The 5 Stage Process to Overnight Success in an Ad Supported Business

ThoughtCatalog’s Alex Magnin does a great job describing the challenges of the ad supported business model for start-ups in his opinion piece Dear Silicon Valley, Ads are the Hard Part.  The prevailing business model with most Internet start-ups reduces to this statement:  “We are working on building a great product with a large audience and then we will monetize with advertising dollars.”  Nothing wrong with this model.  However, it seems that start-ups continually underestimate the amount of time required for a meaningful advertising revenue stream to appear.  To my (admittedly hyper sensitive) ears I hear “just throw in ads when the hard stuff on the product is done.”

I’ve worked with hundreds (not an exaggeration) of internet start ups over the past 10 years and I can say that 99.9999% of the time this idea of “build it and the ad dollars will come” radically underestimates the complexity of ad monetization.

So how should an entrepreneur plan for an ad-supported business?  What follows is my (now canned) speech when someone asks me about this.

Overnight success with an ad-supported business really takes 12-36 months.  It takes a relatively large investment up front and you won’t know how well that investment is working for at least 6 months.  When it works well it looks like this:

Phase 1.  You hire sales and marketing leads who figure out how to translate your product offering into something that advertisers understand and appreciate.  While this is happening, your small sales team is in market working to get the attention of advertisers and their agencies.  Success in this stage is firming up a winning, unique and defensible sales proposition, getting time with the right advertisers, and getting asked for proposals.

Challenges: The people who you want to hire are in very high demand and will be very expensive (think 1-3 developers expensive.)  The number of people all asking for the attention of a small group of advertising buyers is more than anyone can handle.  New partners or “test budgets” are the first part of an ad budget to cut so you can spend a LOT of time in positive conversation before you are even invited to propose for future business.

Phase 2.  Once you’ve gotten ad buyer’s attention and been asked to submit a proposal, the ad buyers rarely buy on the first pass.  Instead, they evaluate how you price and package your offering and how professional your team is in working through this process.  Often, the proposal reveals information that can be put into a POV for their client/boss should your company come up in conversation (“What do you think of x?” or “Should we be working with y?”)  Often, the POV will be “Interesting but let’s see how they progress before including them in the mix.”

Success in this stage is proving the professionalism of your team and getting positive traction on your pricing and packaging of whatever it is you are selling.  You want to move beyond interesting to something they need to test.

Phase 3.  You get an ad buy.  Typically the buy will be smaller than you’d like.  Small depends on the overall budget of the advertiser.  A multi-national CPG or automotive brand could put together a six-figure test but all too often you are working with five figure investments and sometimes less.  This is the all-important test.  Does the ad perform? (Performance could mean a wide variety of things to different advertisers.)  Did the campaign go smoothly?  Did I get the client service I need?  Do I like these people? (not the company, the people working with me.)

Success in this stage creates momentum for a serious investment in the future.

Phase 4.  Following a successful test you can expand future deals both in duration and in size of investment.  Sometimes this ramp can be very quick.  Sometimes you need to wait a year for a seasonal advertiser.  Provided you see a number of partners experiencing success, this is where your business can grow very quickly.  It is much harder to sell your first $10 million in advertising than it is to generate then next $20-25 million.

Success in this stage is in creating solid, strategic relationships with key advertisers in your category.  You are now stealing dollars from established partners as you have created a stronger solution for advertiser’s needs.

Phase 5.  You become an established leader in your category.  New clients come in and spend more money more quickly because the early advertisers have established you as a viable place for their budget.  The product you’ve developed provides all sorts of case studies and learning’s that help you grow your business.  Perhaps most importantly, it is now easier to recruit sellers, ad support players, etc.

Radically change your proposition through a product or business model pivot?  Go back to phase one.  Tackle a new market that isn’t adjacent to your current market?  That initiative starts at phase one.  Introduce products bought by different people?  Go back to phase one.

That’s it.  Overnight success in advertising.  Of course having a great product is important and advertising and product teams ultimately need to work together for a company to succeed.  That said, the history of the Internet is littered with great products that never found a winning ad model.

