Sharing ad dollars is the best way to get ad dollars
Michael Arrington offers this fake criticism of Federated Media:
But as advertising dollars become harder to come by, staying with Federated becomes more costly. The biggest issue is that as a market leader among tech blogs, we end up subsidizing others. An example – an advertiser comes to us with, say, a $100,000 spend. They are referred through to Federated, who if they make the sale gets a 40% cut. That cut is fine. But what Federated then does is spread that $100k around to many different blogs. In the end we may only see a small fraction of it spent on TechCrunch. This works in our favor as well when leads come in from other blogs. But given how much higher profile we are than many of the other blogs in the Federated network, a disproportionate share of leads comes in through us. In effect, we’re subsidizing our competition. As ad dollars become more scarce, the effect of that subsidy is more pronounced.
So if an advertiser comes to TechCrunch and says “Hey, we’ve got $100,000 for ads, what should we do with it?” then TechCrunch normally says “Go talk to our ad partner, Federated Media.” Then Federated Media talks to the ad buyer. I can imagine that negotiations between Federated Media and the ad buyer might drag on for weeks – the ad buyer needs to be convinced that the ads will show up on the web sites that are right for their product or service. Assuming the deal is closed, Federated Media will keep $40,000 for its troubles. The remaining $60,000 is given to the various sites that Federated Media and the ad buyer decided were right for this marketing campaign.
This is fake criticism, since Federated Media has an option where TechCrunch can negotiate the deal itself, keep most of the money, and simply serve the ads from Federated Media’s servers. But of course, TechCrunch doesn’t want to negotiate the ads itself. That would mean hiring sales people. That would be a big expense, and it would distract TechCrunch from its core mission.
Mostly, it would seem that Arrington is complaining that ad dollars are falling. Possibly he’s trying to strongarm Federated Media into lowering their cut, though in that case he is being disingenuous when he says “That cut is fine.”
Some people in the comments suggest that TechCrunch go their own way. The problem is that TechCrunch is too small. Ad buyers don’t want to negotiate 1,000 separate deals with 1,000 separate websites. Instead, they want to negotiate one deal with a company that controls an ad network that has those 1,000 websites in its network.
Being part of a network is good for TechCrunch. Arrington complains “we’re subsidizing our competition”, but the competition creates the network that draws in the advertisers. Sharing ad dollars with the competition is a way to get more ad dollars.
On a different subject, Pete Spande, of Federated Media, emphasizes the effectiveness of social media advertising:
As the cost goes down, the investment in the relationship goes up with those that attend. I’m quite confident I could fill a hall with people if I had the best band, chef, location, etc. The number of people who would meet me in a park to hang out is much lower but the people who would come mean much more to me.
That is the trick with Social Media. It isn’t free but the low cost of the tools make it feel free from a distance.
If you go to where the people are (i.e. Facebook, Twitter, the “blogosphere,” etc) you must invest time, money, and energy to stimulate a conversation. Marketers can and do create fan pages, groups, and even applications for very little money. But creating them and getting people to use them are two very different things. The people who become a fan of you your brand within Facebook or subscribe to your brand blog’s RSS feed are the people your brand has already converted. To grow beyond that base you must invest money, time, and energy. If you are the social media equivalent of a fantastic chef the out of pocket costs are still relatively low. For most brands, they will need to invest in a private room at a restaurant or a caterer.
Does that make Conversational Marketing less attractive? No!
The benefit of Social Media isn’t the initial cost it is the return. If you invest time, money, and energy into a conversation with your potential customers you build equity with prospects at a scale that becomes extremely meaningful. As you build these relationships, you gain the ability to get more out of that relationship. They will share their feelings with new prospects, they will defend your brand in place you can’t, and they will amplify your message.
The conversation about “conversational marketing” has been going on since the 90s. The ClueTrain Manifesto was an early incarnation of the idea. For some reason, large companies are still struggling with the idea. Matthew DiPietro offers them some advice:
Nike, FedEx, Bud Light and countless others, have all put major efforts into building and leveraging branded Facebook applications. They experienced varying degrees of initial success followed by near-universal failure. All of these apps are now largely ignored. Why? Well, would you go to a dinner party where you knew the chief objective of the host was to get you to buy stuff? I wouldn’t.
There is a very simple marketing lesson to be learned here: Don’t build it, join it. And not just for social apps, but for the entirety of social media. Find the apps, sites and communities that encompass your audience and get involved in an authentic, transparent way.