Tuesday, March 20, 2007

Look at publishing industry for eerie reflection of travel

This week we re-launch our guest blogger programme. Kicking us off is Justin Morshead, chief executive of AdPrecision.

Recently one New York Analyst suggested internet advertising will be worth over $80 billion in 4 years (that’s a compound growth of about 21% per annum). Here in the UK, partly driven by the strong broadband uptake, we learnt that Google’s UK advertising revenues are set to outstrip those of ITV.

In the same way that Microsoft dominated the 1990’s and told the majority of us how we would interact with our computers, Google is beginning to dominate this decade by helping consumers explore vast quantities of available information and to find what they are looking for.

The vast majority of Google’s revenues are from search advertising, response driven marketing that is attracting substantial revenues from businesses that pay by the click – that is to say they pay partially by results. It’s clear as internet advertising begins to overtake newspaper advertising in volume that publisher’s lunch is being eaten.

If you were to look back at a different industry that faced similar challenges five years ago, some interesting parallels appear. Between 1998 and 2002 the travel industry became one of the first industries to trade online.

The well capitalised companies such as Expedia and Lastminute.com were spending between £15 million and £25 million per year on technology and similar amounts on advertising in a race to grab consumer spend and to create some long-lasting brand equity.

The traditional players in the industry at first ignored the issue, feeling they owned the market. When the race to catch up began in earnest, some horrific crashes happened, notably to Airtours, whose technology overspend and MyTravel rebranding contributed to their demise and shaky rebirth.

Well, publishers can rue wasted opportunity as much as they like, the key now is to compete for valuable ad spend and to do this publishers need smart thinking, capital funding and the ability to experiment with different models.

Ah yes… experimentation. Business schools give it a little lip service, shareholders don’t think much of it, but for the last three years most major advertisers have been working with mix of display advertising, search advertising, contextual advertising and cost per acquisition deals to find the right mix for their money. Publishers too need to move from the safety of display advertising to understand the revenue implications of each channel and work out the mix that is right for their sites.

Of course any decision making processes need to include the consumer. It’s important to understand that as far as the user is concerned advertising is content and needs to be pertinent to a site’s audience.

The long-term effects of inappropriate search or display advertising on a site will be degenerative to traffic. Conversely, appropriate advertising will boost traffic and create virtuous circle of more traffic and more spend. The simplest example of this is the creation of a marketplace or directory on a dedicated site where people can buy and sell specific items. Display advertising does not drive traffic – indeed it can do the opposite – but non-display advertising has the possibility of increasing site traffic.

Publishers have broadly three choices for non-display advertising on their sites. They can control advertising in the same way as they have done off-line; they can outsource specific verticals to channel specialists such as jobsite for jobs, OTC for travel; they can use a search marketing company to supply third party advertising such as Google, Yahoo! or Miva.

Of all these the last is the easiest option but potentially the lowest earner and drives the least consumer satisfaction. After all most of the audience understand what search engine product looks like – its pretty ubiquitous – and they may expect something more focussed from the site in question.

Apart from abandoning the brand to the search engines content, the other issues publishers have with this model is the lack of control. There is little or no control over which advertisers might appear on site, nor on the revenue that can be made.

The next model is the usage of vertical market specialists to create content and drive revenues. There is a plethora of very expert companies who can provide full-service travel search and booking, mortgage and savings information, job-boards etc., who are hungry for the right kind of consumers.

This is an area of great success for the last three years. Valuable revenues of varying scales have been driven out and the vertical specialists can largely be pasted onto the site with very little management overhead. However as publishing management takes a closer look at what is going on, three things become apparent: firstly there is an eventual disenfranchisement of the publisher’s brand as consumers become aware they are being sent to another service provider; secondly there is still no control over the content and thirdly – from left field – there is little or no mechanism for bringing on existing print advertisers into the mix.

This last issue of migration is a niggle. Should we abandon print relationships – valuable as they are – or make an attempt to co-opt print advertisers into a new model?

This brings us to the final choice for non-display advertising, which is to take parts of it in-house. In-house, means in control – leveraging existing advertiser relationships and focussing at the same time on trying to provide the advertising content that the consumer wants from the brand. It’s a model publishers know well and –what’s more – can successfully work online.

It is worth pointing out than none of the above three options are mutually exclusive, there are ways of combining two or more to create the best revenue return and the best consumer experience.

Justin Morshead, chief executive, AdPrecision

No comments: