Fledgling businesses have trouble admitting “it’s not you, it’s me.”
Annoying ads, the rise of fake news, write-offs and layoffs have driven a drumbeat against ad-driven media that was amplified this week when Medium ditched its ad sales and called the ad-driven system “broken.” But for all its flaws, ad-driven business models still present many companies with their best monetization options. Like democracy, advertising for many companies is the least worst model.
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“If you are doing the right things, it is a good business model,” said About CEO Neil Vogel. “It works for us. When people criticize [ad-driven media], it is often because something in their model doesn’t work.”
According to PricewaterhouseCoopers, annual global internet advertising spend almost doubled in the past four years from about $100 billion in 2012 to nearly $200 billion in 2016. PwC projects digital ad spend will surpass TV advertising and continue to grow at more than 10 percent per year through 2020.
“We’re a much more consumer society than we’ve ever been before, so the value of reaching consumers for brands is more valuable than ever,” said Yieldbot CEO Jonathan Mendez in reference to online advertising’s growth. “The case for advertising as a business model is actually better than ever.”
Todd Sawicki, CEO of programmatic platform Zemanta, points out that although some publishers have struggled, advertising has significantly expanded in areas like music and gaming. Rather than relying on album sales, music labels have shifted to monetize content through ads on services such as Spotify. And some mobile games are making a killing through in-app advertisements that feature innovative and interactive units, he said.
Sources stressed that companies need to evolve their advertising strategies over time and diversity with complementary revenue streams when possible. But in many cases this already happening.
“I think [the call for an entire overhaul of advertising] is a naïve statement by people who don’t understand the media business,” said Troy Young, president of Hearst Magazines Digital Media. “Because advertising is being reinvented all the time, because the way people consume content is constantly evolving.”
Publishers are already getting more serious about personalization and custom units. And they’re increasing yield through header bidding and server-to-server connections, which are also “huge advancements for publishers in terms of data and relationships,” Mendez said. And even those who adopt additional revenue streams like commerce, licensing, subscriptions and events don’t typically abandon advertising afterward.
Sweeping statements that claim advertising is broken or dead “sound like those brick-and-mortar retailers who are always blaming poor sales on bad weather or some other exogenous factor,” said Vincent Ryan, CFO Magazine editor-in-chief.
Sources emphasized that advertising is difficult — you have to deliver audience, make creative products, convince people to buy in, prove results — but that can also be profitable in the right context.
“The ad driven model can really work well,” said Justin Festa, vp of revenue for LittleThings. “But you have to be cognizant of your audience and prioritize user engagement.”
Nate Elliott, an independent marketing tech advisor, has a simple way of categorizing where advertising works and where it doesn’t.
“If you have good audience, good content and rich targeting, it can work great,” he said. “If you don’t, you might fail.”
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