Business Models for Publishers

Given that I am changing jobs from working for the UK’s biggest B2B publishing company (that’s RBI, by the way) – I’m on holiday at the moment – to go and work for a Government website that gives advice to Businesses (that’s Business Link, by the way) I thought that this post was kind of relevant.  Even more so though now that The Tribune Company is filing for bankruptcy basically because of ailing advertising revenue as an outcome of the credit crunch.  This has a lot of journalists talking – it’s their industry and so they are the ones who are trying to work out how to get around it.  In the NewYorker James Surowiecki talked about the future of the online newspaper and over this side of the pond, Roy Greenslade often talks about how bloggers and journalists get along (or not).

This has all led me to this blog post which is to look at the busisness models that publishers adopt (or should adopt) for their online product, along with inherent problems.

Online Advertising

This works in a number of ways:

Display advertising is adding banners, skyscrapers, MPUs, buttons, etc to a web page and then selling them to advertisers.  Traditionally advertisers pay for these at a thousand a go, which probably says something about them.  More importantly, the click through rates (CTR) of these ads have been falling and continue to fall every year.  Whereas advertisers used to think that these were useful ways of driving traffic to their website, they have proved to be unprofitable for direct money making schemes and far more useful for brand making exercises.  There was a concerted approach a few years ago to attempt to get these at a cost per click (cpc) model, but that has fallen by the wayside as publishers looked in horror at persuading people to leave their site for someone elses for a fee.

So if we’re saying that they are only profitable from a brand perspective and that it is difficult to prove their worth in a direct fashion (clicks, sales, etc) then we can see why this could be an issue in a credit crunch era.  They will be the first budget cuts because they show very little direct revenue and the return on investment (ROI) appears to be low.

So how do you get around this issue?  Well one way is to make your adverts targeted better, to up CTRs and persuade advertisers that not only do they get brand awareness, but they are getting better direct revenue.  To do this, there needs to be a clear usergroup for the pages which leads us into a classification issue.  If you’re a publisher you have to be able to group your pages in a very niche way so that you can sell the adverts to a niche advertiser.  Of course, if you do behavioural targeting eg by using beacons to provide properly targeted adverts for the advertiser you may have some inherent problems in upping CTR.

However this doesn’t really solve the problem.  If you then manage to sell all your ads because they are well targeted, your next job is to get more of them.  If you are selling them on a cost per mille (cpm) model then to make more money, you have to persuade the people to load more pages.  How do you persuade them to load more pages?  Well you either get more people to load more pages, or you persuade each person to load more pages.  This leads you to more problems, because if these new people aren’t as engaged or if they engaged enough with the content to load more pages, they probably won’t have such a high CTR.

This isn’t really an issue anyway, because there are lots of sites that rarely sell all their advertising and rely on Google Adsense to get around it (targeted Google ads).  Which does work on a cpc model and hence doesn’t really make any money.  If you’re not selling all your adverts on the page, then getting more ad impressions doesn’t actually make you any more money, so there is no real incentive to grow the site.

This leads me to the next type of online advertising, which is classifieds.  Classifieds come in a number of different formats, but the main one traditionally was job advertising.  Advertisers would pay you a certain amount of money to put an advert of the job that they had on your site.  This follows the old style newspaper system where advertisers could put job adverts in the back pages of the newspaper.  This has its inherent problems too.  Your site has to be targeted enough for the advertiser to think that they are going to get people to apply for your jobs.

This leads you to some KPI issues – you clearly don’t want more pages, that doesn’t make you any more money.  You don’t want any more users, because they won’t make you any more money (directly).  Do you want more applications to your jobs?  Well, they don’t directly make you any more money either.  What you really want is more jobs being posted, which indirectly means you probably want more applications to persuade advertisers it is worthwhile.  But your KPI really should be ‘Jobs posted’.

This leads us to even more problems – we’re currently in a recession.  Jobs are being cut left, right and centre.  There aren’t going to be more jobs being advertised.  If your business model is reliant on this, then you are reliant on people recruiting and that isn’t really happening at the moment.

