Tuesday, January 06, 2009

Five fatal flaws in local Internet ad sales

Online sales require different skill sets than those that historically have been employed by traditional media companies.

Dave Chase, one of the founders of Microsoft’s Sidewalk.Com who has gone on to be an independent investor and sales consultant, tells what it takes to build a successful online sales organization. He eats his own cooking at what he says is his own profitable local website in Idaho,
SunValleyOnline.

By Dave Chase

Too much time is being spent discussing ways to reduce production costs or find new ways to fund journalism. While that may help, I'm convinced the only path to long-term economic viability is to address directly the revenue problem.

The level of innovation happening on the production and funding side of the equation needs to be matched by innovation on the revenue side. Unfortunately, I have observed five fatal flaws in generating revenues that will lead local Internet plays to fail as many before them have. These are entirely avoidable but most are falling into these traps. Laid out below are the flaws and a high-level summary of how to avoid those fatal flaws.

1. Farming Hunters

I have blogged previously about Farming Hunters and Hunting Farmers, which is a common mistake present in sales organizations. That is, people who are skilled at managing an existing customer base (“farming”) is a far different talent than “hunters” who know how to find new business. We strongly believe in having clear role definitions throughout the sales process with accompanying job descriptions and compensation models. We define four main types of reps — Lead Qualification, Acquisition, Development and Retention. In our experience, many of the newspaper organizations we’ve worked with only have “farmers” that have managed a book of business for a long time. They not only are ignoring 80% to 90% of the advertising market that has been out of the reach of newspapers but they simply have a different skill set than those with capabilities to develop new business.

2. Expensive sales people and processes for low-dollar advertisers

It’s a mistake to think an advertiser still relatively new to online advertising will spend at the same level as an advertiser who has been in the newspaper for the last 20 years. The aforementioned 80% to 90% of the local advertising market that didn’t advertise regularly in the paper generally is going to spend less per year. Nonetheless, traditional and expensive shoe-leather sales models are the rule rather than the exception. In my consulting business, I have seen technology and media companies closing business into the low six figures via phone-based sales models. With the dramatically lower cost of sale of a telesales organization, one can service a segment of advertisers that previously was out of reach of most local media organizations. Unfortunately, most media organizations have little experience building and managing a telesales organization, which is fundamentally different than a field-based sales organization. I’m convinced that building or buying this competence is absolutely vital and should start tomorrow.

3. Inability to quantify the value of your audience and articulate a return-on-investment to a prospect

For most local advertisers who are relatively small businesses, Internet-based advertising still is quite new. They have a hard time understanding online advertising. Consequently, they don’t know what to make of the numbers thrown at them by a typical sales reps. (Some reps further confuse the issue by not knowing the difference between "hits" and "page views" or "unique visits" and "unique visitors". Potential advertisers might ask themselves “is a million page views good or bad?” or “if they have millions of page views, should I expect hundreds of thousands of visitors when I advertise?” A successful online seller needs to not only know the basics of his or her site (e.g., quantity of visitors, demographic summaries, etc.), but the rep also needs to have data specific to a typical advertiser’s business to calibrate expectations of what a marketer should expect in an online campaign (hint: it’s probably closer to dozens of customers vs. hundreds of new customers). It is vital to use this information to show the advertiser his likely return on investment.

4. Cluttered sites with postage stamp-sized ads

I’m not the first one to write about this but it is still the norm for most local media websites. They are extremely cluttered with tons of ads per page. One of experiences from my last role at Microsoft was being on the Executive Board of the Internet Advertising Bureau (an industry-funded trade organization) following the dotcom bust. I was integrally involved in forming the Universal Ad Package ad standard. In order to arrive at that standard, we did a boatload of effectiveness research about ad sizes, placement and quantity. The short version of the findings is that fewer, bigger ads not only perform better but also sell better.

