I've been pretty vocal lately about urging publishers to break their addiction to the hybrid model (selling their ad inventory both on a premium basis and on volume networks). In fact, I recently delivered a keynote at the Interactive Advertising Bureau's annual Leadership Meeting focused solely on the notion that the time has come for publishers to choose a strategy -- premium brand sales or remnant network monetization -- to avoid getting royally chewed up and spit out.
Let's look ahead to 2012. The Mayans predicted the world would end then. I'm not so sure about this impending doom, but if publishers don't make a choice to break their addiction now, I do believe that the industry could experience an apocalypse of its own.
I predict there will be three kinds of companies in 2012:
• Those that stuck with the volume model.
• Those that chose to go all in on selling only premium.
• Those that didn't make a choice -- despite the warnings -- and continued doing both.
The first group -- the volume group -- is using ad networks to sell its entire inventory. It no longer has dedicated sales forces nor is it hyper-focused on the protection of its brand and advertiser relationships.
Think Walmart. Walmart is known for deep discounts on everyday goods. Does that deep-discount reputation bother Walmart? Not in the slightest. Walmart embraces its identity as the go-to retail outlet for incredibly low prices and doesn't try to be anything it is not. Walmart knows that its customers shop at Walmart because they're interested in keeping to a bargain budget. All that thriftiness hasn't hurt Walmart's bottom line -- this is the No. 3 company in the Forbes 500 we're talking about.
The volume group will take a page out of Walmart's book, having a very broad reach with an ever-growing audience. How will the volume group get there? By pushing all its time and energy into monetization and audience growth. Because the volume group doesn't have to worry about spending time and resources protecting its brands and manning their sales forces, this group has opened the door to a fast-paced, financially sound environment.
The second group -- the premium group -- sells only premium content for brand advertisers. The premium group has no time to waste on cross-pollination. It has laser-like focus on what it does best: create premium content and cultivate appreciative audiences.
These publishers' relationships with networks are limited, but it's OK because they're targeted. They know their audience. Consider a brand like Lululemon Athletica, retailer of high-performance workout wear for men and women. These running and yoga clothes are not for everyone -- but the select group that is fit enough to rock Lululemon's styles sits up and takes notice when Lululemon invites it to an in-store event. Lululemon is a vertical, targeted brand that knows its audience incredibly well: it offers pilates classes and nutritional consultations from specialists who appeal to their audience's niche exercise needs. A brand like Lululemon only needs to reach a tiny fraction of the people that a company like Walmart has to reach. To keep the brand upmarket, Lululemon moves seasonal inventory through the store extremely rapidly so that few items ever hit a sale rack let alone languish in a bargain bin. (And you'll never find its $100 workout pants on a rack at Walmart.)
For publishers in the premium group I envision in 2012 CPMs will remain strong because advertisers will know that these premium publishers' inventory will never be available on "volume" ad networks. Since these publishers have no interest in a volume business or a hybrid between premium and volume, they will have established a defensible reputation. They will also have cultivated loyal and desirable audiences, and offer high-impact advertising programs that deliver for brands. Ultimately, advertisers will know that if they want in to reach these premium audiences, they'll have to pay.
In the future I envision A-list brands will be willing to spend larger amounts of money because the premium experiences are worth it. And because these relationships are strong, advertisers and publishers will work together to generate more interesting and diverse integrations.
In 2012 I envision the premium publishers' brands to be stronger than ever - and they certainly won't consider undercutting their own CPMs by farming out inventory to volume networks.
Alas, in 2012, there will also be a third group, those who did not heed the warnings and became completely addicted to the hybrid mix of premium and volume. These are the publishers that tried to sell premium inventory at premium CPMs while also working, not so clandestinely, with ad networks to sell remnant inventory on the cheap.
This hybrid approach can only end poorly and cheapen a publisher's reputation. Advertisers know which publishers are selling premium by day and remnant by night. This process undercuts the publisher's sales teams, because advertisers know that they can buy the same publisher sites at lower CPMs through networks. Their direct sales team must continuously create brand new offerings to differentiate against themselves and their own audience rather than their competitors. The sales teams' performance continues to dive, and publishers have to keep looking for a cheap fix to fill the gap. That hybrid approach creates a vicious cycle of addiction to cheap highs (selling remnant) until the publisher hits rock bottom and discovers advertisers are onto their game.
The hybrid publisher's brand is now essentially ruined in the mind of the advertiser. The advertisers simply will not consider the publishers' sites as premium if the pubs continue to sell remnant.
In the end, Google is there to clean up and profit from the mess.
Where will you be in 2012? Do I sound too harsh? Maybe. But convincing addicts of their potentially deadly addiction is no easy task. So, go ahead, grab the crystal ball and take an honest look at the future of your business. Which group will you fall into? Make a choice today for a successful outcome two years from now.
Russ Fradin is president of Adify. He can be reached at Russ@adify.com.