If I’m going to toot my horn every time an FM partner says something nice about us (like Digg’s Kevin Rose and BoingBoing’s Cory Doctorow did last week on This Week in Tech, or Metafilter’s Matt Haughey did from the podium at Webvisions or the Newsvine gang did at their blog), I better air the dirty laundry too!
Today at TechCrunch, Mike Arrington expressed his discontent with FM. He feels we’re keeping too much of the money we earn for him:
“I think more ad networks are good things, but mostly because they will compete with the other networks and drive margins inevitably down. I consider the 40% I pay FM Publishing, my agent, way too high. But they are still a young service and I’m sticking with them. Eventually, though, they will have to fall to more sustainable levels or risk losing their bigger properties. As blogs get larger, hiring an in-house sales person becomes much more reasonable that paying ad networks 40-50% of total revenue.”
Maybe he’s right. But at the twenty-odd print magazines and websites for which I’ve worked (and had access to the P&Ls) over the past 14 years, the expenses associated with editorial and content production are in the 12-24% range. The other 76-88% of the costs are for SG&A — salespeople, account managers, IT (especially ad-server development & operations), research, accounting, and collections. Outsourcing 80% of your cost structure in exchange for 40% of the revenue may not be such an unfair deal in the end.
Mike D. at Newsvine weighed in to the discussion at TechCrunch with this (thank you, Mike D.!):
“With regards to FM, the real question for them — I believe — is whether the premiumness of the network they are creating is going to translate into noticeably higher CPMs than standard run-of-site ads in the long term. We think it might, so that’s the theory for now. Since the time we posted that Newsvine article, FM has actually sold almost our entire site out — at good CPMs — and that’s great. Couldn’t have come at a better time either as we’re doing record traffic. If this continues, I’d say FM is worth the 40% for now (other networks can take as much as 60% by the way) — although you’re right that competition can drive this down. I think what’s good about the strategy you’ve taken at TechCrunch is that you allow for the outsourced sale of targeted CPM ads (by FM) but you are still able to sell sponsorships yourself and keep 100%, as well as other revenue opportunities. In the end, targeted CPM ads (and thus, FM) should only be one component of a revenue stream.
We have indeed built our own ad system in-house and it’s ready to roll whenever we need it….
It’s really not a question of serving, tracking, or any of the other operational aspects of ad serving for us. It’s more about the selling. As an early stage company, you have two options for selling your ads: do it yourself with a full-time sales staff or outsource it. AdSense tends to make people believe that the entire advertising world is just a question of building up traffic and then letting the ads pour in automatically, but the reality is that a good sell through rate at a good CPM requires a dedicated sales staff, whether it’s internal or external.
By building our own ad system in-house, we can use FM as long as it’s a valuable relationship (which it is), and then if god forbid something goes south, we’ve got the flexibility to plug in other options or do everything ourself. Right now, we’re happy though.
My sentiments exactly!