It's been a challenging decade for publishers. The shift to digital came swiftly; almost overnight, the financial models that had sustained the industry for generations disappeared, replaced by a confusing array of problems and possibilities.
Publishers have adapted and evolved in incredible ways to avoid the publishing Armageddon foretold during the mid-2000s, and that evolution is far from over. Lately, overall CPMs have been dragged down by a stalling economy and ad exchanges selling inventory at cut-rate prices. Meanwhile, June brought scary news from Reuters that digital ad revenue had hit a plateau. Digital dollars might not have been enough to make up for the loss of print advertising, but at least digital revenue had been steadily growing. Now, even that growth appears to be in jeopardy.
Smart publishers are navigating this in such a way that they are actually seeing increasing CPMs though -- first they did this with search engine optimization (SEO), then good use of emerging social channels, and now with understanding what data they have and the value stored within it.
Search engine dominance and the first ad networks
As more and more publishers scrambled online in the early 2000s, search engines began to rule the internet landscape. Search engines were increasingly how internet users found what they were looking for, making them an increasingly significant source of traffic for most publishers.
But while search engines were growing the traffic of leading publishers, they were also leveling the playing field. Suddenly, almost anyone with some basic knowledge of SEO could compete with major media operations for Google hits. And thanks to the rise of blogging, almost anyone could become a publisher. As The New York Times Magazine put it in 2010, "The sheer volume of words has overwhelmed a business model that was once based on scarcity and limited choice."
Soon enough, the internet was being flooded with content, much of it of a very low quality. And, thanks to SEO, the low-quality content often out-performed higher-quality content.
At the same time, the digital ad game was changing rapidly. All of the excess non-premium inventory led to the creation of ad networks that could package inventory from multiple sites and relieve publishers of the burden of selling it directly.
But if ad networks helped publishers monetize their inventories, they were far from an ideal solution. There was a long lag time waiting for metrics to come in, and optimizing ad performance was a tedious challenge for marketers. Both search traffic and media planning were very inexact sciences, leading to wildly fluctuating CPMs.
The rise of ad exchanges and social media
In 2004, building on the bidding model Google rode to riches with AdWords and AdSense, RightMedia became the first ad exchange. Ad exchanges are marketplaces where publishers can sell their remnant inventory through a process known as real-time bidding (RTB). With RTB, advertisers can automatically bid on each individual impression in real time, based on an array of user data derived from cookies.
Ad exchanges grew in popularity quickly, in part thanks to Yahoo's purchase of RightMedia in 2007 and Google's purchase of DoubleClick in 2008. But if ad exchanges made it much easier for publishers to unload excess inventory, they also allowed advertisers to purchase that inventory at the lowest possible price, driving down CPMs for publishers.
Simultaneously, a new tool for driving traffic and increasing audience engagement emerged for publishers: social media. From fast-growing social networks like Facebook to recommendation engines like Digg, publishers began to envision a new path for content discovery. Their focus shifted from creating content that would do well on search engines to content that would be shared.
With sharing as a growing source of traffic, the emphasis on quality began to reemerge. And quality got another boost when Google updated its algorithm in early 2011 in an attempt to give a rankings boost to good content.
These new incentives to aim for quality brought us to the dilemma publishers face today: They can increasingly count on quality content leading to more page views, but the extra revenue from those page views is still rarely enough to cover the additional costs inherent in creating first-rate media.
The path forward: Viewability and data
The good news is that there's no reason for gloom and doom for quality publishers. Many publishers may soon see a boost from a growing emphasis on viewability. Last year, AdSafe Media revealed the display industry's dirty little secret: Nearly 40 percent of ads served are never seen by the intended user. They also revealed a strong correlation between time-in-view and conversion, meaning that ads in view longer do much better. As a result, advertisers and publishers are starting to place a much higher value on ads with premium placement on quality pages.
The perhaps even better news for publishers is that many of them have an untapped revenue stream at their disposal: data. Publishers can monetize their data in myriad ways.
First, they can sell first-party data to advertisers running ads on their sites, thereby increasing the value of the ads, since advertisers have more information to hyper-target individual users.
Second, they can sell data to off-site advertisers. Take the example of a real estate company that wants to advertise on The New York Times real estate section. If The New York Times doesn't have the inventory to sell on its own website, it can still cookie users who visit its real estate section and allow the real estate company to target those users once they've left nytimes.com.
Third, publishers can partner with first and third-party data partners. Chango, for instance, buys search keyword data from publishers, providing an easy-to-implement monetization solution that often increases its yield month over month. This is a beautiful solution because it requires little-to-no effort on the part of the publisher.
In other words, as grim as falling CPMs might seem for publishers, there's plenty of reason for optimism. Digital advertising is still in its infancy. The evolution is far from over.
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