be held accountable as an industry by metrics generated by the lowest common denominator and a minority of users to boot? I can’t think of too many successful models using these types of metrics."

    …just speaks of the failure of advertising in convincing most people, especially in the interactive online environment.

    On the web, where we have users not an "audience", does advertising make sense?

    Also, radio and magazines might have had excess inventory unlike TV, but they certainly don't compare to the abundance of media we have online.

  22. Ian Bell

    If TV adopted web practices, Billy Mays and others like him would be selling Ford or Chevy automobiles, not lint brushes.

    Folks, intelligent people research before they buy, and this does not show up in a direct response campaign for $200 headphones from Bose or a $1,500 laptop from Dell; marketers have become unrealistic when it comes to online metrics.

    Jim Spanfeller completely makes sense. Publishers need to stick to their guns.

  23. Scott V

    I believe the online display advertising area of online marketing will mature when it is viewed not only as a different online product then other online marketing products, but also when radio, billboards, TV and other offline marketing efforts are held to a similar offline reporting and comparable analytics or visa versa. My guess is there is going to be a need for more offline reporting and accountability.

  24. Andy, I agree with point 2, but only half of point 1.

    Ad networks are hurting pricing, because they are perpetuating the agency proclivity for purchase of "reach". Reach is NOT a primary objective, nor should be one, in online. It's a consideration, but not an objective. Sadly, agencies continue to use reach as the judge and jury of buying decisions.

    Someone earlier points out that agencies don't want the hassle of buying 80 websites which perform well, as opposed to 3 or 4 which provide great "reach" but don't perform as well. I can understand this concept – but sadly feel it's antiquated. Technology helps to reduce the effort involved in managing multiple campaigns. The real reason 80 good websites are NOT purchased is ease of thought and effort. It's easier to purchase Yahoo Finance because it's "big" than to buy a site like Minyanville which is "small" – but more heavily concentrated in the clientele one wishes to reach.

    Fact is, ad networks (remnant) have a role, and it isn't a matter of "low" versus "high" quality. It's a question of making sure sellout and revenue remain high enough to justify publishing. That said, every media has a portion (most of its inventory) which is considered "of lower value" which they package in with portions that are "of higher value". On the internet, due to the dissemination of impressions, the lower value portion dominates in a way that is not consistent with Radio, TV, or Print.

    All three of these media purchase large numbers of impressions in bulk, making it easier to package the good with the bad.

    Online is not as lucky. Each impression is delivered individually, over a broad period of time. As a result, budgets can be smaller, time frames can be contracted, and more targeted purchases are easier to make.

    This makes the "remnant" portion of the business far more powerful in its pricing role than its counterparts in other media.

  25. Gogi Gupta

    I think that one thing that goes unsaid in advertising is that not all forms of advertising achieve the same thing.

    Take a big piece of technology (Database server)

    1) Trade advertising/pr creates demand
    2) Trade shows create brand awareness, sampling, interaction within a narrowed defined audience
    3) Online ads help guide those showing intent to the customer. You can't ask online ads to do steps 1 & 2. So yes, its a promiscous sale, but its also the right vehicle at the right time. Just as 1 and 2 were.

  26. anonymouse (publishers perspec

    If you don't believe adnetworks are eroding pricing you must be from another planet, we just enabled a dozen or so large adnetworks a week ago into our inventory pool and the average cpm on that sold inventory is 15 cents.

    Get real . . .

  27. Andy Atherton


    Interesting article, as always.

    I wholeheartedly agree your point about the online ad industry focusing too much on demand fulfillment and too little on demand creation. That’s exactly why we built Brand.net from the ground up — to help advertisers with demand creation. I also agree with your point about ad networks that offer some types of user-based targeting representing a potential “data drain” and a legitimate privacy concern for publishers. This is an important issue and just coming to the fore for the publishing community overall.

    That said, I disagree with two major points you make in this article.

    First, you seems to be perpetuating industry confusion on the definition of “remnant”. In the context of online ad inventory, “remnant” is commonly considered to be the opposite of “premium”, which is often used interchangeably with “high-quality”. Thus if “premium” = “high-quality”, then “remnant” = “low-quality”. Unfortunately this is often untrue. When used correctly, “remnant” actually means “available to the spot market after forward commitments have been fulfilled”. So the opposite of “remnant” is not “premium”. The opposite of “remnant” is “reserved in advance”. There are really two distinct axes at work here: one describes quality of the inventory, while the other essentially describes the terms or process under which the inventory was purchased. There is some correlation between the two axes, which I believe is at the heart of the persistent confusion; it’s a fact that remnant inventory is often of lower average quality than inventory that is reserved in advance. However, due to traffic volatility, forecast errors, suboptimal pricing, supply/demand imbalances, etc., there is often significant volume of high-quality or “premium” inventory available in the “remnant” market. The airline standby example you cite is actually a good illustration of the correct definition of remnant, not (as I think you suggests) the incorrect one that has done so much mischief. The standby seat has exactly the same physical characteristics (“quality”) as the seat sold in advance, but the difference in timing and deal structure results in a difference in value to both the airline and the passenger, which manifests in a difference in price.