5. Rate card as afterthought vs. a strategic selling tool

The typical way an online seller deals with a rate card is just lobbing the rate card across the transom without explanation. To make it a strategic selling tool, there are two elements that are critical. First, it is important to recognize that a drawback to online advertising is you can’t tell the advertiser to look at page A6 or watch the News between 5:30 and 6:00 p.m. Unless it’s a permanent sponsorship slot, it is likely that Murphy’s Law will rear its head and the advertiser never will see his ad when he goes to the site. One way to combat this is to sell your site at a more granular level than most sites. This increases the odds of the advertiser seeing her ad, as well as giving your site a range of ad prices depending on the advertiser’s appetite. Second, creating scarcity by only allowing a certain number of advertisers in a particular section creates a sense of urgency that is often absent in online advertising, where inventory seems to be limitless to an advertiser. The deadline of print creates urgency, whereas online is viewed as having no deadline. Done right, this can also set the stage for improved advertiser retention, as you should be able to over-deliver against the impression levels that originally caused the advertiser to invest in the campaign.

15 Comments:

Blogger Jose Leal said...

Alan you have hit this one right on the head.

My experience has been that about 95% of a newspaper's natural market is actually not a regular client, leaving a whole lot of untapped market. And that market knows it - they know they can't afford to advertise in the paper - it's been drilled into them over the last 20 plus years by the sales reps.

Local ad sales people are expensive. The top sales people in the average Canadian newspaper are making $150k plus, not bad if you can get it, but you can't get it selling low cost online ads. That means that those "top" accounts won’t be sold online...it does not pay. Rate structures are too complex.

Local newspaper, ad sales is still treated like horse trading (car sales). There is no fixed price. This is all being carried over to the online side of the business. Imagine telling your top local advertiser, who is used to paying 70% off rate card, that he must pay full rate card for online ads.

It hasn't worked and won't work.

2:21 PM  
Blogger Chuck Tanowitz said...

I think you're right that more needs to be done to change the way that online publications sell ads, but I'm still not convinced that an advertising-based system has long-term viability.

I've started to blog about this here: http://mediametamorphosis.blogspot.com/2009/01/fundamentally-news-broke.html.

I feel that the underpinings of the market are entirely broken, meaning that online news needs an entirely different profit/loss model. I have some ideas about where to go with it, which I'll be writing about later. But I think the core of it has to do with news as a "loss leader" to sell something else. It's going to be up to organizations with direct sales interest to fund journalism more directly, instead of working through an independent intermediary.

2:35 PM  
OpenID WorkatHomeJobGenius said...

I agree with everything Alan said, with one exception. I'm surprised at his comment that most newspapers have a more robust outside sales staff than inside. Perhaps because I came up from the Classified rather than Retail side I see this differently. I've experienced - and run - some great inside sales teams. But yes, what can be done through inside reps without an outside call on the advertiser should be. Additionally, there should be a team that pairs a great advertising assistant with a great cold caller, so that once the sale to a new advertiser is made, that assistant (should be titled differently to advertiser, though) can take over the day to day scheduling and conversation with the advertiser. Might call them advertising coordinator, or some such.

5:33 AM  
Blogger Dave said...

Chuck/Sharon - Let me respond to a couple of your comments regarding the piece I wrote for Alan's blog.

Chuck hits on what we (SunValleyOnline) are striving to be with our local/small businesses. That is, we are positioning ourselves as their "Digital Marketing Partner" and want to be increasingly agnostic about what we are offering them. Of course, our best margin offering is SunValleyOnline advertising but most of these businesses want or need other marketing tools like search marketing, video marketing, etc. With our customers, we hope to achieve the deliver on the promise that we'll offer best of breed tools at competitive prices with the implication that we've done the vetting/negotiating that they don't have to do. I concur that the best online marketing tactics for small local advertisers has yet to be crystalized so we want to test, test, test. The one thing that hasn't changed is local businesses need to market themselves and if we really know marketing, we will be able to help them.

