TechCrunch Disses FM

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!

  1. # Clyde Smith said: August 18th, 2006 at 10:05 pm

    I can’t believe people are giving you a hard time about taking 40%, especially given the additional services you provide.

    Of course, Arrington’s in a unique position, but given the poor way he handled his relationship with his web designer not too long ago and statements like this, he doesn’t sound like a very good client.

  2. # michael arrington said: August 20th, 2006 at 12:21 am

    wow.

  3. # michael arrington said: August 20th, 2006 at 4:42 pm

    Chas I think this is an extremely unfair analysis of what I said, and it shows my business means little if anything to you. We can continue this “discussion” by blog or in person. Your choice.

  4. # Dave taylor said: August 21st, 2006 at 7:36 am

    Some thoughts:

    I continue to be fascinated by the gap between what people say about AdSense and my own experience with the program. I certainly don’t find that I need a dedicated ad sales person to figure out how to monetize my blog through the Google AdSense program, and with approx 5% click-thru rate and an effective CPM across the last 30 days of approx. $9.00, it works fine for me (*) and can work well for other bloggers too, better than it’s probably working now.

    The key to any advertising is to recognize whether you have a *unique* proposition, however. TechCrunch is so darn popular because Mike and his team do have a unique angle on things so it’s always engaging and interesting reading. That’s something that can be leveraged by ad sales and monetized differently to, say, a “lots of links to gizmodo and boing boing” blogger blog that someone does hoping to see a trickle of traffic and some ads.

    As long as Federated Media focuses on these blogs with unique profiles, it will indeed continue to raise the value of the real estate it’s representing on each site, and if you don’t think that 60% of something big is worth more than 100% of something small, Mike, you needed to have the experiences I”ve had in the startup world, where we learned pretty quickly that 100% of wishing definitely does not outperform even 10% of something big. :-)

    Further, my understanding is that blogs that are part of the Federated Media network retain the right to sell their own ads, use AdSense, Omakase, Overture, whatever, in addition to the FM blocks being sold by their sales team, so if the % is a problem, why not just have less FM ads and delve into selling your own advertising blocks anyway?

    (*) Why yes, I *do* have permission from Google to reveal specific AdSense figures from my site. Comes of writing about Google and gaining permission to share exactly how my AdSense account works and what I do to maximize my income. See http://www.findability.info/ to learn more, if you’re curious.

  5. # Why AdSense doesn’t suck for Bloggers : Business Blog Consulting said: August 21st, 2006 at 12:35 pm

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  6. # Randy Hoffman said: August 22nd, 2006 at 10:09 am

    Those of us from the traditional media world understand this argument well. We’ve seen variations of it for years. Ask any independent producer of television programming if they are happy with the financial deal broadcast networks give them. It’s really a natural and predictable struggle. And one that FM and its publishers will always engage in at some level. Welcome to the world of negotiation.

    But as any traditional media outlet will tell you, the ROI on a sales person (or staff), varies widely. A unique or remarkable product is only the beginning of a successful media sale. There are many examples of the #2 media outlet in a market out billing the #1 outlet, (television, radio, newspaper). In the sales world the equation is never as simple as: remarkable product verifiable audience = great ROI on sales.

    And can you imagine busy media planners and buyers dealing with individual sales folks from every well-read blog in the world? Traditional media outlet figured out long ago that sales model was unworkable. Blog publishers will as well. IMHO

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