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Archive for April, 2010

Grassroots sales for grassroots blogging

by henrycopeland
Tuesday, April 27th, 2010

Today we’re launching a new feature to pay bloggers who bring advertisers to other bloggers in their niche or locale.

Think of this as grassroots ad sales to support grassroots news.

We’re testing the new functionality with the 15 members of our military blog hive and 20 bloggers in our economics blog hive.

Here’s the idea: the total commission on buys through the econ and military hive order pages will rise to 40% from the current 30%. On any buy referred by a blogger through the hive order page, 14% will go to that blogger, 6% will go to the hive manager, and 20% will go to Blogads. So, for example, if a blogger refers an advertiser to the hive for a $3,000 purchase, that blogger will make an extra $420 above the revenue from the ad itself.

To get the commission, bloggers will use a specific URL when sending advertisers to the hive. If an advertiser doesn’t buy immediately but returns to the hive within a month, the referring blogger will still be commissioned.

This commission will compensate a proactive blogger for her hard work or connections. The sales effort could be as simple as putting an extra link to the hive order page in the blog’s nav bar or as full-throttle as sending a link out to contacts or writing a blog post extolling the virtues of advertising on the hive.

(On a related note, we’re lowering the commission for ads sold when buyers click on the “advertise here” on individual blogs, currently at 30%, to just 14%. We’re keeping less money because we do less work on these deals; we want more money to flow to the people who are doing most of the work.)

Why are we doing this?

Niche blogs are vital players in the media ecosystem and they MUST be funded. In a world in which algorithms and top-down solutions increasingly drive both content creation and advertising, we think this collaborative ad sales solution could a significant impact on the livelihoods of niche bloggers.

In both competing for eyeballs and ad dollars, blogs are up against giant competitors… not only the likes of the New York Times, Washington Post and CNN but content megafactories factories like Demand Media, AOL, and HuffingtonPost. There are now literally billions of pages online for readers to mine for information and for advertisers to use in promoting their goods and services.

Amid a Gobi-sized desert of generic media mediocrity, blogs have something special to offer both readers and advertisers: an oasis of human quality, a strong sense of connection with and among readers. For advertisers looking to elevate their brand and really connect with influential readers — as opposed to just getting clicks from random consumers — there’s nothing better.

We think that some niche bloggers will bring their passion for their niche and investment in its success to selling ads. Since nobody knows niche blogs better than the bloggers themselves, a self-organized group of bloggers seems like an ideal platform for selling those ads. Bloggers are often uniquely well-connected in their own communities of interest, whether in a given locale or a niche. In a sense, the blogger sales commissions is a continuation of the ideas — niche-focus, self-organization, DIY, bottom-up — that we started chewing on clear back in 2002, when we launched Blogads.

Many thanks to bloggers Craig Newmark, Matt Burden, Amy Langfield, Kari Chisholm, John Hawkins, and Ken Layne who have helped us with the concept.

Once we’ve fine-tuned the functionality, we’ll roll it out to other hives. For members of the Mil and Econ hives, here’s our technical explanation of the functionality. Please let us know how we can improve it.

Some background on hives: We currently support ~130 hives.

These range from the Liberal Blog Advertising Network (117 blogs, 100 million impressions a month), to Conservative blogs (90 blogs, 50 million impressions) to New York City blogs (26 blogs, 29 million impressions a month) Wine Bloggers (5 blogs, 195,000 impressions a month), Jewish Blogs (10 blogs, 2.5 million impressions a month), and Evangelical bloggers (11 blogs, 430,000 impressions a month).

We created hives (then called “mini-networks) in 2005 to try to stay sane; we had topped over 1000 blogs and couldn’t keep track of who was who. Rather than try to determine who, for example, was a liberal blog we turned this over to the bloggers to determine. So we let bloggers create their own hives and promote sales commonly. The hive adminstrator, for his or her troubles, would then get 5% of sales.

Over time, we’ve realized that the hive’s cataloging function the hives was the least of their utilities. The blogs in the hives, reading each other, linking to each other, e-mailing behind the scenes, have incredible power. We hope the new idea will extend this power even further and fuel new profitability for locale and niche blogging.

iAd doesn’t add up: Jobs ignores the ad market’s dynamism and complexity

by henrycopeland
Saturday, April 10th, 2010

Here’s a thought experiment.

Imagine it’s 1993. After graduating from college, Marc Andreessen is offered a job by Microsoft. He accepts.

Eager to grow the “world web web,” Andreessen creates “the Internet Explorer” rather than Netscape.