Feel free to share this post with anyone who thinks that a truck full of money immediately follows you posting ad tags on your site.

The 10 milli-second sale. Premium is a price not a quality.

For the past 15+ years I’ve sold advertising in one form or another.  I’m an advertising salesperson.

In reality only a portion of THINGS I sold were truly ads.  I’ve sold print ads, video spots, and online display ads.  But I’ve also sold Webcasts, sponsored listings, text links, microsites, websites, custom content, marketing services, applications, etc.  Is that advertising?

The answer is a semantic one and not all that interesting.  Whether advertising or some other marketing service it was sold to help a marketer achieve a specific goal.  A lead. Educating customers about a topic.  Changing the perception of a company or product.  Making a segment of the population smarter about a topic that ultimately helps a company win.  No one buys advertising because they want to they buy ads to do accomplish a specific goal.

At one point the line between advertising and other marketing services was very clear.  When I started in the industry, nearly everyone stayed in their assigned silo.  Creatives made ads.  PR pros created content.  Ad buyers and planners chose where the ads ran and made sure they did.  Each buying silo had sales people aligned against them to help them achieve their goals.

Today…. glorious chaos.  Well, mostly glorious.

This chaos has spawned proclamations of the death of the ad banner.  It means I sometimes sell ads to PR firms and help ad buyers figure our word of mouth strategies.  It means my company now produces a lot of the advertising that runs on our site.  It also means that a significant amount of inventory being bought and sold is negotiated by computers.

Many have equated the development of “programmatic channels” to the shifts that happened in the stock markets 10-20 years ago where computerized exchanges started to replace a bulk of the sales and purchases of equities.  I think there are some parallels but many differences.  One thing is certain.  A publisher or ad sales professional who doesn’t work to understand and utilize these new developments could find themselves obsolete or marginalized in the same way that equity firms who ignored this development did in decades past.

Many people on the “Premium side” of the equation (typically meaning people who manage and sell specific inventory produced by the same organization that sells the ads) make a face like they just ate something sour when they talk about programmatic solutions.  Or, they accept them as a necessary evil.  They are good for “remnant” inventory, they say, but will never replace the premium inventory seller they say.

Others on the “Programmatic” (trading desks, supply side platforms, Demand Side Platforms/exchanges) side of the house seem to equate these “old school” publishers and buyers as dinosaurs just before the meteor strike.  Many seem to suggest that all of the fluffy/artsy elements of the advertising business are stripped away with these tools.  Science, they seem to imply, beat art.

I see a merged reality.  Art has often improved through scientific developments.  If the item sold is standardized to a point where automated buying is possible, the buying will become automated.  The tools driving efficiencies through programmatic channels are truly amazing.  They ultimately will solve the many of the internet advertising industry’s “scale problems.”  Machines executing buys in the 10 milliseconds it takes to load a page will streamline our industry and remove a lot of friction that comes with the millions of options available to marketers online (and off if there is such a thing in 5 years but that’s another post.) But it will also create a more efficient market where some existing leaders will see their premium decrease.

Does that make my job and me a dinosaur?  I don’t think so.  A good friend always said to me “A premium is a price description not a description of quality.”  The job of publishers (I will leave the premium descriptor off) is to provide solutions.  As more and more of the standards based items are automated, the successful publishers, ad salespeople, and buyers/planners/etc will turn their focus to the ideas that make that message work and the custom sponsorships that cannot, by definition of custom, be standardized.  If my team was able to eliminate 90% of the spreadsheet creation of the current RFP/Proposal process I would be thrilled.

People like me will need to be a part of the discussion that creates demand, and I hope sets a premium, for inventory I represent.  Content that inspires devotion and enthusiasm for a topic will still be more valuable than flat, uninspiring content.  In other words, the fundamental tenants of a quality marketing program will remain important and the publishers and sellers who do a better job convincing marketers of that quality will be very important for a long time to come.

