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Profitability in Publishing

  |  August 2, 2001   |  Comments

In the radically changed world of Internet publishing, profits are scarce and aggressively sought. Sponsored search has become a lucrative business -- advertisers generally see excellent returns. No wonder ethical issues have sometimes become secondary.

There was a lot of feedback from my last article, which discussed how major search engines have been forced toward alternative revenue sources. Many of them have found success in offering paid search results to advertisers, a service that has created great demand from advertisers and profits for publishers.

In the eyes of many users, search engines are providing biased search results and misleading users by guiding them to the marketers' sites rather than to those providing the content they are looking for.

This is an ethical dilemma that has stirred interest even among consumer groups and the U.S. Federal Trade Commission (FTC). Many are against the service altogether, but the majority argue that sponsored links can play a role with search engines so long as they are clearly designated as being advertisements rather than natural content.

Clearly, in the radically changed world of Internet publishing, profits are scarce and aggressively sought. It has become apparent that sponsored search is a lucrative business, as advertisers generally see excellent returns on dollars being spent and publishers are selling them more easily than most online media. The ethical issues, therefore, often become secondary.

Now suppose that all sponsored listings were all clearly specified (as will likely end up being the case). Is there really a conflict of interest here? Users do not pay for the search service (which is a valuable service to users), and these sites have fairly high overheads to cover. If traditional online ad formats and placements aren't creating enough demand from advertisers, then these sites have to react in one of two ways. They can either begin charging a small fee to users for the search service or start offering advertisers what they want. Most have opted for the latter thus far, and it should just be a matter of time before all sponsored content is clearly designated from the unbiased search and becomes the norm.

This issue also applies to regular ad-supported content sites that have, in the last six to eight months, been forced to offer new, more intrusive ad options that take up more and more space on Web pages, taking away from the content (a good recent example is the X10 ads). I recently read an editorial that discussed how online ads were continuously getting bigger and more annoying and that the trend did not appear to be changing for the better. The writer was critical of where the industry was headed, essentially saying that ads created too much clutter and were far too intrusive.

But if advertisers do not support content sites, the sites would have to charge users for content and services. Therefore, if sites are not able to accommodate advertisers' demands for new, more sophisticated ads, the dollars will be spent elsewhere. To a certain extent, it is a traditional supply-and-demand issue, where there is a huge surplus of media space available with a smaller demand for media buying, regardless of the formats.

Market conditions have also led to a declining demand for media spending, both interactive and traditional. Current conditions have forced publishers to accommodate their advertisers' demands more and more by getting more creative with their offerings and often giving up more of their site's real estate. With such a growing surplus of online media, buyers looking for bigger and better formats have many alternatives.

Considering that most major print publications are supported via subscriptions and advertising, it is surprising that there are not more paid content sites already. It might seem that the industry would naturally be headed in that direction -- there is so much free content and so many free services available online that need to generate revenue in some way. Aside from a few online ad strategies that are somewhat unethical or misleading (e.g., unlabeled paid search results), users do need to understand that nothing is entirely free; they will either have to pay with eyeballs or wallets, and most users prefer the former.

The issue with misleading search links will likely be settled soon with some new regulation in place forcing publishers to clearly mark sponsored content. Aside from this, it seems almost unfair to criticise the advertisements that pay the bills. This is a market, after all, where supply and demand will be bouncing up and down until a natural equilibrium is reached.

If forced to pay, users would be less likely to check stock quotes, catch up on sports and leisure, read industry news, or simply conduct online research via search engines. Someone has to foot the bill -- and if it continues to be the advertiser, then users need to accept publishers' needs to offer bigger, sexier placements.

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Adam Posman

Adam Posman is a strategic planner with BAM Strategy, a leading digital agency with offices in Montreal and Toronto. BAM's core services include strategic planning, media buying, creative production, online contests, email marketing, and customized marketing technologies.

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