Trying to help site creators earn money for their efforts, Microsoft creates a mechanism that allows publishers to charge the people who want to consume their content. Microsoft takes a 30% cut on content sales. For publishers, the revenues from online content sales is found money, so Microsoft gets nothing but praise for the new service. (The 30% fee seems a tad high to some people, since Microsoft has almost zero marginal costs associated these sales. But critics don’t dare go public — everyone agrees this is a good thing, most journalists know even less about percentages than they know about technology, Microsoft invented the darn thing, blah, blah… so why rock the boat?)

Fast forward a few years and IE is the dominant browser, used on a vast majority of computers. As the number of people online has grown, some publishers have begun to offer their content to readers for free. As the web’s audience has grown, they’ve discovered that some of their print advertisers will pay for advertising on web sites via crude little panels called “banners.”

Fearing the cannibalization of its share of site content revenue, Microsoft decides to launch its own proprietary technology, the mBanner. For technical reasons — security, loading speed, feature compatibility — Microsoft declares that IE will only support the mBanner.

Site owners, thankful for everything Microsoft has done in cultivating and underwriting the wonderful world wide web, are thrilled to see a company with Microsoft’s prowess and heft get behind the “banner” market. It seems only natural that Microsoft decides that, to be compensated for all the hard work it’s put in over the years, it should get a cut on any sales of mBanners. After all, the mBanner is Microsoft’s technology, right?

To make sure it gets paid, Microsoft declares that only its employees will be able to sell the mBanners. If someone else sets prices the ads or handled the money, Microsoft might get cheated. (For example, left to negotiate the price of their own mBanners, publishers might give away online inventory free to help seal lucrative print deals, diverting money from Microsoft’s deserving coffers.)

Agencies are enthusiastic about the simplicity of dealing with just one ad unit and just one counter-party. They agree to work with their clients and then call Microsoft to place the mBanners on the Internet Explorer.

The fee? 40%. That’s higher than Microsoft’s fee on content sales, so a few people grumble, but most people accept the fee. It’s Microsoft’s market. You’d have to be stupid not to understand that it’s better to earn 60% of something rather than 90% of nothing.

And if you want lower fees, buddy, why don’t you invent your own browser?

Ha.

Forget about the obviously absurd economics of this alternative history. Forget about the rage that would have been vomited onto Bill Gates had he tried to monopolize the market for online advertising. Let’s just assume it happened and think about how the online advertising market, shorn of competition between publishers based on price or most other modes of differentiation, would look like today.

In this alternate reality, publishers don’t need their own sales teams. This would, arguably, save publishers some money on ad sales teams and technology. That’s food for publishers, right?

And ad networks don’t come into existence. Who needs an ad network when there’s one price-setter and one market-place consolidating all supply and demand? Less confusion for advertisers and agencies.

But if monopolists offer killer economies of scale, the market pays dearly for their services in other ways.

First, publishers must be content with the prices that Microsoft decides to charge for their ads.

Want to invent a different shaped ad unit? Hmm, sorry, that would confuse the marketplace and mess with the wonderful Microsoft platform.

Think you’ve got a particularly cool audience that’s worth more than other sites’ generic nincompoops? Tough luck — Microsoft is too busy with their technology and existing relationships to bother selling your unique audience at anything other than the average advertiser at the average price.

Got a site that Microsoft thinks is too risque for its fine advertisers? Tough luck.

Now, fast forward 17 years and replace “Microsoft” with “Apple.”

Here’s the WSJ’s summary:

Apple Chief Executive Steve Jobs said Thursday the new operating system will include an advertising capability, dubbed iAd, that allows developers of the programs available in Apple’s App Store—many of which are free or cost 99 cents—to include ads in their software.

Apple will sell the ads, with developers who create the apps getting 60% of the revenue of any mobile ads, and Apple taking the remainder.

Apple thinks it’s going to sell all the ads that appear on any Apps on any iPhones or iPads. The iAd! Genius.

Apple is bringing its magical unified platforms to advertising. Some analysts predict the iAd will catalyze explosive growth in mobile advertising. Agencies will bang on Apple’s door. Apple will pass out a price list, advertisers will check some boxes, and bingo, everyone’s happy. Apple will make hundreds of millions!

Apple’s 40% fee sounds fair because that’s basically what they take on Apps, right?

Wrong. The analogy between the app market and iAds is false.

The app market consists of just two counter-parties — the creator and the buyer — mediated by Apple.

The market for advertising is far more complex. First there are the end clients with the money, aka advertisers. There are various types of agencies: creative, ad buying, planning, strategic. Then there are the publishers and other content creators. There are ad networks. There are tech companies running around trying to sell any and all of the other players their latest innovation.