This leads us to other bits of classifieds.  These can work well as proved by ebay whose entire business model is based on this and this solely, but they can be made part of a site in a broad way (like The Sun) or in a very specific way for that market (see my favourite FWi).  The other trouble is though that there are a series of sites that allow you to do this for free (eg gumtree).

I’ve seen arguments that suggest this could go either way in a recession.  You might get more people buying and selling or you might get fewer.  I think the principles of the KPIs work in the same way as the jobs though – you need more posts up there, because they make you money.  To get more posts one of the things you need is to have more buyers.

I haven’t mentioned any personal classifieds, but they work in a different way making money.  Traditionally they tend to work by making the buyers pay the money rather than the posters, which brings us on to the next topic.


Paid Subscriptions

This is where controversy always comes in.  Traditionally Journalists have written stuff that is then sold on a piece of paper at a newstand.  They always then claimed that if you were going to put it online, you should make people pay for it too.  The trouble is that as soon as one person decides to make it free, everyone else has to as well (why would you pay for something you can get for free elsewhere?).

The only way around this is either to have news that nobody else has (in the B2B market this is fairly common) or information that isn’t publicly available.  Here there are a few niche markets – see the chemical industry and most scientific journals – where this works, but it won’t work with mainstream news.  Everyone else is publishing the same information, so you have to make it free.

This leads us to a couple of issues though.  Firstly if you are measuring it, you really want to know how many subscribers you have as your main KPI.  How do you get more subscribers is the next question?  This is where the serious issues come.  Either you have to go around the companies and individuals that may want access and attempt to sell them.  This clearly isn’t very cost effective (cold calling essentially).  The other option is to tell some other websites to advertise it (eg through banners, skyscrapers and MPUs) or by sending out press releases.

The other way is through search engine optimisation.  Although this too has its inherent problems.  If your content is hidden behind a barrier so that you have to pay to see it, Google can’t see it and won’t index it.  So you have to give away some for free.  Which starts making your proposition of paying look less attractive, because why would you pay for something that you could get for free?

Sell something

This is the real big one.  Why be a publisher?  Why not sell something on the site.  Traditionally you’d want to sell your newspaper or magazine because you’ll do that anyway.  But way just stop there.  Why should you only sell the magazine or newspaper you’ve been making anyway?  Why not start selling stuff around the niche of your website.  This means that your website probably has to be relatively niche and have things that you can sell in a related way (my best example is the flightglobal shop).  In fact, I don’t know why more people don’t do this.

Affiliates

This, I feel, should be something that should be relatively easy to do.  Look at the pcworld website where they review products and then link through to places that you can buy them. This is a great idea if you talk about things that you can buy.  And lets be frank, most newspapers do talk about products as do most magazines.  In fact, most fashion magazines have a huge section in them where they put pictures of things you can buy.

So there can be a valid business model, but I think that you need to look at many different areas of money making.  This way you if one of your area fails (they stop paying affiliates or advertising revenues dry up) then you can fall back on your other business models.

Update:

Actually, not sure this really needs to be an update, but I wrote it a couple of days after the original when I realised I’d rushed the end bit.  The other thought I’ve had is sponsored content.  This sits in two different lines – Display advertising and affiliate deals.  Effectively you are writing content on behalf of someone else (usually an advertiser) with the express point of attempting to pedal some more of their product.  However, you are trying to make it look like you’ve written it yourself independently.  To maintain your editorial integrity, you are going to tell everyone it is sponsored.  The sponsors will want to put their logo all over it, but make it look like they didn’t have anything to do with the content.  So its difficult to do editorially, from a reader’s perspective you don’t want to be pedalled something from a trusted source and from an advertiser’s perspective its hard because unless you get it right, there’ll be no ROI.

But if you can get it right, then it can make sense from all perspectives.  The only question from an advertisers perspective is do you measure your ROI only from direct sales or from your increased brand awareness.  And then how do you pay for it – obviously an affiliate deal would be best, but your publisher is unlikely to go for that option, because they’ll want guaranteed income.  It’s a tough one, but possibly where the future lies.