July Memo - Chapter 3

July Memo - Chapter 3

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Maxwell Ryan
Jul 7, 2014

ADVERTISING

A friend told me recently what the media business really was: a bright flashing light that attracts a crowd of people who gather around to look at the light. Then while they stand, looking at the light, products are paraded in front of it so that the crowd sees these things too. That’s the media business: you give people something they really want and then show them something else at the same time.

Just a few years ago newspapers, magazines and television were the biggest bright flashing lights, the way in which products were presented were stable. They all had good businesses. All of the money in the advertising world went into those three outlets and the folks in those businesses were happy.

Then came the recession.

While the online publishing world had long been seen as a ghetto for ads and advertisers didn’t understand it or want to infect their brands with it, in 2009 with the onslaught of the recession people got scared, traditional advertising sputtered to a halt, print publications began to fold, Craigslist stole all the classified advertising from the papers, and advertisers went online like they never had before, looking for new life and bargains.

Personally while 2009 started out as a scary year for many, a pleasant surprise awaited us at the end as more advertisers appeared wanting to buy ads and they were willing to pay what for us were very healthy rates as they were far below what they’d been paying in the print world. We had our first really good year.

Then came the online boom.

Also due to the recession, the world began to take advantage of the many new free services and publications and move its entire life online. Over the past five years we have seen a tremendous surge in the amount of content that is created online, from publishers to social networks to search engines, and better and better ways of viewing it and staying in constant touch with it. Everyone and everything now has a website.

While this would seem like a really good thing for online advertising, it’s created such a glut of opportunities and so much fresh confusion for advertisers over where to find the right audiences that they don’t know which bright flashing light to work with. Online publishers have worked harder and harder over the past few years to retain advertisers as they’ve restlessly shopped around, looking for the next best thing.

Then came the remnant exchanges (they sell the cheap looking ads that fill the page when the nice ads are finished).

Because selling banner advertising is so easy to measure and program, remnant ad exchanges have grown up that amass super large audiences and sell slices of them very easily and cheaply based on demographic information that our computers provide. While not as sexy or as inspiring, brands who want to really measure the impact of their advertising and stretch their dollars as far as they will go have gravitated towards this as a great solution when they’re still feeling cautious with the economy.

These exchanges (Google is the biggest one) remove the human element and allow advertisers to do all of their buying online. They mimic the type of disruption the Nasdaq market had on the New York Stock Exchange, and they have completely reshaped the ways in which a great deal of online advertising is bought and sold.

In addition, removing the human element and making vast amounts of page views easily available has made the marketplace incredibly liquid and driven prices way, way down.

Then came mobile.

Despite all this, the online advertising world was finally geared up to figure out and sell desktop advertising, when the mobile phone and tablet exploded over the last 24 months (from 0 in 2011, our mobile traffic is now 55% of all of our traffic). Advertisers have been very slow to follow the mobile migration. They are confused all over again. Advertising on mobile devices is small and not as easy to fit messaging into and the way we use our mobile devices is totally different than sitting in front of a computer while eating lunch.

This means that while more people are online than ever before and publications are growing, their desktop audience is quickly becoming a mobile audience and they’re most sellable inventory (desktop) is dwindling (note: while our mobile is growing too, AT’s desktop hasn’t fallen too fast and KT’s is actually still growing).

Nevertheless, until folks figure out how to do a good job with mobile advertising and get paid well for it, the industry is going to have a tough time. It’s like the Wild West out there and we all have to be on our toes.

So, here’s the good news.

First of all, no one said this would be easy.

All these problems affect all online publishers equally, and are just normal turbulence that everyone has to fly through or around, and they will be solved over time. Undoubtedly it will knock off weak sites and publishers and those who can’t figure out how to move differently to get through it. It will reward those who learn and adapt. It will remove competition.

Secondly, we couldn’t be in a better part of the advertising industry.

While there has been some discussion of “peak ads” or the idea that advertising online is getting less and less effective and therefore the money may be drying up, the facts show that online advertising is healthy and growing faster than in any other area (via Mary Meeker).

In addition, Mary Meeker’s stats show that ad spending continues to fall for print, while the amount of advertising in the online space still trails the audience growth and signals more opportunity here than anywhere else… particularly in the mobile space.

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Thirdly, we’ve achieved a very strong position.

Despite all the turbulence, our ad sales team is working hard and ahead of last year, and ancillary sales (managed by Elise) are up more than 125% over last year. Between the two, our advertising revenue picture is shows a lot of the market’s shifts but is healthy.

Our Comscore ranking, used by ad agencies to choose whom to buy from, has never been higher. The Kitchn is 17th of all Lifestyle-food sites and Apartment Therapy is 10th of all Lifestyle-home sites. Our combined ranking for Apartment Therapy Media is hovering at 29th of all Lifestyle sites. Our competition? A wide range including: Conde Nast, Hearst, ABC, AOL, PopSugar, Match and Refinery29. Of note here that while we’ve been slowly moving upwards, the only two sites that are moving more quickly than us are Faithit.com (a Christian video site) and Refinery29 (good to watch them and note that they have raised over $30m towards this goal).

The challenge ahead of us is to keep learning what the advertising market wants and to deliver. Intelligence, flexibility and creativity are our friends, and while we’ll always sell banner advertising, we’re going to move deeper and deeper into selling and creating branded content and native advertising in a way that only we can and ad networks and remnant farms can’t touch. We’re going to build a bigger creative services team that will be able to dream up and create more and more compelling posts, events and videos for which we can maintain high prices. Not many sites do this very well yet, and we need to keep accelerating into this opportunity and do it better.

Over the past 10 years we have created two very bright flashing lights that continue to attract two very large, loyal audiences, and we are still learning how to parade products in front of them and move as the landscape moves. The solutions will be increasingly complex and diverse, but as long as our light is flashing and we keep experimenting we’ll be happily in the hunt.

Next, let’s look at IKEA…

Best, M
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