Rishi Dean, VP Product / Co-Founder @hellochime at Sittercity

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Quibb, Uber

That graph looks so amazing, until 2000. That's disruptive innovation for you.

VP Product / Co-Founder @hellochime at Sittercity

The amazing aspect of chart #1 to me was how little online contributes to the overall revenues - that whole Jeff Zucker quote about "analog dollars for digital dimes" starts to be well represented! Would be interesting to see the same chart for media companies in the next few years.

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Product Lead at Flurry

And look at 2nd graph. Pretty sure that graph is going in the dictionary under "someone eating someone else's lunch."

Independent

Yes, those graphs illustrate an industry imploding. I find it hard to gloat though.

Ideally "disruptive innovation" replaces old stuff with something better. In many cases that has happened with news. Bloggers cover celebrities far more thoroughly than anyone imagined possible. Some hard news is covered very well by "disruptive" content providers--there is fantastic financial coverage by bloggers and pro-am reporers, and the startup scene is obviously covered exhaustively. And I far prefer Twitter for live coverage of staged events like sports or awards ceremonies, and often of breaking news when we get unfiltered, on-the-scene coverage, which is amazing.

But there are huge gaps now that regional newspapers have essentially been destroyed. Coverage of state politics is the most worrisome to me. As awful as our Congress is, the great cesspool of American politics is and always has been at the state level. And covering the statehouse is a thankless task--nobody live-tweets budget meetings in Sacramento or Albany for fun.

So when the New Orleans Times-Picayune and the Cincinnati Enquirer and their ilk gut newsrooms, it's not a victory for Twitter, or the iPad, or Flipboard, or anybody. We just lose, because those kinds of regional and city new organizations were often the only people paying attention to the shitshow of state politics, which have a huge effect on us all.

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Quibb, Uber

Yeah, I agree that's a shame- I think what we're seeing is that the advertising services provided by newspapers is getting disrupted by new players, but that's connected to the journalism side which isn't being replaced by equally good services. I'm working out of the AOL building for a few weeks and they are trying to a lot with local journalism via Patch, but it doesn't sound too successful.

On the other hand, I am hugely optimistic of blogging and the diversity of products and people who are now publishing content online. It's probably not a substitute for what journalists do, but it's pushing content in new and interesting directions at least.

Product Lead at Flurry

@johnmcgrath - I probably should have provided more context for my above comment. The goal was not to gloat but rather call "a spade a spade." I have a sincere appreciation for the journalism industry - my mother was the editor of a popular women's fashion magazine, I ran my high school newspaper, wrote for my university paper and spent my first year at Google building a print advertising platform with partners like the NY Times. One of the things I always found frustrating though was that in an industry that rightly prided itself on digging into the facts and shedding light on the truth, a lot of people seemed to want to ignore the facts (in fact in felt like nearly everyone, except for a few industry vets Google hired to help build the platform). So while by no means am I happy that the industry took such a drastic downturn I think there is value in honestly pointing out the facts. And some times, I've found that when people seem to want to ignore them a little humor and an analogy can grab their attention.

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Wow, that is really fascinating. Question for Quibbers: I've never really understood why online newspapers have such a hard time making money from ad revenue. People often say, well, display ads on online news sites are not worth as much as search ads, and Google makes it's money on the latter. And, while it is true on a per ad unit metric, Google makes more on search ads, actually the bulk of Google's revenue comes from display: http://blog.hubspot.com/blog/tabid/6307/bid/33784/An-Industry-Breakdown-of-Google-s-100-Million-Per-Day-Advertising-Revenue-INFOGRAPHIC.aspx

Why is that? They just have tremendous reach and in aggregate, display ads are a good business? Newspapers don't produce enough content? Their SEO is awful? They don't sell online ads well? They aren't nichey enough? Bad placement? I guess I just don't understand what the problem is... Any thoughts?

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Scout Ventures, Dozen Digital

I think probably the reason newspapers have such a hard time making money from ad revenue is that people reading news are not in any part of the purchasing funnel.

Generally, CPCs and CTRs go up as you move down the funnel (awareness -> interest -> desire -> action). The most valuable advertising businesses are at the bottom (Google's search business), because businesses so badly want to get in front of people that are ready to buy.

Newspapers are rarely anywhere on the purchase funnel (you're reading the news, not really close to anything consumptive), and this is why CTRs and CPCs on news sites are so low. This makes for a really hard business, unless you have just an insane amount of eyeballs (which they used to have when there was no internet, but is now not the case).

To your question about why Google's display business is successful, a few points:

1) Yes, it is a simply a massive network (ease of setting up for bloggers), so partly sheer volume

2) Many (not all) of their display inventory is on sites somewhere on the above-mentioned funnel. Think travel blogs on particular locations, as an example. Theres a chance a person got to someones travel blog because they were interested in possibly going to Paris. Now they see a hotel deal ad from Google's display network, and are moved down the funnel. The advertisers like putting ads on these sites that may not be as far down the funnel as search, but somewhere on the awareness -> interest spectrum.

