ChasNote

From Forbes, the September issue of Business 2.0 will be its last.

“…media outlets focused on startups and new technology haven’t shared in Silicon Valley’s resurgence. Venerable tech title InfoWorld cranked out its final print edition in April. One-time venture capital bible Red Herring–under new management since the tech bust–has struggled to pay its bills. PC Magazine’s editor-in-chief left that magazine after ad pages fell 33.5% through March of this year. Even one-time online powerhouse CNET Networks is reporting growing losses as the companies it covers flourish.

“Part of the explanation: Ad dollars that used to be spent touting new products in tech publications are being spent buying ads via sophisticated, keyword-based ad systems such as Google’s–a phenomenon that has helped power the tech industry’s resurgence. Meanwhile, fast-moving, low-overhead blogs are pushing into the territory once dominated by magazines such as the Industry Standard and Upside, and they’re sucking up many of the ad dollars that remain.”

An earlier Forbes article put even more of the blame on companies like FM:

“Meanwhile, Industry Standard founder John Battelle is keeping the bonfire of the print titles burning. His Federated Media Publishing is selling ads on more than 100 blogs, giving ad buyers the ability to spend big money on a collection of highly specialized sites–many of them focused on tech–that suit their needs. ‘If Cisco has to spend, I don’t know, a couple of million dollars on a trade campaign, they are not spending it with Red Herring or Business 2.0. They are spending it with Federated Media, with bloggers who cover the sector,’ says Rafat Ali, editor and publisher of online media tracker PaidContent.org.”

Over the past 2 years, FM has worked with dozens of advertisers and 100+ leading independent authors, editors and publishers in an effort to give readers and marketers a better opportunity to talk to each other. We call it “conversational marketing.”

The idea is simple. The best publications have always been dialogs between great writers, passionate readers, and, yes, advertisers. This “conversation” is more obvious and more iterative among today’s social media communities, but it’s been happening since long before the Internet. The most successful advertisers have always been the ones that recognize and respect this conversation — rather than those who see media as a “delivery platform” for their pitch or an opportunity to “target their demo.” Advertisers that license New Yorker cartoons for their print ads in that publication, Wired advertisers that write ad copy in the definitive grammar of that publication, and tech advertisers that re-use in their ad units favorable reviews from CNET and PC Magazine are three examples.

To be clear, I’m not talking about advertorials; I’m talking about ads, those things that every human over the age of 7 recognizes as paid messages from a marketer. Provided publishers follow two long-standing guidelines — be transparent, listen to reader feedback — advertisers can join the conversation without tainting anyone’s credibility.

During the 1990s hey-days of tech magazines, readers of PC Magazine and PC World said they spent as much time with the ads as they did the editorial content. And that’s not because IT professionals are so dumb they can’t tell the difference (please!) — it’s because ads that work hard to join the conversation, to be relevant to participants in that conversation, are more valuable than generic ads that attempt to interrupt the conversation and steal your attention for half a minute.

This is all to say: I’m a believer that highly relevant advertising — advertising that joins the conversation — is better for all involved parties.

So I took issue with Nick Denton’s Friday post on ValleyWag accusing some of the web’s most highly respected, most experienced professional journalists of selling out their credibility to help Microsoft bring more relevant ads to their readers.

One of Microsoft’s marketing messages is built around the phrase “people ready,” and the equation “software + people = business success.” It’s a mouthful, and — to me, anyway — not immediately digestible. So, working with FM, Microsoft invited 8 FM authors to talk about the concept of “people ready” in their own words, in language that might resonate better with their readers. What those authors wrote was featured in the campaign that ensued.

Did Microsoft ask the authors to endorse their brand, use their products, or tell their readers what to do? Of course not.

Did Microsoft or these journalist try to sneak these ads past their readers, in a costume of editorial or even advertorial? Nope. Microsoft paid for ad impressions, and the rates for advertising on each of these sites is published at FM’s website. Quite obviously, Microsoft was running paid ads on their sites. John Battelle took the added measure of blogging about his participation in the campaign (see Searchblog) — and that’s a great idea to make the self-evident even more evident!

