Federated Media Shutters Standard Direct Sales Business | Adweek Federated Media Shutters Standard Direct Sales Business | Adweek
Advertisement

Federated Media Shutters Standard Direct Sales Business

Company to focus on programmatic buying, native ads
Advertisement

In what could presage a foundational shift in the online advertising landscape, Federated Media Publishing will shut down its direct sales business, i.e., the division charged with selling standard display ads.

On Thursday afternoon (Nov. 8) the company began informing employees that it would cut that business in favor of its programmatic buying and native advertising businesses. As part of that shift Federated Media CEO Deanna Brown said the company would lay off 24 employees from its direct sales business—less than 10 percent of the firm’s employee base—and transition the remaining members to its other businesses.

According to Brown, starting with the fourth quarter of 2011 Federated Media noticed that its directly sold ad business was beginning to lag. In past years, Brown’s senior management team had planned only 12 months ahead when presenting the company’s annual plans to its board. But this year, Brown asked the team to expand that outlook to the next three years, and that analysis led the company's managers and its board to consider exploring shutting down its direct division.

“The actual decision to move forward with the plan has kind of transpired in the last few days,” Brown said on Wednesday. “It’s a tough decision to take our chips back [from direct sales] and push them toward where the real bets are. It’s not a lightweight decision. But when you’ve got an independent company like ours that’s venture-funded, we need to make bets that we know will [see] return.”

Those bets are on the rise of programmatic buying and native advertising. And for Federated, those two sectors have contributed 89 percent of its revenue this year, compared to just 11 percent coming from directly sold banners (that number was 15 percent in 2011).

And Federated has already been priming itself to plug that gap by tapping private exchanges. “For our big media-only clients, we’ve already started discussions around private marketplaces and moving that business to the programmatic side of our house,” Brown said. The growth of private marketplaces “should offset any declines” in revenue from closing the direct sales standard display business. “We expect in 2013 to be up year over year by moving money to the machines,” she said.

The programmatic business—bolstered by last year’s acquisition of ad network and analytics firm Lijit Networks—will focus on real-time buying and private marketplaces. The native advertising side consists of Federated’s conversational marketing products, conversation targeting and native conversational ad units. While some of what Federated calls conversational marketing is similar to content marketing (that is, helping brands produce content much like media companies), Federated is clearly looking to embrace native advertising units, such as Facebook’s Sponsored Stories or Foursquare’s Promoted Updates. Federated founder John Battelle has been blogging extensively about the move toward ads-that-don't-look-like-ads of late.

The native ad units Federated has created include video units and Pinterest-style photo galleries that can be embedded within a publisher’s content well.

To be clear, Federated isn’t entirely stepping away from direct sales. Its conversational marketing and native ad products are sold directly, but Federated could conceivably set up a programmatic platform for its native ads that would essentially standardize the units. Facebook, Twitter, Waze, Google and Sharethrough are only a handful of examples of companies that have erected self-serve platforms for native ads, and during Yahoo’s most recent earnings call, CEO Marissa Mayer acknowledged the portal plans to invest more in programmatic buying.

Asked about the possibility of converting Federated’s native ads to a programmatic-buying model, Brown said to “stay tuned” as part of the company’s road map is to bring the native units to a larger scale. Of course, many in the industry have questioned whether native ads, which often require detailed, custom development for brands and publishers, can be scaled.

“We believe [the industry will] continue to see declines in the direct-sold display media business. The economics just don’t work,” said Brown. “The value the advertising community puts on the banner is more in line with programmatic buying than a direct-sold/programmatic package.” 

Brown said she would begin notifying Federated’s top advertising clients of the shift late Thursday. “None of them are going to be surprised,” she said, pointing to anecdotal research Federated performed that found advertisers “fully support programmatic and conversational marketing” and are “less enthusiastic about the direct-sold, RFP banner process.”

Though the shift does lead to layoffs, the company has added a roughly equal number of new employees this year and plans to hire about 40 more next year, Brown said. That’s in addition to the 60 employees brought on by the Lijit acquisition.

Federated’s network of 145,000 sites reaches nearly 180.1 million unique visitors a month; according to comScore, it is the sixth-largest U.S. ad network.