Sharon - Let me start by saying that I never worked inside a newspaper (unlike Alan) so I may have blindspots. My perception of classified "sales" teams is that they are largely order takers vs. order makers (i.e., hunters that find new business). The job descriptions, comp models, metrics, etc. we put in place for our 4 types of reps are quite different than what I perceive a classified rep does. The sales process we use is modeled after Dell's highly successful outbound telesales operation that allows them to be more profitable than their competition.

I've blogged for on some of these topics at www.altusalliance.com/blog if you'd like more depth.

7:40 AM  
Blogger T Heller said...

Dave: Spoken like a true Microsoftie. I know, I used to live in Seattle until it just got too unreal.

My impression is that you're trying to find a problem that fits your solution. You'll have some success, but focusing solely the revenue side seems rather myopic for a industry-structure problem. Whistling past the graveyard won't address the deep culture found in the newspaper industry.

Newspapers have to fight the vastly -indeed, quantumly- superior economics of electronic content delivery with something that offers equal advantages. It may be the internet, it may not be the internet.

Once they get a handle on that, then they should pay attention to the revenue model. Because if they don't address the cost structure first, they're toast -- and so is journalism. And that's the worst possible outcome, and one that is a direct consequence of, if you'll forgive me, the geek way of looking at the world.

12:27 PM  
Blogger Dave said...

Mr. Heller - No one is arguing that the cost side of the equation should be ignored...just that you can't cost cut your way to a successful business. It doesn't matter what industry one is in. I haven't seen a successful business that doesn't have a working revenue model. The evidence bears out the fact that there haven't been many working models in the local Internet arena whether it is a pureplay (Sidewalk, Judy's List, Backfence, etc.) or an adjunct to an offline business like newspapers' websites. I also don't think that local Internet businesses have the luxury of doing one (cost) and then the other (revenue). Without revenue, I don't have a way of paying my team as I don't have the deep pockets of a big corporation to dip into. We need to do both in parallel or we may not be around to worry about revenue after perfecting the cost/production side.

My objective in posting this is to help spur innovation on the revenue side of the equation as there's terrific innovation taking place on the production side. I don't pretend to have all the answers so look forward to hearing thoughts from others who are interested in advancing our industry. It just seems like there's been a dearth of revenue ideas that have proven themselves.

5:38 PM  
Blogger T Heller said...

"I don't pretend to have all the answers so look forward to hearing thoughts from others who are interested in advancing our industry."

Oh - my bad - I thought you were talking about the newspaper industry.

11:35 AM  
Anonymous Dave Ball said...

Yes, finally someone in the industry gets it. Sell more better ads. Same goes for the newspapers as for the web sites.

Simplify the process for smaller clients. Give them some service, speak in their terms, make it easy.

Most small advertisers abandoned dailies years ago, based on price and frankly, very poor service. The commission on small ads just wasn't worth it to daily reps, hence the weeklies made great gains.

And today, most newspapers don't know how to sell to those small customers.

Yet people still read newspapers, so there has to be value available to the advertiser.

I have been pushing the 'self-serve' ad sales model for 7 years, to mostly deaf ears, and often to poorly skilled and poorly trained sales managers, VPs, & w.h.y.

So far we have sold at little over $25M in self-serve ads, yet I still hear newspapers staffers saying "Our customers can't / won't do this; we can't do this; and the many variations thereof.

Meanwhile, Craigslist continues to dine at the newspaper lunch counter, web-site sales are flattening, and it is clear that web-site revenue ain't gonna pay the cost-of-news-gathering freight.

Newspaper ads are where the major revenue lives.

The bright side is, there's a whole new crop of newspapers execs getting ready to take over as the old-school execs get pushed out.

Dave, you nailed it when pinpointed the sales issue as a lack of departmental development.

I have great hope in the new generation however. Their stark choice is change or wither, and eventually, they will have to be allowed to change.

I just hope it's before the ink runs out....

8:28 AM  
Blogger Dave said...

