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How Media Companies Can Take Control of Power Performance Ad Revenue

In an era when traditional advertising revenues are flat or declining, media companies are adapting their business models to capitalize on the double-digit growth of online advertising. All media companies are looking to monetize their digital information with both display advertising and performance advertising. Yet the manner in which media companies make money from these two online advertising models is quite different.

While media companies typically sell their own display advertising to maximize revenue from the large advertisers seeking to reach their valuable audiences, they often outsource performance-based advertising - both search and contextual ads - to a third-party ad network. Outsourcing has become so widespread that nearly all online publishers and content aggregators list sponsored ads from third-party networks whenever a visitor conducts a search or clicks on a relevant page. However, if a company outsources to a third-party performance ad network, they end up losing revenues, ad relationships, audience data and ultimately performance.

For every click on a sponsored link, the media company receives only a share of the revenue - often less than half - even though it created or aggregated the content and attracted the audience. The split depends on the value of the publisher to the network, which is often determined by the publisher's traffic and average clickthrough rate. As ad networks sign up more and more publishers, they become less dependent on any one site and gain even more leverage in negotiating revenue splits.

In nearly every form of advertising, media companies - particularly established outlets - use a direct sales force to sell and place ads. Yet, when an online publisher chooses to outsource performance advertising, it loses a key opportunity to attract new advertisers and strengthen relationships with existing advertisers by offering them a new performance-based advertising vehicle. Advertisers are instead forced to go to a third-party performance network or directly to a competitor who offers a performance product.

It is well known that consumers are increasingly turning to the Web as their primary media consumption channel. Every search and page view from a consumer is valuable data that, when viewed and analyzed in aggregate, helps media companies improve their sites and attract advertisers seeking to reach their online audiences.

When a publisher chooses to outsource performance advertising, it directly or indirectly releases key audience data, including what content and advertising is most attractive and profitable and what users are searching for on any given day.

Targeting Performance Ads

Performance ads are highly targeted because they match the content of users' search queries or the Web pages they are viewing. The problem with third-party networks, however, is that they use a one-size-fits-all ad relevancy model when matching ads to search queries or Web pages. As a result, they cannot possibly provide an ideal match in every case because the relevancy is not tuned to each media property's content.

To sell performance ads in house, a media company needs a large base of advertisers willing to purchase keyword ads, a sufficient amount of search traffic and page views to match to the ads, and the investment capital and search expertise to implement an in-house solution. Until recently, only the major search engines met these requirements, which is why they have come to dominate performance advertising.

Media Companies Take Control

Today, however, the landscape has changed. As Internet giants further extend their footprint into traditional media territory, and as performance advertising lengthens its lead as the dominant form of online advertising, media companies have the competitive and strategic motivation to take control over both display and performance advertising.

Forward-thinking online publishers are taking action by implementing their own branded performance advertising solutions that allow them to sell and display their own keyword ads. As a result, they have the independence to keep 100 percent of their performance advertising revenue, the control to improve ad performance and better satisfy their advertisers, and the flexibility to syndicate and expand to other channels.

Following industry best practices, media companies can easily understand the operating procedures and investments required to implement an in-house performance advertising solution. Once the solution is in place, the publisher can reduce or eliminate its reliance on a third-party network and its revenue sharing model, leading to direct revenue gains.

Once they get their feet on the ground, media companies can customize the system to increase performance (and revenue) by adjusting ad models, improving targeting methods, tuning relevancy models and optimizing ad display. Sites with major affiliate or partner networks can grow revenue even further by syndicating their ad feeds. And media companies need no longer think of the Web as the end game. As mobile advertising becomes the "third screen," media companies with their own performance advertising portals can offer marketers a one-stop-shop for a true multichannel search and contextual advertising campaign.

Publishers that sell their own performance ads can keep all data behind their own firewall and use it to improve ad performance to gain competitive advantage in their markets. In addition, by bringing performance advertising in-house, media companies can eliminate the middle man and gain control over their relationships with advertisers seeking to reach their audiences.

An in-house solution also allows media companies to give more control to advertisers. Self-service ad portals present a low-cost way for media companies to attract even the smallest marketers, who can bid for, purchase and place their own ads without any support. For larger marketers, a publisher can employ a dedicated sales force to provide premium service. And for large advertising agencies, media companies can provide open APIs that allow agencies to integrate their ad buying software to streamline purchasing and reporting.

Media companies need not turn off the third-party faucet entirely, however. In-house solutions provide the flexibility to sell performance ads on the highest value inventory, while using a third-party network to backfill lower value inventory. When a publisher has built up a large advertiser base, it can eliminate the third-party network completely.

Because performance advertising allows lower priced entry points, it enables a publisher to target a much wider range of advertisers. By selling their own performance ads, media companies can form relationships with a large number of new advertisers to help solidify future business models.