    This brings me to my second point: your position in this article on airline yield management practices shows some pretty fundamental misunderstandings. Airlines’ lack of profitability has a lot more to do with unions, over-capacity and sub-optimal product offerings than it does customers risking their vacation plans or business objectives to save money on a last-minute ticket. So I would echo Jason Kelly’s well-informed comments earlier on the thread and add that to suggest yield management practices are somehow to blame for the poor financial performance of airlines is like suggesting that ERP systems and supply chain optimization practices are responsible for the poor financial performance of the American auto industry. It’s simply not true.

    The bottom line is that ad networks and publishers can work together for mutual benefit over the long haul, but to do so requires careful management of channel conflict, an issue we take very seriously and which I have written on extensively. This discussion is a valuable and important one, but I think we need to be more careful and rigorous in our thinking – the more so, the better off we’ll be as an industry.

    Andy Atherton
    COO, Brand.net

  28. John Ardis

    Jim, thanks for your thoughtful piece, and for all your contributions to the online industry. While I genuinely respect and appreciate your accomplishments in this regard, I do want to offer some alternative viewpoints. (Full Disclosure: I work with ValueClick, who manages multiple networks.)

    I don't agree that the situation is a simple as is outlined – that ad networks have had a major role in degrading the value of online ad inventory. Rather, I believe there several fundamental shifts in the advertising industry which are conspiring to create the situation you describe.

    1. Measurability – There is no doubt that interactive marketing has accelerated the embrace of metrics in all marketing channels. However, it was merely an accelerant on a fire that was begun previously, by the direct marketing industry and sophisticated marketers with increasing demands on measuring brand impact. This increased focus on metrics and accountability inevitably led to marketers trying to place a monetary value on their spends – indeed, now looking at them as "investments" instead of "spends."

    2. The Blur – With the increased focus on measurement, the blur between "branding" and "direct response" commenced in earnest. While there's a long way to go until the blurred mindset is fully embraced, I for one believe it is both inevitable and welcome. By beginning to view both immediate- and longer-term impacts of a program, marketers can better understand an entirely new dimension to the interactive channel. The more we can stop insisting on complete separation of brand initiatives and direct response initiatives, the more it will provide the marketers with greater insights, and service firms with some relief on the myopic focus on immediate payback.

    3. Fickleness – With all of this, a mindset of "What gave you done for me lately?" has permeated the buying arena. It used to be that after a media property spent many years and dollars establishing themselves, the advertising premium they would insist upon would scarcely be questioned. With the democratic nature of the Internet, though, scores of other decent media properties have emerged, without the need for the investment of time and money it used to take. Frankly, my belief is that the biggest rub is the resentment that traditional media powerhouses have over being questioned. When the tipping point occurred between the establishment of the offline media brand as a trustworthy source of quality content and the premium prices it wanted to charge for advertising was achieved, the properties could – if they wanted – start selling as much advertising as they could, and then create content to go around the ads. This reversal of what got the properties there in the first place led to the perception that much of what is published is fluff, and the upstart "citizen-journalists" that have emerged online provided the bite-sized bits of meaty content for which consumers are now looking . This is a major disruption in the way things have operated for decades, and led to the buyers having the confidence to begin questioning the latent value of the media property brand.

    So where do we go from here? As one might guess, I believe that networks, exchanges, etc. are here to stay. However, I also firmly believe in the protection of the media property's brand and rate card. Making sweeping statements that networks erode pricing without bothering to drill into the rumored 300+ networks that exist is like saying all magazines are a waste of money. Established, reputable network players learned a long time ago how to collaboratively work with their media partners to ensure that the best balance is struck between monetization for the media entity and appropriate value for the media buyer. Reputable networks do not promise inventory for a given media property without an explicit agreement from that property.

    To keep in line with your travel industry example, a good network operates like Hotwire in the travel industry – a buyer can designate the caliber of property they're interested in, they can see a series of prices for properties in that caliber – they may even see a large pool of properties on which their ads MIGHT appear (again, with those properties' consent). But at no time until a firm contract is agreed upon is there any disclosure of the final properties that make up the buy. In addition, there is no subsequent promise that the same buyer can get the same property(ies) the next time out – if they like that property, they need to go directly to that property to negotiate the best rate they can. Otherwise, they have to assume some element of risk in return for the reduced rates.

    This collaborative, partnering approach has been adopted by the top-tier networks in the industry and this, coupled with agreements about pricing floors, fill rates, etc. has led to many tenured, mutually-beneficial relationships.