Thursday, July 24, 2008

Performance Insider: The Exclusivity Trap

The Exclusivity Trap


WHILE NEWS EXCLUSIVES CAN ATTRACT new audiences and help a site grow, advertising exclusives are bad news for online publishers.

When it comes to online advertising, publishers need to be like the manager of a football team before draft season: they need to keep their options as open as possible.

Of all online marketers, publishers have the most difficult job. They have to answer to the needs of three diverse constituents -- their writers, readers and advertisers. And they have to make money doing it. Advertising plays a major role in making all of the above happen.

As a result, publishers need to keep their options as open as possible when it comes to advertising, and should refrain from entering into exclusive advertising agreements with third parties such as networks and exchanges.

Don't get me wrong. I have nothing against ad networks and exchanges. They help advertisers by delivering reach. They help publishers by monetizing unsold ad inventory.

But that's no reason for a publisher to enter into an exclusive advertising relationship and close the door on all available options. Even if some ad networks bring value-added services like ad serving and other services to the table as part of their value proposition, it's important not to trade the convenience of these offerings for loss of control over your site.

This article is not about the pros and cons of networks and exchanges. We have flogged that dead horse long enough, and it is clear to one and all that networks are here to stay. This article is about the pitfalls of forming exclusive relationships with them (networks, not dead horses), a course of action that can negatively impact publishers in three important ways.

Firstly, there is the loss of control -- specifically in terms of the kinds of advertisers that publishers can do business with. In tough economic times, publishers need to be able to spread as wide a net as possible to maximize advertising revenue. By signing up into exclusive relationships with networks, they make this task much more difficult, if not impossible.

There are many advertisers that won't do business with networks. In a 2007 industry study conducted by Collective Media (an ad network), 59% of advertiser respondents cited lack of editorial control as the greatest factor for not using ad networks. Additionally, 38% claimed that audience duplication affected their decision against putting their dollars into ad networks.

Just last month, I witnessed the painful spectacle of a publisher missing out on advertising revenue from an advertiser simply because they had entered into an exclusive relationship with an ad network. The advertiser, a major retailer, had ambitious plans and a budget to match, of which the publisher saw none. All because the ad network that managed the site's inventory didn't want to cede control out of fear of competition.

Ouch.

Secondly, by giving away all advertising control to a third party, publishers lose control over the kind of advertising that appears on the Web site. This can result in angry readers, writers, and potential advertisers.

In a crowded marketplace that always finds itself in the midst of change, publishers need to keep a focus on quality and relevance of content and advertising, which ultimately translates into advertiser value. There needs to be a clear distinction between quality and commodity, and a publisher that views her/his inventory as the latter will miss out on many an opportunity.

When Internet Advertising Bureau Chairperson Wenda Millard said that we have to, "distinguish between quality and commodity" and make sure, "we are selling value, not price. Not pork bellies!" she was right on the money. Can we not emphasize value and make our industry such that when an opinion leader searches for an analogy from the animal kingdom, they think of the wings of an eagle and not the stomach of a hog?

There is also the loss of revenue that results from an exclusive advertising relationship. How can a publisher who has to give up 40% -50% of its margins to an exclusive third party network scale its business to a real publishing house, with tens of millions of dollars in revenue?

The problem is further compounded by the loss of targeting control in a world where superior targeting directly translates into enhanced revenue.

The May PubMatic AdPrice Index found smaller sites increasing effective CPMs, while those on larger sites dropped by as much as 42%. The study recommended that given the success of the smaller sites, larger publishers should also segment their sites to operate more like niche properties. Giving away all of your advertising to an exclusive third party is a sure fire way of destroying your targeting capability and losing revenue.

The interests of publishers and networks should be in alignment. Removing exclusivity restrictions is a sure way to encourage that, and help publishers increase revenue.

Zephrin Lasker is CEO and co-founder of Pontiflex, the lead generation industryÂ's leading open and transparent lead generation marketplace.


Performance Insider for Thursday, July 24, 2008:
http://blogs.mediapost.com/performance_insider/?p=82


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