Let’s move with all due haste to a world where we automate those elements that can be automated and focus 100% of our attention on the areas that require differentiation –  messaging, positioning, brand extensions, content, etc.   Brands and publishers that embrace, experiment, and innovate successfully today have the fast track to defining where the premium should be placed.

More to come…

Most Online Advertising Functions More Like Classified Ads than TV Spots

The IAB just released their annual advertising report and shows healthy year over year growth in the category.  Online Advertising grew by nearly 22% in 2011.  It would be easy to characterize this as further evidence of the Internet’s inevitable dominance over other mediums.  

But…. 

In the report and handful of data point jumped out and further cement the primary use of the Internet as a direct response medium.  2 data points in particular:  

-  65% of all Internet Advertising revenue came from performance pricing (cost-per-click, cost per acquisition, etc.)  That is up from 62% in 2010.  

-  Search spending grew by 2 points to 47% of the total dollars spent online.  Everyone talks about online video and mobile as the big movers and search grew faster that video and kept pace with mobile!  

As an industry, we are still struggling to move much money online for demand creation.  This remains the single biggest opportunity for the industry.  

Perhaps the problem is people like me keep calling it brand advertising. This is all about creating demand.  When we get better at proving the effectiveness of the internet at building demand, then the long predicted shift from TV advertising to online happens.  

The Problem with the Time Spent vs Dollars Spent Argument in Advertising

Mary Meeker is out again with another fantastic presentation on the state of technology and media.  As usual, the presentation is incredibly good, thorough, and – even for people who live and breathe this stuff – enlightening.

One issue.

The whole “dollars will follow eyeballs” argument simplifies the shifts happening (and sometimes not happening) in the space.  Meeker is not the only person to use this line of argument.  For those not familiar, the thinking goes like this:  The percentage of time spent on x medium is higher than the percentage of the ad spend for that medium.  Dollars will follow eyeballs and catch up because advertisers will figure this out and course correct.  It was used for online vs. print and online vs. TV and is now regularly used for mobile vs. browser/TV/Print/etc.

The inevitability of this argument was tremendously motivating for me and my peers in 2001 when I sold advertising for CNET Networks.  “Get our share of the pie!” was the rallying cry for a very soft online ad market.  “Of course the time spent will influence ad allocations.”  If people didn’t see that they didn’t “get it.”

The market “got it.”  Soft of.  Time spent online continues to grow as does ad spend but there has been no equalization between the two metrics.  Now huge amounts of time are spent on mobile devices and the industry is just starting to figure out how to sell ads here.  Clearly print has suffered tremendously at the hand of the web.  But TV?  There is still record spending with TV advertising.  This is where the argument starts to fall apart.  It isn’t the percentage of time spent that matters but the perceived effectiveness of a medium to accomplish an advertisers goals.   For a variety of reasons, advertisers feel like TV is (often) the better medium for brand advertising.  EVEN AS THE PERCENTAGE OF TIME SPENT WITH TV DECREASES!  As long as people continue to spend time with TV and it is judged to work the spending will continue.

I am not alone in the assessment that online in all of its forms can and often is much more effective.  As an industry, internet publishers must do a better job proving effectiveness.  There is no inevitability to the equalization of ad spend and time spent by medium.  It is entirely possible and likely that the consumption trends continue to change in web/mobile’s favor but it is also possible that the revenue potential of browser/mobile based platforms never match the percentage of time spent with those mediums.

Let’s all stop hanging our hopes on this argument and redouble our efforts to prove effectiveness with these mediums.  The trends all point in the direction of the web and mobile but the ability to meet the promise from an ad spend perspective is entirely tied to effectiveness.  Let’s not take anything for granted here.

Three Rules to Live By if You Sell Advertising

These are my three rules.  I find when I don’t remember these three things I waste time, energy, and ultimately job satisfaction.

1.  People don’t buy Advertising to buy Advertising.  They market to solve problems.  It often seems like people want to buy advertising.  They don’t.  They want to increase advocacy, or create demand for a product, or direct buying intent to a specific purchase channel, or…  Any time you get caught focusing on simply filling in a spreadsheet you are deceiving yourself and make yourself an expendable commodity.

