Tuesday, September 04, 2007

Un-banner days for banner ads

Google quietly has taken a major step to further marginalize banner advertising, the molting golden goose that generates a hefty portion of online revenues for mainstream media companies.

In a blog item posted on the eve of the Labor Day weekend, the Silicon Valley behemoth announced that it effectively will start diverting traffic away from the sites of the publishers and broadcasters whose businesses depend, to a consequential degree, on selling ads on the pages viewed by the visitors vectored to them by Google News.

This will happen because Google News henceforth will link directly to the sites of the Associated Press, Agence France-Presse, UK Press Association and the Canadian Press, thus bypassing the sites of the publications and broadcast outlets that publish stories from the four major news services.

“By removing duplicate articles from [Google News] results, we’ll be able to surface even more stories and viewpoints from journalists and publishers from around the world,” said product manager Josh Cohen in the Google News Blog. “This change will provide more room on Google News for publishers' most highly valued content: original content.”

The problem, of course, is that most news organizations have been cutting back on original content to shore up their eroding profit margins. Instead of creating the original content that Google – and the rest of us – value, the mainstream media have been filling a growing amount of the infinitely expanding space on their web sites with stories and video snatched directly off the wires.

They have been doing so in the mistaken belief that visitors will spend hours and hours, or at least minutes and minutes, happily clicking through the pages on their web sites to generate tons of views that they can sell in the form of banner advertising. This anachronistic and self-delusional model is fast becoming bankrupt. And here’s why:

:: Users are no longer loyal to any particular website, assuming they ever were. They are utterly agnostic about where they get their content. If Google News, Digg or Small Dead Animals has something that interests them, then that’s where they’ll go. When they are done, they will be gone.

:: Marketers see banners as one of the lowest forms of advertising. Because most people tune banners out – and many of us actually block them out – they are little noted and scarcely heeded, as their puny (generally less than 1%) clickthrough rates attest.

The declining faith in run-of-site banner advertising is illustrated in the graph below, which tracks the steady deterioration of average rates from upwards of $37 per thousand impressions in the early days of the Internet to $2 (or less) today for bulk, or commodity, impressions on the cheapest, bust-out sites. Higher rates, of course, are commanded by the most desirable venues, but the mid-range, where CPMs also continue to decline, is where most mainstream sites fall.

The graph was based on bits and pieces of information painstakingly collected from published reports by marketing consultant Michael Bloch. His data, while admitedly anecdotal, seems to fairly calibrate the increasing disdain most advertisers have for this particular medium.

The projections for 2008 and beyond are mine, reflecting my belief that advertisers in the future will forsake banner ads for the reasons discussed herein.

Two major caveats to be considered in viewing the data are that (a) rates always have been and always will be all over the map and (b) media companies are notoriously and properly reluctant to disclose the actual rates they charge their customers.

Even if some authoritative mega-database suddenly materialized to prove that the average CPMs today really are higher than shown here, there can be little doubt that rates are substantially lower now than when Internet advertising was the hot, new thing.

Further, rates are certain to become increasingly marginal as advertisers capitalize on new technology to find better ways to identify qualified buyers at the magic moment they are planning to order a pizza, buy a car or book a vacation to Italy. The inexorable migration away from banner advertising will be paced by the speed with which the emerging smart-computing technologies enter the mainstream.

Google’s decision to effectively ratchet down the number of links to media sites won’t alone kill the banner-advertising business. But it will help to hasten its demise by cutting into the page views long courted by the mainstream media to build their web sales.

Newspaper publishers like Gannett, McClatchy and the by-gone Knight Ridder historically defended giving Google and others the free use of their content as a means of generating additional page views to create more advertising inventory.

“The[ir] use of our content drives traffic to our sites,” a Gannett spokeswoman stated here in 2005. “It works to our advantage at this time. If we were to license or sell our content, we would not necessarily increase traffic or improve the incentive to go to our sites.”

Now, publishers have two problems. The least of them is that Google, the mother of all search destinations, is going to be stingier about steering traffic in their direction. The bigger issue is that the page views publishers work so hard to build are becoming increasingly less valuable to their advertisers and, thus, to them.

The solution for publishers is to get beyond selling passive advertising by the bellybutton in an ancient, brute-force numbers game they can no longer hope to win. Instead, publishers need to start developing individualized, transaction-oriented products that will deliver targeted, qualified leads to advertisers who will pay handsomely to reach live prospects poised to make a purchase.

Publishers have to get busy to get this right. Online traffic already is showing signs of flat-lining, as discussed previously here. Ignoring the gathering threat to the banner-ad business will lead at some point to a gut-wrenching decline in online revenues similar to the one now afflicting the print side of the business.

Ironically, newspaper publishers like to point to rising Internet sales (which on average still represent only 7% of their revenues) as the future salvation of their tottering franchises. If they are building their hopes on the banner-ad business, they are building on decidedly shaky ground.


2 Comments:

Anonymous Howard Owens said...

There's no doubt newspaper sites facing a lot of problems.

There is no doubt that banner advertising is pretty much doomed (it's based on an outmoded, packaged goods media way of looking at publishing).

But the AP/Google deal will have negligible effect on newspaper.com traffic.

The stories that Google will now serve up on Google.com amounted to no meaningful traffic for the average newspaper.com any way. People are not coming to our sites, either through Google or otherwise, for AP stories.

Google is not getting the state wires from AP. If they were, this would be a bigger concern.

I just don't see the connection between the Google deal and the problems with banner advertising..

5:57 PM  
Blogger Newsosaur said...

Tim McGuire, the former editor of the Minneapolis Star Tribune who has taken up blogging at his post at Arizona State University, offers a contrasting perspective to Howard's at at his new McGuire on Media. Check it out.

10:24 PM  

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