Ben Shepherd writes: Chris Anderson in Saturdays WSJ.com – “today’s Web entrepreneurs have to not just invent products that people love, but also those that they will pay for”
If the doom we’re reading is true and CPMs are going downhill the idea of advertising supporting digital media endeavours is perhaps something we need to reconsider.
Personally – CPMs are down because those who sell the content to advertisers aren’t particularly good at justifying their rates … it’s not really anything to do with the economy, it’s the by-product of a culture of order taking and 5-6 years of good times.
Anderson: “What about the oldest trick in the book: actually charging people for your goods and services? This is where the real innovation will flourish in a down economy. It’s now time for entrepreneurs to innovate, not just with new products, but new business models.”
I like the thought and think it will spark some really interesting discussion … still I think of myself as a web consumer and wonder what I would pay for online if I was confronted with paying to play.
Locally I wonder how people would react if given premium options but were asked to pay for it?
Fred Wilson has written a blog post in response to Anderson’s article which looks at the issue from a different angle – http://www.avc.com/a_vc/2009/01/when-talking-about-business-models-remember-that-profits-equal-revenues-minus-costs.html
His point is some web businesses “might benefit from looking at the cost side of the profit equation at some point.” He cites Facebook and Digg as examples of companies that perhaps need to look at their costs as a way of increasing. He gives Craigslist as an example of a lean operator – with an operating margin of 90%
From the web businesses I’ve worked in there have been some glaring examples of fat that could have been trimmed – especially in the areas of middle management and production. These are businesses that seemingly haven’t seen any benefit from increased user scale – their headcount seems to grow in line with their revenues – or moreso. I can understand this with sales and biz dev but not really other areas … or not to the levels I have witnessed.
Maybe the future is a mix of what Anderson is saying, with the realism of what Fred Wilson is touching on here.
And the publishing world isn’t the only area where this is relevant – the agency model too could probably do with some re-invention.
Here is an industry effectively built on a foundation of ‘agency commission’ … operating in a climate where some clients often value their media agency as little as their toilet paper supplier (and often use the same pitch and audit process and people to evaluate value) which is resulting in lower fees, higher demands and a far larger scope of work. The commission model isn’t just broken – it’s a relic. The key question needs to be asked – how much value to marketers place on what they are currently receiving as a media product?
How can agency groups use scale, technology and true global networks to create efficiencies? And how can they stand out with so much competition? Right now most are looking at operating costs including headcount but maybe the answer is a little deeper than that?
These are interesting challenges facing the media world.
Liam Writes: David Kirk once said to me a Sales Director doesnt forget how to sell one day.
So if you revenue dips you dont shoot the head of sales, well not straight away. If it is true that the websites are no good at selling their wares then they wouldnt suddenly be getting much lower CPMs, they would have always had low CPMs.
The reduction is occurring because of the economy. No question.
For some they are killing digital entirely, for others digital will survive and television gets cut.
There is less money floating around for advertising as it is a vraiable cost. Revenues are mostly off pace so variable costs are getting cut.