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Last fall, two excellent related blog posts ran that caught our eye regarding the challenges of running ad-supported content businesses online. The initial post was from Seth Sternberg – https://sethjs.wordpress.com/about, the former CEO of Meebo and current Product Director for the Google+ Platform. The second post, which was inspired by Seth’s post and followed it by a day, was by Glenn Fleishman – http://glog.glennf.com/about, the owner, editor, and publisher of The Magazine, a digital publication for “curious people with a technical bent”.
Both posts – Seth’s is here http://tinyp.as/1ghA5KZ and Glenn’s is here http://tinyp.as/1lBcQzu – are excellent, nuanced explanations of the challenges of generating online advertising revenues and I encourage you to read them. At the root of the posts is some pretty basic math involving subscription rates, ad rates, and pageviews (PV) that Glenn in particular calls attention to. Substituting Tinypass fees for the provider fees that Glenn uses, below is the key analysis.
OK, let’s say that the site in question charges its readers the following per month to access its content:
|Monthly subscription||Monthly revenue to publisher after Tinypass fees of 10% +$.30 per transaction|
Next let’s ask ourselves, “how many pageviews would I need in any given month across my site to generate $1.49 in revenue”?
|Average CPM (cost per thousand ad impressions)||PV across the site needed to equal the monthly revenue from one subscriber|
It turns out that the answer is 560 pageviews – $2.66/1,000 x 560 pageviews will get you $1.49 in revenue. (Note, the average CPM figure is from Forrester Research’s Digital Media Buying Forecast, 2012 to 2017).
Now, let’s assume that my site creates content that its readers value and that I am able to attract 25,000 monthly subscribers who each pay $1.99 per month to access my site. After fees to Tinypass, my site would generate $37,275 in revenue per month before taxes. This begs the question: how many pageviews would I need to generate each month to equal $37,275 in subscription revenue? Let’s do the math.
|Monthly revenue goal||Avg CPM||Needed monthly pageviews|
So, it turns out that the site would need some decent scale to begin to generate advertising revenues equivalent to a modest subscriber supported site. In the above case, more than 14 M pageviews a month – monthly revenue goal divided by average CPM/1,000 equals needed monthly pageviews.
This analysis leads directly to the initial point that Seth Sternberg, the former CEO of Meebo, makes in his post in answer to the question “why is it so hard to build an advertising business from scratch”? Turns out that the answer is primarily about scale.
From Seth’s post:
Why so hard?
Advertisers need scale. Big, big scale. Imagine you’re Pepsi. You have a team of people whose job is to find places to buy ads where they believe they’ll influence you to buy Pepsi next time you’re at the supermarket. It’s more efficient for that team of people to buy from just a few places with tons of users, rather than from lots of places with few users. Before you’re at 1M daily users, you’re just not interesting. By the time you’re at 5M daily users, they start testing you. Only once you hit 10M dailies are you big enough to truly become part of a media plan. 10M daily users is a lot of users.
Seth goes on to present a litany of other challenges, from demonstrating the effectiveness of the ad sale itself, to building out a sales team and managing cash flow.
The intention of this post is not to bash online advertising. Rather we simply want to highlight the reality and challenges that are inherent in building an online content business supported solely on a single revenue stream. At Tinypass we believe that it is time for online publishers to treat their audiences with something other than a one-size-fits-all approach, i.e. advertising. Your audience isn’t a monolith as user engagement ranges from drive by to passionate. Tinypass has the publisher tools to help you maximize revenues from your various audience segments.
Give us a call!