What does Medium.com’s profit model pivot say about the future of online advertising?

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One of the most prominent startups in the online publishing space pivoted from its current ad model, saying publishing is “a broken system.” Is this a genius move? Or is it misplaced hope? Contributor Megan Hannay takes a look at what it means for marketers and online publications.

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Online advertising, and especially its bulky older brother, “programmatic,” are darlings of the digital marketing world. Even folks who typically focus on the content and SEO side are dipping into the implications of bot-driven ads.

The ability to deliver highly targeted display ads and sponsored content to key consumer segments, with (literally) super-human speed and precision sounds like the data-driven answer businesses have been waiting for since the dawn of “personas.”

But what if there’s something wrong? Not with programmatic, but with the system itself: the vehicle on which ads arrive on consumers’ desktops and phone screens?

For many niche and local publications, plans for profitability already feel tenuous; if a startup with $132 million in the bank and a network of incredible talent can’t foresee sustainability in digital ads, what do the next few years look like for the little guys?

The Medium move

Earlier this month, Ev Williams, the founder and CEO of Medium.com, announced the platform’s pivot from ads and sponsored posts to an as-of-yet-undisclosed (perhaps even undetermined) revenue generation model. Williams titled the post “Renewing Medium’s Focus,” and after announcing a layoff of about a third of Medium’s staff, he went on to explain his company’s shift:

Upon further reflection, it’s clear that the broken system is ad-driven media on the internet. It simply doesn’t serve people. In fact, it’s not designed to. The vast majority of articles, videos, and other “content” we all consume on a daily basis is paid for — directly or indirectly — by corporations who are funding it in order to advance their goals. And it is measured, amplified, and rewarded based on its ability to do that. Period. As a result, we get… well, what we get. And it’s getting worse.

By “what we get,” it’s not clear whether Williams meant clickbait, fake news or thinly written content with shameless product plugs, but it’s likely he was referring to all of the above.

So what happened? How did the internet, which has the power to reach a few billion more people than any individual print publication can, result in an unsustainable profit model for content publishers?

How digital ads ‘broke’ publishing

Advertising is always a little gimmicky. We know the hamburger in the ad isn’t the same hamburger you’ll get via the drive-thru window. But banner ads and, specifically, the page view numbers that determine their rates have brought the gimmicks to the content these ads share screen space with.

As academic journalist Frederic Filloux commented in his “Monday Note” column written after the Medium announcement, “In reality, there is absolutely no correlation between editorial quality and the revenue it brings…” Filloux explained that a 500-word local news piece is given the same rate as a many-thousand-word in-depth investigation into a foreign war.

This shift has encouraged outlets to embrace clickbait, meaning visitors to traditional media sites are confronted with the types of sensationalistic headlines that were once left for entertainment news publications: fear-provoking video clips, alligators, an irresponsible truck driver, weight loss tips and CEO “freakouts.”

Screenshot of weather.com, taken January 16, 2017

Screenshot of weather.com, taken January 16, 2017

Screenshot of CNN.com on

Screen shot of CNN.com, taken January 16, 2017

Display ads have cornered publishers into appealing to readers’ most base interests, at best, to generate more clicks. At worst, it’s also contributed to the rise of fake news.

What’s next for online publications?

1. We’ll all wait for programmatic to get better

Maybe the problem is that the technology isn’t quite there yet. We’re only just starting to get systems that can follow anonymized users from desktop to mobile device. A few years down the road, or more, we could potentially get to the point of complete synchronicity between consumer and advertiser.

Imagine ads that predicted your wants and needs to the point that they were mostly useful, instead of pretty much always annoying. While browsing a news article: “Oh yeah, I did mean to order more toothpaste, and this brand’s offering a BOGO deal.” Click. Toothpaste order sent. While streaming a video: “I do still need to book a hotel for my summer trip, and that Airbnb looks amazing.” Click. Home added to Airbnb wishlist.

If we can eliminate ads users don’t want and streamline programmatic to the point that almost every ad is seen as an assistant, rather than as an intruder, then, at the very least, ad blocking could potentially decrease, and the friction between a publication in need of funds and its readers would be relaxed, potentially encouraging more outlets to increase their ad services.

2. Some publications will resort to clickbait for the greater good

Consider the Jekyll and Hyde that is BuzzFeed. Celebrity gossip mag? President-elect challenger? Or investigative news outlet? While primarily funded by more viral fare, the site uses some of its revenue to fund investigative hard news pieces.