Dave - Not being a print/newspaper guy, I wasn't aware of your service. If Alan doesn't mind, can you give some details of the adoption rate? I have direct knowledge of a self-serve online ad buying service. My initial impression of that service was that it needed to start out as a "publisher assist" model. That is, the publisher would use the tool with the advertiser initially essentially training them. Over time, the advertiser would take it on themselves.

We are finding a similar thing with a couple of ad building tools (for rich media & video ads). That is, it's daunting for the advertiser at first but then some take it on themselves. From what I understand of the online self serve model I mentioned above, they haven't gotten much traction so backed away from the self-serve model and are assisting the advertiser.

I'd be very interested in the real story on adoption rates, what works and what doesn't vs. the sales pitch if you are willing to share it.

4:41 AM  
Blogger Dave said...

After this blog post, I got quite a bit of email and a few calls with people asking about what they can do to address the flaws. My first comment is an obvious one - you need to assess where your biggest gaps are and prioritize those fixes. My consulting firm had previously created a "Revenue Readiness Scorecard" for tech companies. I've adapted it for local media and it is posted at http://www.revenuereadiness.com if you want an assessment.

I also worked up a paper that outlines a plan to address the 5 fatal flaws. If Alan wants to post it, I'm happy to send it to him. I didn't want to hijack his comments with a long comment.

6:02 AM  
Blogger Dave said...

I posted a follow-up to my earlier guest post that is a 10 point plan to address the flaws. You can find it at http://newsinnovation.com/2009/01/26/ten-point-plan-to-rebuilding-a-successful-local-media-salesforce/

10:09 AM  
Anonymous Anonymous said...

Dave,
Inside telephone sales is the most efficient way to get new business. Yet in the newspaper industry many executives and outside sales people share you misperception about inside sales teams (order takers?). As newspaper business changed, inside sales teams have changed and their outbound sales calls had to significantly increase to survive. The skill set obviously had to change too. The demands of their jobs exceed all outside positions I've seen, they cover more territory and bring in more revenue. However, they are paid less money,and get less respect?? Talk about hurting internet sales? Many newspapers have terrible websites and poor support for their sites or sales teams- this makes selling even more difficult. I know of very successful inside sales teams outside of newspapers selling the internet, but the compensation is much higher than what is paid at the newspaper, and they have the tools they need to sell. The culture has to change in newspapers if they want inside sales to succeed. The "girls in the phone room" do a great job (this is why the papers are still around) -but if they really want to bring sales a notch up, they need to have a good product to sell, the sales team needs to be compensated fairly and appreciated for the job they do.

12:49 PM  
Anonymous Anonymous said...

Great article, Dave. I find it hard to believe, today, that folks find fault with your thinking. These times call for very different thinking...what got us here will not take us any farther.

Newspapers have always had the upper hand in developing alternative revenue streams and positioning themselves as THE medium for solutions for advertisers, if they could get their heads out of their own businesses and actually look to serve their customers larger needs.

4:01 PM  
Anonymous Guy Duncan said...

Rupert Murdock (Mr Newscorp) at last years Cannes Advertising awards kept on reintegrating that print had to move to more digital ways of delivering advertising. The metric measurements involved with online readership tracking has revolutionized the way advertising has been sold.

The means by which client profiling takes place online and niching relevant ads to the client. Way surpasses any focused campaign in the newspaper arena. It also allows rich advertising delivery and direct ROI through to conversions. Using online tools to lower the cost of creating rich media also plays a huge part. Free and pay per use tools for online ad creation such as; Free video compression by Handbrake. Or image manipulation by Gimp.
Work in progress share and online visual colloboration tools such as Wipspace.

Effectively the only area which has a shortfall is that the advertising agencies need change skills or upskill their media buying departments.

5:42 AM  
Blogger littleChild said...

Correct! I believe that almost all fall on having the quality quantify the value of your audience and articulate a return-on-investment to a prospect.

This fault reminds me of the adage from Warren Buffet, "Risk comes from not knowing what you are doing." They fail because they don't know the specific data. We know that it plays a vital role in calculating the ROI and that gives life to business opportunities.

5:44 AM  

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