2.  Not taking the time to sell the right solution creates more hassles down the road. There is a saying in sales:  “Stop selling when they have bought.”  Not a bad policy.  Unless they have bought the wrong thing.  You may get the deal now but this is a business where you need to go back for renewals every 6-12 weeks (even if this is a longer term deal they can cancel.)  The wrong tool for the job, even if they want it, is trouble.

3.  People don’t buy against their own self interests.  Ever.  It is a cop out to say “They don’t get it” or “they just don’t want to get with the times.”  Whatever their self interests are, customers buy what is they feel is most likely to serve their interests.  If you don’t get the buy, you haven’t aligned your solution with their interests.

Simple right?

Back on the horse…

My last post on this blog was nearly 2 years ago.  Sigh.

Why?  Or, maybe the better question is why come back to blogging at all?

I’m dusting off the blog for a number of reasons.

1.  I now work at Business Insider and my office faces a newsroom of 50+ writers who spend all day every day creating content and engaging an audience.  I don’t pretend to be a peer but I’m resuming the blog to better appreciate and understand what they do.

2.  The media and marketing fields are changing at an amazingly fast pace.  I want to re-engage in that conversation in a more thoughtful way.

3.  Simply put, I love to write and miss the process of thinking through and item when an eye toward putting something together for someone else to read.  Even if that reader is some future self.

Obama and Old Spice – the future of internet marketing

The Obama campaign’s use of social tactics in the 2008 election not only changed the way politicians run for office, it gave us a peak at what social media advertising can be at scale.  The popularity and apparent sales success of Old Spice’s re-branding efforts, while for a very different purpose, parallel the work Obama and team did in 2008.  Consider the parallel principles guiding both initiatives:

Have a consistent voice but optimize the expression of that voice for multiple platforms. Obama had an website and a carefully planned and executed message but the Obama team also devoted significant energy to their Twitter Feed, Facebook page, platforms like my.barackobma.com.  The thematic issues of the communication were “on message but each platform took advantage of the unique reasons people used that platform.

Old Spice’s recent marketing work did the same.  What was a very clever concept that could easily have simply been a popular series of TV commercials became the heart of a much broader messaging platform that included facebook, twitter, youtube, AND their own site.

Give over the microphone to the people you want to influence. One of the things I most respected about the Obama campaign was the fact that they allowed these platforms to be a place for dissent as well as support.  They responded to both and made it available as a tool for support and dissent.  When Obama changed his policy on some issues during the campaign, many of his supporters responded negatively on his campaign site’s forum.  While the team certainly was aware of this activity and had the ability to bury it (think Apple in their customer forums when there are complaints) they left it up and actually pointed to the discussions and participated.

Old Spice listened for and responded to comments about their campaign.  For example, this video in response to a tweet.

In both cases the exchange was dictated by customers/voters and not the creative.  Even more powerful, the responses to customers actually generated the buzz.  The only thing more exciting than an amazing shot in a tennis match is the subsequent amazing shot in response.

Style is important but content is king. This is not about sub-par production values but it is about content.  But the effort there.  Agree or disagree with the content (that is the conversation) but production values without something to say is a recipe for disaster.  The responses to customers in the Old Spice campaign looked good but had none of the visual effects of the initial TV campaign.

Make it sharable but promote like mad. So many “social” efforts are discrete initiatives with success/failure almost solely dependent on whether the effort goes viral.  If you have something to say and it is important to your efforts, support that effort.  Online advertising, TV, print, etc. were a part of both programs. The social aspects focus allowed for easy sharing but people didn’t rely on sharing to accomplish reach.

Finally, both initiatives have a home base. Don’t expect your customers/voters to connect the dots.  When they come to you, curate the conversation you’ve been having across these platforms.  This is not a YouTube campaign, a blogger outreach campaign, a TV campaign it is a messaging/marketing campaign.

The success of the efforts speak for themselves.  The lessons gained from that work seem to be clouded by parochial arguments (“see, TV is social!”)



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