BuzzFeed has also branded itself as a viral native advertising outlet for its customers. You can’t go programmatic with BuzzFeed (at least until native orders go automated), but you can pay their team to develop a branded listicle and place it on their site.

This model is still being tested, but if BuzzFeed continues to dominate in terms of traffic and popularity, it’s likely that more publications will continue to mimic its style.

3. Publishers will find other ways to make money

Via data

In a recent digital media exec “confession” piece, a Digiday interviewee complained, “Every publisher is trying to be an ad agency and every ad agency is trying to be a data company.” The executive’s point was that agencies are not highly profitable, and they shouldn’t be business goals for failing publications. But the advice also can be seen as encouragement for publications to skip the middle step and head straight to data.

Journalists gather scads of data, especially for long-form, investigative pieces, much of which goes unused in the final story. Why not sell this work to companies who don’t want to do the research themselves? The ProPublica data store, for example, sells information the non-profit publication’s journalists compiled for stories.

Via subscriptions

Publications fortunate enough to have a solid base of followers may turn to a subscription-based profit model. This may be the direction Medium.com is headed, and it’s worked for other outlets who can brand themselves as creators of unique, high-quality content that can’t be found elsewhere.

One such publication, The New York Times, released a vision of their 2020 newsroom on January 17, which included a strong continuation of their commitment to subscribers, not advertisers, as primary customers:

A story that receives 100,000 or 200,000 pageviews and makes readers feel as if they’re getting reporting and insight that they can’t find anywhere else is more valuable to The Times than a fun piece that goes viral and yet woos few if any new subscribers.

If more high-quality publications follow suit and step away from clicks and page views as metrics, then marketers targeting well-educated readers will have slimmer options, unless we, too, consider alternatives to page-view and click-based metrics. However, this won’t be an easy road. Even The Times is struggling with a model that eschews easy ad traffic.

“For all the progress we have made, we still have not built a digital business large enough on its own to support a newsroom that can fulfill our ambitions,“ the report said.

4. Smaller media outlets will consolidate

I spoke with Maribeth Papuga, Media Consultant at BIA/Kelsey, on what Medium.com’s pivot meant for niche or local publications. In her view, forming networks or selling out to a national publisher of local sites may be the way of the future:

“Traditional print media advertising was sold against a different model. And once it moved online, it proved that there was increased interest in the content but an unwillingness to subscribe as the traditional model generally demanded. … Without a subscription fee, the channels are now ever more dependent on advertising. But this model is also evolving due to the various measurement metrics that advertisers utilize to define their audiences. … My belief is that relevant content is still in demand, but the marketplace may consolidate if content providers find their current models unsustainable.”

Consolidation, whether via buyouts or mergers or, in Papuga’s terms, “the survival of the fittest,” will likely mean fewer reporters working for small-scale outlets — as the only winners in the current advertising game are those that can display at scale.

The result = Facebook and Google dominate ad tech

This has already happened, but it’s poised to get worse. Social networks have the scale to profit, without the overhead costs of content creation.

And no matter how you slice the pie for online publications, Facebook and Google’s digital ad dominance has resulted in lower profits for other online publications, along with fewer choices for marketers. Trusting an ad network with the power to “grade its own homework” isn’t a great position for advertisers to be in, but with ever-decreasing competition, Facebook and Google are building up to monopoly-sized power.

Where does this leave marketers?

It’s easy to look at the emerging technology behind digital ads and feel optimistic. There’s much hype around the future of digital advertising, but programmatic display advertising is built on a system that many publishers don’t love, and that about a fourth of consumers actively attempt to block.

If more high-quality outlets bow out of digital ad models, and if smaller publications lose their niche due to consolidation, advertisers may find themselves with fewer audience options. This could especially be the case if over-consolidation leads to virtual monopolies.

As marketers, it’s valuable to be aware that our practices are molding the future of digital publications. Do we want to put advertising dollars behind least-common-denominator clickbait, or do we want to support publications that are producing stories and video that actually matters to our target customers? Are we okay with allowing Facebook and Google to become the gatekeepers of digital ads and online content (and, therefore, audiences as well)?

Medium.com will eventually find a sustainable model, or it will fold. Either way, its trajectory will be a predictor for the future of other online publications in the face of ad marketplaces.


Some opinions expressed in this article may be those of a guest author and not necessarily Marketing Land. Staff authors are listed here.


About The Author

Megan is the CoFounder of ZipSprout, a startup agency and tool service that helps brands find grassroots local marketing opportunities. Megan also works on product management for Citation Labs, ZipSprout’s parent and founding company.


 

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