Third-party performance ad networks are inherently limited by the fact that they must deliver ads to a wide-range of media sites, each with their own unique content. With their own branded performance advertising solutions, media companies can tune the ad relevancy based on a true understanding of their content. As a result, ad performance will improve, increasing advertiser satisfaction and revenue for the media company.

Selling performance advertising may not be the right decision for every media company. But for online publishers that have an established advertiser base, a large amount of traffic, and the competitive and strategic motivation, a branded performance advertising solution can provide top-line and bottom-line benefits and help strengthen future online business models. Let's examine some of the best candidates that meet these requirements.

Is An Internal Performance Advertising Network Right for You?

Analysts predict that up to 70 percent of the traditional local advertising market will move online over the next five to 10 years. Many innovative yellow pages companies have established online businesses to capitalize on this shift, while a new crop of successful local portals, local search and classified sites have shown that consumers are hungry for relevant local and vertical directory listings. The key challenge for online yellow pages, local search, and online directories, however, is the intense competition coming from the major search engines and free sites. By implementing an in-house performance ad network, these directory-oriented businesses can compete with the search giants by providing superior, targeted advertising opportunities for local and category-specific marketers. Because these sites often derive 100 percent of their revenue from advertising, they can leverage their deep advertiser bases and ad sales forces to ramp up quickly and see near immediate returns.

Print Publishers

Print publishers have been hit the hardest by the fragmentation of media, stung by shrinking circulations and newsstand revenue as readers move much of their print media consumption online. Newspapers are ideal candidates for in-house performance advertising. They often have a large base of classified advertisers, many of whom are moving their print budgets online where they can achieve greater ROI. Newspapers can supplement their online paid-inclusion classified listings with high-performing sponsored listings that provide classified advertisers another way to target local readers online. Secondly, many newspapers have turned their online sites into local portals, adding rich, local search capabilities to attract traffic. With an in-house performance ad solution, a newspaper can reach out to the thousands of local businesses in its area and sign them up as performance advertisers.

Magazines also have a great opportunity to sell performance advertising because their online sites typically attract a highly targeted audience. Furthermore, many magazines are adding new community, social networking and user-generated content features to their Web sites to create stickiness and build loyalty. These features significantly increase inventory, a key requirement for performance advertising to be successful.

Vertical Search Engines

Vertical search engines and portals can greatly benefit from in-house performance advertising because they attract a highly targeted audience. As an example, a health information portal with millions of health-conscious visitors each month presents an ideal ad buy for the thousands of small businesses that sell health-related products and services. If the health portal can provide greater ad performance at lower prices than the broad-based search engines, these marketers will be more likely to sign on directly with the portal to purchase keyword ads.

Vertical portals are also under attack from the major search engines. There is a short time window for vertical search engines and portals to build the traffic and the advertiser bases to gain an early performance advertising lead in their respective markets.

Service Providers

As traditional subscription models come under pressure from new competitors in the broadband, mobile and fixed-line businesses, service providers must embrace advertising as the primary driver of new revenue. While cable operators are investing millions in their broadband portals to drive traffic, increase inventory and enable advertising growth beyond their existing levels, traditional fixed-line and mobile operators are looking to advertising as a new revenue category. The emerging IPTV platform will also provide everyone in the content delivery market with a new targeted, interactive medium that is ideal for performance-based advertising models.

To maximize advertising profitability, service providers must consider the requirements of not only the major media planners and buyers but also the smaller, local advertising markets that will represent billions of dollars in future ad buys. It is simply sound strategy for service providers to create their own performance advertising marketplaces so they can stay independent from branded, third-party search engines and create customized solutions that highlight their unique advantages to advertisers. Advertisers will benefit from a premium alternative for running ads across providers' platforms, while providers will retain a greater portion of performance-driven ad revenue and increase negotiating strength against third-party search engines.

The Role of Search

In the world of online media - on the Web and increasingly on the mobile phone - search has become the way consumers "turn the page" and "change the channel." The broad-based Web search engines were the first to capitalize on this phenomenon, building billion-dollar performance advertising machines by matching the presumed intent of users' searches with relevant advertisements. But as search engines steadily intrude upon media's turf, are these revenue handouts simply fool's gold?

Today, media companies have all the requirements to return to their roots and control all of their online advertising revenue, both display and performance-based. They have the advertisers at the head and at the long tail as marketers shift an increasing percentage of ad dollars online. They have the search traffic and the page views as their sites have grown from digitized versions of offline media to rich destinations for content, contribution, conversation and community. And now they have the search-driven, performance advertising software that levels the playing field so they can fight back and reclaim control and independence.


Perry Solomon is senior director, Media Business Development , at FAST Search & Transfer. He has more than 10 years of experience in the media and entertainment, technology and Internet industries, helping companies develop and implement growth strategies. Most recently, Solomon was a founder and vice president of Strategy and Products at Peppercoin. Previously, Solomon served as a director in the Content Bridge business unit at Inktomi Corporation and also served as product manager at Adero, Inc. He may be reached at perry.solomon@fastsearch.com.

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