Monday, November 20, 2006

Second bananas lack appeal

Although it is in the enlightened self-interest of newspapers to partner with Yahoo and Google, publishers had better guard against becoming the second bananas to these 10,000-pound digital gorillas.

We all know what gorillas do to bananas, don’t we?

Barely a week after Google started a pilot program to sell ads in remaindered space in such iconic papers as the New York Times and the Washington Post, several other chains entered into a "transformational" partnership with Yahoo that they either couldn’t, or wouldn’t, fully explain.

While the first stage of the Yahoo deal makes perfect sense (as discussed below), the available information raises questions about whether newspapers are giving the chunky monkeys too much control over the pricing and customer relationships that substantially empower their franchises.

Don’t get me wrong. I think newspapers and the Yahoogles both have a lot to gain by working together. As I said here a year ago:
With formidable brand recognition; deep penetration in their respective markets; powerful relationships with local advertisers, and significant, fast-growing and locally targeted online traffic, newspapers are the perfect partners for the portals….

The online operator who is smart enough to be the first to team with local newspapers will have a long-lasting, unfair advantage over all of its competitors, because (save for a few metro areas) there’s generally only one available newspaper partner per town…

If the next frontier in the battle for web dominance is local…who is more local than your friendly, neighborhood newspaper?
The success of the new print-and-pixel partnerships will depend on how well they are implemented. A seemingly winning example is the plan to link Yahoo’s Hot Jobs with the sites of 150 newspapers owned by Belo, Cox, Hearst, Journal Register, Lee, MediaNews, and Scripps.

By adding Hot Jobs to their own online classified offerings, the newspapers will broaden significantly their listings, enhancing their appeal to both job seekers and recruiters. For its part, Yahoo will gain additional exposure for Hot Jobs and the assistance of each newspaper in selling Hot Jobs packages to the traditional purchasers of print ads. The commitment of newspapers to selling Hot Jobs will be directly proportional to the commissions paid by Yahoo.

Gannett, Tribune and Knight Ridder together benefited mightily from just such a relationship between their papers and Career Builder, the job site in which they not only partnered but also invested. Papers selling online packages to recruitment advertisers not only increased their own revenues but also built the value of CareerBuilder for their corporate parents. Unfortunately, the equity angle does not appear to be on the table for the new Hot Jobs partners.

In contrast to the healthy symbiotic relationships in the help-wanted realm, Google has come up with a plan that potentially could degrade the value of newspaper advertising at the same time it disrupts the valuable, direct relationship that newspapers now enjoy with their advertisers.

As announced last week, Google is offering 100 of its online keyword advertisers the opportunity to bid on print ads that would be carried in participating papers on a space-available basis. Advertisers can ask to be positioned in particular sections of the paper within a certain range of dates, but the publishers retain the right to decide whether and when the ad will run.

Here’s the problem: If publishers reject ads often enough, they will kill the market aborning. If publishers accept lower than their customary rates to opportunistically fill unsold space, they will begin degrading the value of advertising in their papers.

Taken to its logical conclusion, this anonymous, automated bidding process could hasten the commoditization, and thus the likely reduction, of ad rates.

The publishers partnering with Yahoo appear to be contemplating something like this sort of system as the next stage in their unfolding collaboration. They should proceed with as much care as alacrity.

Newspapers will win if they can share their content, local appeal and customer relationships as full-fledged partners to the online collaborators who are supplying the technology and traffic that publishers individually can't attain.

If publishers yield the leadership of the fast-evolving digital advertising market to The Online Powers That Be, they could find themselves on the wrong end of some pretty nasty monkey business.