How the Ad-Driven Business Model Derailed Medium & Why Publishers Need to Think Beyond Programmatic
Despite sleek publishing software and a high profile founder, the hybrid publisher and platform, Medium, is in the same boat that many established publishers have been in for more than a decade. Digital ad revenues are not enough to support the business, and the startup has had to layoff 50 employees while it searches for a new business model.
One lesson to be learned from Medium’s difficulties is that publishers need to wean themselves off reliance on programmatic advertising in order to stay alive in 2017 and beyond. Programmatic ad revenue will not solve the woes of digital publishers. In fact as we shall see, programmatic is in large part the cause of these revenue woes.
Programmatic & Tragedy of the Commons
A notable exception is BuzzFeed, which built a successful business based on programmatic. But most traditional publishers couldn’t afford to pay the rent, let alone journalists’ salaries and the electric bill with the money that programmatic generates today. BuzzFeed took the low cost model to an extreme, capturing a huge share of audience attention, but with none of the costs associated with actual journalism or content production. Essentially, BuzzFeed took $10 billion of revenue from the publishing industry, and turned it into $1 billion of revenue for BuzzFeed.
The emergence of programmatic dramatically reduced the hurdle to becoming a digital publisher, which is great for new publisher startups with modest revenue ambitions, but a serious problem for traditional publishers. As more publishers rushed in, this led to a “tragedy of the commons” of falling revenue due to oversupply of ad inventory. And don’t expect sympathy from advertisers – your revenue is their cost.
So what have many publishers done in response to the drop in programmatic ad revenue? They put more ads on the page, further compressing CPMs via oversupply and eroding the user experience, leading directly to the adoption of ad blockers. According to the IAB, 26% of desktop users and 15% of mobile consumers use ad blockers to remove ads from publishers' websites.
In Search of Traffic, Publishers Give Away Audience
At the same time as publishers face pressure on ad revenue, social media has turned the distribution model on its head. Traditional publishers used to control their distribution channels, but social networks like Facebook now hold the reigns. This is a precarious situation for publishers whose audience now views Facebook as the homepage of the Internet. If Facebook controls what they see and when they see it – is it even your “audience” any more?
Savvy publishers are learning that a mix of revenue models is the key to a sustainable business in the digital world.
Time to Refocus on Subscriptions
A few years ago, publishers experimented with paywalls but this approach was sidelined when programmatic revenues skyrocketed. It’s time to reconsider digital subscriptions. A technique that is proving viable is to give readers access to a limited number of free articles a month before requiring a subscription, a so called “metered paywall.” With this technique you can still benefit from social and search traffic, but the primary goal is to upsell to a digital subscription, not cram as many ads as possible into the page.
Don’t Underestimate Email
Email is an often-overlooked channel, with which publishers can create revenue streams that bypass ad blockers, promote subscriptions, and distribute native content. More importantly, unlike articles distributed through Facebook, with email publishers can build long-term relationships and create audience segments that can be directly sold to advertisers. Email gives access to first-party audience data, a valuable commodity for publishers and their advertisers.
Programmatic isn’t going away. Advertisers love the ability to buy across many publishers through a single automated interface, and programmatic targeting capabilities are effective. However, programmatic alone is not enough to sustain a successful publishing business and publishers that don’t evolve their revenue streams will be left behind. Programmatic should be seen as one form of supplemental income in a mix of other revenue streams such as digital subscriptions, native ads, sponsored emails, and ads within emails. For digital publishers to succeed, the time has come to treat this addiction to programmatic and focus on revenue diversification.