And of course there are sales teams larded throughout, each selling to the next level in the pipeline. In theory, the whole ecosystem functions sequentially with companies talking to agencies talking to sales people talking to publishing executives; in practice, everyone talks with everyone, covertly trying to eat their partners’ lunches and win an upper hand.

Apple may think that the ad business is just a matter of taking money from agencies and passing it to publishers. That bilateral flow chart omits where all the key innovation occurs. Maybe Apple doesn’t know this, but most of advertising innovation isn’t instigated by agencies, but by publishers and ad networks and tech vendors competing tooth and nail to win business from agencies and their clients.

Think I’m wrong? Consider how few agencies actually employ their own programmers. More evidence that agencies don’t drive innovation can be seen in the fact that agency relationships tend to be stable, lasting for at least a few years, while publishers, tech vendors and ad networks evolve new products and differentiators with the Darwinian fervor of flu viruses fighting to make it back another year.

Many agencies just package these ideas — new sizes, new functions, new prices, new assumptions, new metrics — and present them to advertisers as their own creations.

So here’s how things are going to play out for the iAd. Apps on iPhones and iPads are undoubtedly very cool and powerful and iAd will fit wonderfully into the mix. At first, advertisers will be thrilled by Apple’s offering. Little app producers with no sales expertise of their own will be thrilled to. For people without shoes, a shoe store is a wonderful thing.

The press will be filled with glowing exclusive reports on Apple’s prowess in making and selling ads.

After a while, though, the elation will wear off. For all their technical sizzle, Apple’s iAds will end up with the diversity, charm, and dynamism of shoes in a Communist shoe store. One product, one price, only a few sizes, one decor, and one unsmiling sales force. Take it or leave it folks.

(Update 2/17/10: Apple’s presentations to agencies seems to confirm this monolithic, one-size-fits-all approach. According to folks at ad agency Hill Holliday who recently got a demonstration from Apple, “Apple is selling to advertisers is the iPhone and iPod-totting demographic in general, not users of any individual app.”)

I hope Apple’s got some cute tricks up its sleeve that I haven’t anticipated here. But nothing I’ve read so far suggests Apple understands the true complexity and dynamism of the ad market. Our ad market.

Update: To clarify: I’m not expressing anti-trust concerns about the iAd, though obviously if the dreams of Apple and its fanatics come true, the iPhone, Ipad and iAd WILL become the dominant platform for consuming and monetizing content. My point is that product innovation, something Apple excels at, is entirely different in structure and tempo from advertising innovation. Competitors will no doubt make hay from Apple’s rigidity.

Update 2: You should read John Gruber’s brilliant post laying out why Apple has shut Flash out of the iPhone. He notes “The App Store platform could turn into a long-term de facto standard platform. That’s how Microsoft became Microsoft. At a certain point developers wrote apps for Windows because so many users were on Windows and users bought Windows PCs because all the software was being written for Windows. That’s the sort of situation that creates a license to print money.” Gruber goes on to say of course Apple won’t dominate all markets, just all good markets. :)

Update 3: Looking at the iPad, Nicholas Carr makes in interesting point about the inevitable evolution of a given technology away from human agency that might also be used against my arguments about the iAd: “One of the keynotes of technological advance is its tendency, as it refines a tool, to remove real human agency from the workings of that tool. In its place, we get an abstraction of human agency that represents the general desires of the masses as deciphered, or imposed, by the manufacturer and the marketer. Indeed, what tends to distinguish the advanced device from the primitive device is the absence of “generativity.” It’s useful to remember that the earliest radios were broadcasting devices as well as listening devices and that the earliest phonographs could be used for recording as well as playback. But as these machines progressed, along with the media systems in which they became embedded, they turned into streamlined, single-purpose entertainment boxes, suitable for living rooms.”

Update 4: David Weinberger sums up a debate over whether the iPhone and Apple’s overall ecosystem is “generative” — in author Johathan Zittrain‘s definition ‘capable of producing unanticipated change through unfiltered contributions from broad and varied audiences.’ Weinberger sees wonderful but closed systems as potentially jeopardizing software creativity and, in turn, human expression via that software: “The danger is that as cellphones become mobile Internet devices, and as iPods become mobile computing platforms, our new generation of computing devices will be appliances open only at the forbearance of their creators. Those creators may be relatively benevolent, but the question isn’t whether this device or that creator is open. It’s what the future of the Internet and of computers will look like. If appliances become the dominant way of interacting with the Net (and thus how we interact with one another), then no matter how loosely the device creators hold the reins, we are accepting the bit in our mouths. If appliances become the default, then the market for challenging, risky, disruptive, subversive app development is in danger of drying up.”


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