Did readers get confused by what they were looking at in those ad banners? Well, Cisco did something similar last fall, around their “Welcome to the Human Network” campaign. A dozen leading tech and business journalists affiliated with FM wrote their own definitions of “human network” that they let Cisco use in ad banners on their sites. Like Microsoft, Cisco didn’t guide or edit or participate in the copy written by these journalists. And readers seemed OK with the project. Thousands of them clicked on the Cisco ads to read more definitions and voted on their favorites. Nearly 900 of them went back to their own blogs and wrote up the experience (not all were positive reviews, but most were). The Wikipedians added “human network” as entry to their encyclopedia, and made reference to Cisco’s “commercial use of the phrase,” so the distinction between advertising and editorial was clear to them, too. And for the past 2 months — the Microsoft campaign started running on these sites in April — readers of those sites haven’t raised an outcry.

So there’s a fair amount of evidence Denton is raising a stink all by himself. Or perhaps his disdain for the advertisers that support his business (Gawker Media), our business (Federated Media), and every other ad-supported content business online or offline, is so great that he feels they don’t belong in the conversation at all. Except, of course, the conversation in which they agree to pay him, then shut up. At FM, we think that — for commercially supported sites, anyway — marketers might just have something to add to the conversation. And we’ll keep working on innovative ways for them to do just that.

Other coverage:

Robert Scoble at Scobleizer.
Fred Wilson at AVC.
Mike Arrington at TechCrunch.
Richard MacManus at Read/Write Web.
Don Park at Daily Habit.
Neil Chase at FM’s blog.
John Battelle at FM’s blog.
Om Malik at GigaOM.
Paul Kedrosky at Infectious Greed.

Stephen Baker at Business Week says “I thought BW had clout, but Michael Arrington at TechCrunch appears to have a level of influence I have never seen at the magazine.” Business Week says that TechCrunch is more influential than Business Week??  What an endorsement!

I know it’s rude to gloat over the misfortune of others. But I can’t help it. Selling online advertising for the past eleven years, I’ve come to resent the hall pass TV and print magazines get when it comes to audience-delivery tracking. Until recently, Nielsen reported TV audiences for 15-minute programming blocks; whether or not those viewers remained tuned in during the commercial breaks — rather than, say, clicking to another channel — was left to guesswork. (Tivo has recently forced issue: Nielsen has begun to roll out viewership numbers on the commercials themselves.)

Magazine advertisers, until now, have paid rates based on average circulation across all issues in a given advertiser’s campaign, not issue-by-issue circulation numbers. Coke, Kraft and Wal-Mart have decided the party’s over (AdAge).

You have to admire Conde Nast for this week’s bold and luxurious launch of Portfolio magazine, given the preponderance of evidence suggesting readers and advertisers (especially business readers) are moving online.

The charts in the NY Times article are scary enough: Magazine Publishers of America data show downward slides at Business Week, Fortune and Forbes for ad revenues and ad pages since the turn of the 21st century, with only one meaningful year-over-year improvement as 2004 beat the rock-bottom ad-recession numbers from the 2003 season. Forbes inched up in 2006 by stealing share from the other two, but for the first 3 months of 2007, all three are down again (3-13%). Conde Nast Chairman S. I. Newhouse dismissed rumors of a $100MM commitment over 5 years by saying his commitment is longer and deeper; it’s an indefinite one. So he’s hired an editorial staff with over 75 people on the print edition and another 40 on the website. That’s more than 2 edit staffers for each print advertiser in the launch issue!

Well, maybe that’s a bit dramatic. But the magazine publisher’s CEO announced that new IDG publications will launch as websites and will earn the right to become print magazines only if the web readers demand it in big enough numbers. From PaidContent:

“Pat McGovern, the company’s founder and chairman, in an interview on Mediashift discusses the prospect of starting all new magazine ventures online and polling readers as to whether to form a print version out of it.”

Inevitable, I guess, given the plight of business-to-business print magazines over the past 5 years.  But this move signals an end to the quixotic optimism, at IDG anyway, that the internet will eventually go away and return our readers to their senses.

Last week’s TNS report (see Clickz) on 2006 ad spending put numbers to an obvious trend: Online advertising is the growth leader (up 17.3%), while print is mostly down and TV (minus Spanish-language) is just barely above flat.

Within online, the report also surfaced a less obvious trend, that large marketers are moving dollars to online display advertising more slowly than smaller-budget advertisers. On average, marketers in 2006 allocated 6.5% of their budgets to online while blue chip brands put only 4% against Internet ads. TNS Senior VP of Research Jon Swallen chalked up the slower adoption by the big spenders to an availability problem: “it’s hard to find inventory to spend more on.”

