Are you unsure of the value of Internet advertising?

By Stephen C. Larson of Our-Hometown.com

Many newspaper publishers and advertising managers are simply unsure of the value of Internet advertising. One symptom of this is when newspapers bury Internet pricing by bundling their Internet offerings in with their print products. Because many newspapers don’t know how much their websites are worth they fail to fully exploit the value.

This paper provides the reasons Internet advertising has value and provides information needed by publishers and advertising managers to establish the fair market value of advertising on their websites.

How can you not believe when the evidence is undeniable?

One simple, yet compelling, measure of the value of Internet advertising is the profits of Google. Here is a company that has come out of nowhere and yet their Net Profits were $4.2 billion in 2007.  Internet advertising generates the vast majority of those profits.

Internet advertising is valuable and Google has proven it.

Establishing a fair market value

Even in the smallest market, advertisers are wondering how they can take advantage of this thing that is now so pervasive, the Internet. Newspaper websites present the same value as Google to advertisers because both provide access to prospective buyers.

Google lets advertisers focus their ads on prospective buyers by the keywords they use and newspapers let advertisers focus their ads on the buyers in their market area. Are these two methods of targeting so different as to make one far superior to the other? Not really, there are valid arguments for both approaches.

Google establishes a fair market value by a Dutch auction method built into their system. Newspapers can establish the value of advertisements on their websites by observing the pricing of others and cross checking their conclusions as is presented in this paper: http://www.our-hometown.com/valuation.html. Bottom line is a $10 CPM is easily justified.

Newspapers have a large amount of content relevant to buyers in the area served by the newspaper that advertisers want to reach. Google provides access to the content created by others and provides relevance with their keyword search capability.

Keeping costs low for the newspaper and the advertiser

Here are the simple ways newspapers can keep their costs low and create value for readers and advertisers:

• Put all the content created for their print edition on the web, do it efficiently and make sure your archives are easily accessible. This makes the website rich for readers and increases the amount of time they spend on the website and hence increases the value to the advertisers. Adding additional content specific to the web is not a requirement but can augment your print content and increase traffic.
• As a first step, use existing display advertising created for the print edition and sell them in one fell swoop to keep down the cost of sales. By getting all or most advertisers involved, the cost per ad is driven down and the publisher can realize the fair market value of the traffic generated by the website. For more information, see the material in this document: http://www.our-hometown.com/displayads.pdf.
• Later sell banner and tile advertisements. Forget about third party ads like Google AdSense and other advertising networks. To get the fair market value publishers have to sell advertisements to their customers not get pennies for ads sold by others.
• Stay “Internet friendly” – every story and every ad should be able to be found on the search engines and use HTML, not PDF or PDF-like products.
• If you are worried about cannibalizing a paid print edition, just protect the current stories for paid online subscribers; leaving the archives for use by anyone. Put current advertisements on your archives.
• Break out Internet advertising charges on your bills. The number will seem small if the valuation methods mentioned are used but in aggregate will generate generous profits for even the smallest newspaper website that keep their costs down and leverage their content as described. With separate charges it will make it easy to increase charges as your website traffic increases. Increase the traffic and increase the charges, makes sense to everyone. If the numbers are buried in print pricing, it is not so clear.
• What about video, content rich ads, etc.? These alone are no panacea. They are all great but expensive to create for newspapers. Over time, once you have a profitable base website, then looking into these options may be worth your time.

If publishers establish a fair market value for advertising on their websites, spread the value across their existing advertiser base and keep down costs then profits will follow.

About Our-Hometown, Inc

Our-Hometown, Inc. (http://www.our-hometown.com) supplies hosting, news and advertising conversion services to the newspaper industry that focus on making our customers’ lives easier and profitable for over 100 newspapers. Ever week, we process about 3,500 newspaper pages of content that includes over 6,000 articles, 7,500 display ads and tens of thousands of classifieds.

February 28^th 2008