3) Google is realllly good at content and topic targeting. They have a lot of really smart people working on parsing content via NLP to determine what ads to serve on a particular page. Their superior ability to intuit what the content is about and serve ads that are relevant (without either the content provider or advertiser having to do anything) makes for relevant ads, higher CTRs and eventually higher CPCs compared to what most ad networks or individual ad sellers (a newspaper selling their own inventory) can do on their own.

Great points, Jim Shook! I guess what I wonder is if newspapers can do something like what Twitter is doing with native ads? Make the ads blend in better instead of having display ads off to the side?

Scout Ventures, Dozen Digital

Yeah, sponsored articles and advertorials are versions of that. I'm just not sure that will be a long term success because they're fundamentally not all that valuable to readers. Objectivity in journalism is super important for their brand, and mixing business with reporting is dangerous.

I think the best model is probably to focus on creating great content in topic specific verticals that have a consumption component (travel, auto, real estate, etc), and selling traditional display advertising there. As examples:

http://www.nytimes.com/pages/automobiles/index.html
http://www.nytimes.com/pages/realestate/index.html

I'd be willing to bet the ad units on those pages get much higher CTRs and CPMs than anything on the main NYTimes news pages.

Interestingly, they also have vertical search engines on those auto/real-estate pages. Vertical search engines are great businesses if done right. My guess is the search is powered by someone else and NYtimes gets money on a CPC or CPA basis. Whether its good for NYTimes depends a lot on the deal they've struck with the search partner.

Seed Investor at Scout Ventures

"Google makes more on search ads, actually the bulk of Google's revenue comes from display"

Not sure about that... (sorry I'm too lazy to back this up with a source)

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VP Product / Co-Founder @hellochime at Sittercity

Agreed -- search is roughly 50% of all online ad spend, and Google dominates there (80%+), whereas display is about 40% and GOOG has about 15% of that bucket, since it has to compete with Facebook, Yahoo, AOL, MSFT, ad nets, and the rest of the Lumascape. Again, you can check my #'s as these are all my back of the envelope ones, but GOOG's business was built on the back of search, and that's where it's bread & butter is still today.

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VP Product / Co-Founder @hellochime at Sittercity

Yup, look at it again, I didn't do the math, but search has more clicks and a higher CPC so more revenue.

Scout Ventures, Dozen Digital

More impressions from display (24.6mm vs. 5.6mm), but much lower CTRs (3.47% vs. 0.18%) and lower CPCs ($0.53 vs. $0.35) would lead to lower revenue from the display network than search (at about a 6:1 ratio from quick calc).

Scout Ventures, Dozen Digital

Which isnt 100% right because CPM vs. CPC vs. CPA bidding ratios are probably different between search and display. But most likely not in a significant enough sense to move that 6:1 ratio much.

Right. What I'm suggesting is if they take all those banner ads that everyone ignores and run text ads that fit the look and feel of their content. And, I say this because in our network, which offers both text and banner, we see considerable difference between the two formats, holding placement, creative, publisher, and targeting all constant. We're talking like an order of magnitude difference. In other words -- take all that ad space and make 10x more revenue by changing the format.

I understand there will be push-back from ppl, because it doesn't fit the exchanges, blah blah blah. But, if you are the NY Times, even if you fill w/ this new format a bit less, an order of magnitude moves the needle much further than trying to get more banners.

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Quibb, Uber

I talked about this in my other comment, but as I understand it, the CPMs for newspapers are actually pretty good- sometimes averaging $10 CPM. The problem with a site like the FT.com is that they have <10M pageviews/month, and while they charge $100+ CPMs to compensate, that's still not enough. Adding text ads (which would still have a lower eCPM than their direct ads sales) wouldn't change that much. Having paid subscribers that buy your paper means a high ARPU- whereas an ad-based format where the retention and frequency isn't very high, well that leads to low ARPUs.

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Very true. yeah, I had no idea they were so small.

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VP Product / Co-Founder @hellochime at Sittercity

Right - and that roughly lines up with the macro numbers above (0.5*0.8) vs. (0.4+0.15) ~= 6+:1

did you click the link in my post? that is a source.

Quibb, Uber

My last company in ads worked with news companies like NYT, Financial Times, Reuters, etc. The biggest problem for newspapers, as far as I could tell, is that the scale of traffic was actually rather small. A huge property might be ESPN, which did close to 500M ads per month and they'd do $100M a year in revenue. But something like Financial Times is actually surprisingly small for its influence, it did 70 million pageviews for ALL of 2008*. So some of the publications used to look like high ARPU, low subscriber number products, and by turning into fully ad-supported businesses, there's just not enough money to pay the staff.

But basically from the above, you can imagine that ultimately product companies are much more scalable. You can actually have 1000B pageviews/month on Facebook, whereas that's just not conceivable in any other style of product.

*http://www.pearson.com/about-us/business-information/around-the-business.html