Huh?! Not enough online inventory? Even at top brands like Yahoo, certain large swaths of the site (Mail, My Yahoo, Groups, etc.) run house ads and cut-rate remnant deals. Ad networks don’t have anywhere near 100% fill rates for participating publishers, and the most efficient ad network of all — Google’s AdSense program — serves PSAs a fair amount of the time.

Market Inefficiency v. Lack of Inventory

Clearly there’s not an inventory problem online, but instead a quality inventory problem. There is limited inventory adjacent to high-quality content, and — maybe this is what Swallen meant — it’s still very hard to find it and sponsor it. There’s a market inefficiency problem that the ad networks and Google aren’t yet solving. The vertical publishers (think CNET’s tech sites or Jupiter Media or Nickelodeon Online) have quality, but not enough of it; the ad networks and Google have scale but can’t yet guarantee quality.

The Story of Google’s Effective Ad Rates

The two sides of Google’s money machine illustrate the point. Google takes a purely rational approach to advertising: Advertisers in a competitive-bidding situation will pay higher and higher cost-per-click rates until the costs approach the immediate revenues generated by that click. The average CPC paid by Google advertisers is around $0.50. When people use Google’s engine to search for something specific, 17% of them will click on one of these advertisers’ ads (see ChasNote). The algorithm that matches keyword advertisers with keywords entered into a search box works great for all involved. Users of Google’s search engine are seeing highly relevant ads (a perfect match 17% of the time!); marketers aren’t paying a nickel more than the value they get from each click; and Google makes about $68 for every thousand search-results pages they serve up.

But Google’s other system, the AdSense publisher network, tries to match those same key-word advertisers with prospective clickers on other sites based on content rather than key-words entered into a search box, and doesn’t work as well. That 17% click-through rate on Google’s own pages, a proxy for how well the ad-server logic delivers ads to people who want to click on those ads, drops to something closer to 1% on non-Google sites. (Consumer mindset, searching versus reading, is another factor.) Direct-response marketers may or may not care about the lower click-through rate: They’re only paying for the completed click.

Brand Marketers Demand Scale, Quality and Safety

Brand marketers, however, are paying for more than click-through performance alone, and they hold media partners to different standards. Even infrequent snafus that put their brand — and the implied endorsement by their brand — alongside homophobic rants by Ann Coulter (ask Verizon or Washington Mutual, see CNN) or on sites that promote illegal behavior (ask Microsoft or Wal-Mart, see Variety) become unacceptable PR disasters. Brand advertisers need a combination of scale, quality and safety (more on this from Battelle, see Searchblog), and the existing artificial intelligence solutions aren’t there yet. The bots get better every day, but to accelerate the migration of brand dollars to the Internet, we still need human insight to facilitate the process.

Conversational marketing isn’t just for websites anymore! From Reuters:

“A high-priced food fight has erupted in New York, with the owner of a high-end eatery seeking revenge on the city’s top food critic, who dished out a brutal review complaining of rubbery pork and limp lettuce.
The spat is playing out in the newspapers, with restaurant titan Jeffrey Chodorow buying a defensive full-page ad in The New York Times after its food critic, Frank Bruni, trashed Chodorow’s Kobe Club with a rare rating of ‘no stars.’”

From AdAge:

“General Motors, formerly Time Inc.’s biggest advertiser, cut its spending by 29%, or $47.8 million, according to estimates by TNS Media Intelligence…. DaimlerChrysler, while not quite as big an advertiser, was equally aggressive, slashing its spending with Time Inc. from $93.5 million in 2005 to just $39.7 million last year. Ford Motor Co. also reduced spending, albeit much less dramatically, trimming its Time Inc. outlay from $106.7 million to $101 million.”

American Business Media is out with a report on the state of the US print advertising business (Center for Media Research). Ad pages and ad revenues for the year (through Septebmer) are both up about one percent, though the month of September itself is down a bit from September 2005. Good news in categories such as architecture, design, auto, aviation and construction (all up in the mid single digits) was offset by down years for computer, software, telecom and science publications (all down by 5-6% in revenues and pages).

“Gordon T. Hughes II, president and CEO of American Business Media, said ‘The consistency in ad revenue for year-to-date highlights the leveling of business media’s magazine business… we will see a steady line with promising spurts coming from our strong performers, such as the Resources, Environment, Utilities category.’”

For a sector of the media business that’s seen such tough times in recent years, data showing the industry isn’t collapsing is seen as pretty good news.