Out With the Old Advertisers, In With the New

By: Steve Outing Last week's report from Borrell Associates Inc. contains lots of controversial and bold statements meant to spur the newspaper industry into being smarter about the Internet:

* "Publishers are already missing nearly $300 million per year by failing to use the Internet to serve new advertisers and enter new, related fields."

* "Newspaper executives need to move away from their current focus on minimizing Internet cannibalization of print revenues, and focus instead on maximizing growth for their separate Internet and print businesses."

* "Newspapers now appear to be focused on replacing their high-margin business of print classifieds with the lower-margin business of online classifieds" (by focusing too much on classified up-sells to online).

* "We believe the erosion (of print classifieds by online competitors) will continue but that it will be gradual -- possibly resulting in the complete collapse of traditional want ads -- over the next decade."

Sure to make some newspaper executives uneasy, the report was on the mark, in my view. Gordon Borrell and co-author Clark Gilbert, a business professor at the Harvard Business School, point out what should be obvious, but obviously isn't to much of the industry: that newspapers have been pointing at least partly in the wrong online direction. A course correction is needed.

Let's look a bit closer at what the research says. I'll preface this with a comment from Borrell, who says that while the report obviously criticizes some strategies of newspaper companies, they still do a lot right in the Internet space. Yet overall, says Gilbert, "we're fairly pessimistic."

Out with the old, in with the new

The most important message from this report is that newspapers focus too much on existing print customers and advertisers -- designing online services that try to bring their existing customer base into new media, and trying to get additional money from them on the online side (for example, by offering "up-sells" of online placement to print classified-ad buyers).

What's also needed is a stronger commitment to attracting brand new customers and clients. Borrell points out, for example, that in a typical newspaper market, it's safe to assume that 70%-80% of local companies don't currently have a relationship with the paper. That's because many small businesses can't afford the high ad rates of a daily paper. There aren't advertising opportunities that fit their needs and budgets, so they find alternative means of marketing. Other businesses don't yet trust the reach of Internet advertising -- they think it probably won't work and remain unconvinced that they should spend their money online.

The correct strategy, then, is to design online advertising opportunities that work for small businesses with modest budgets. Give them a place to spend what money they do have, and work hard to provide proof of the effectiveness or your online ad offerings.

The poster boy of this strategy is Robert Cauthorn, who directs new-media operations at the Web site of the San Francisco Chronicle, SFGate.com. If you've heard Cauthorn at one of his many conference speeches, you know that one of his mantras is to go after advertising clients that can't afford to be in the Chronicle. His strategy is to offer them reasonably priced online placements -- which is successful and getting more so over time.

Going after this new market isn't necessarily going to provide short-term success. Borrell says it takes a strong buy-in from corporate executives, and a commitment on their part to weathering possibly slow growth. They need patience and faith that this segment of business will grow substantially, given enough time.

There are many good reasons to focus on attracting new advertisers that don't currently do business with the print edition. One of them is that newspaper Web sites tend to have a younger demographic than their parent publications. The different audience characteristics of a news site can be attractive to a different set of advertisers. Newly attracted advertisers enticed to spend money online can be a better match for the online audience than traditional print advertisers that have migrated to the Web.

The problem with convergence

Looked at in this perspective, the trend in online newspapers of the last several years of incorporating new-media departments back into the "mother ship" would appear not to be ideal.

Early on, new-media operations at newspaper companies were given significant autonomy -- the theory being that the Internet was a new, disruptive technology and that newspaper people working in it needed some protection from the conservative business practices of the print product. But later, as the idea of "convergence" caught on, the trend reversed and new-media units that were once outside the traditional news operation were folded back into the newsroom. This made sense if the goal was to find efficiencies between online and print operations -- selling both forms of ads with a single sales force; reporting once and publishing twice to each media; etc. This move also prevented online from cannibalizing print with its activities.

The converged newsroom isn't necessarily a bad idea, but it can present some problems for the online side. Borrell points out that what typically changed when a converged model was implemented was the managerial reporting line. Instead of the new-media managers reporting to the CEO of the company, who looks at the entire picture, they report to the newspaper publisher. And to a publisher, the modest revenues and even more modest profits (or losses) of the new-media operation tend to get lost. This is "little stuff" to a publisher charged with overseeing a huge newspaper operation, says Borrell, who started his career at The Virginian-Pilot in Hampton Roads, Va., and who later served as a new-media executive for the paper's parent, Landmark Communications Inc. The result was that online budgets got curtailed and innovation was stifled. That's pretty much where the online newspaper sector stands right now.

I dare say that the industry is stuck with internalized new-media departments -- at least until the next economic surge supports technological innovation and hiring again. So the trick is to change corporate thinking to allow lots of freedom to the new-media side. As the Borrell report wisely suggests, newspapers have got to allow their Web departments to operate without regard to how they might negatively impact the print operation. Let new media go after new markets and new audiences -- and new money. If the result is a slight short-term negative for the print operation, so be it.

Report co-author Gilbert points out that the newspaper industry is going through a fairly typical business process -- where a "disruptive technology" (the Internet) is poised to take away some of the core business (especially in the classifieds area). During the years-long process, the Internet will cause flattened growth in newspapers' core business, and later on start to degrade it. Gilbert likens the newspaper-Internet situation to mini-computers vs. mainframe computers. Mini-computers eventually took over the bulk of the market from mainframes, but they co-existed for some 15 years. Mainframes never had a chance of holding on to their position, and newspapers probably don't have much of a chance to hold on to their dominant classifieds position either.

Advice to accept the inevitable may appear to run counter to the whole idea of the print-online converged newsroom. But if a newspaper company wants to attract money from new customer bases, it's essential to free the new-media staff from worrying about cannibalizing the print operation. Borrell thinks that the pendulum has swung too far in the converged newsroom toward serving the core product. It's time to swing back to a more even approach, where capitalizing on independent Net opportunities is as important as serving the print business.

Don't be dumb any longer

The way that online news sites handle advertising needs some work. "Ten to 20 years from now, we'll shake our heads and say, 'Boy, were we dumb back then,'" says Borrell. He advocates looking at new forms of serving advertisers -- and suggests looking at how employment sites like Monster.com and HotJobs.com serve human resource professionals. Many of the services those companies provide go beyond mere listings of job openings. Traditional job advertising is the slowest growing area in HR, Borrell says, so the focus should be on services for the HR industry "that don't look like advertising." Go to Monster.com, pretend that you're an HR professional, and see how many ways you can spend money, he advises. Apply that approach to all forms of your online advertising.

Another way to think outside the box is to reach beyond the standard contextual ad approach (of putting tire ads near sports content, for example). This requires doing better with demographic data collected from your users, such that you can serve them advertising based on their projected interests, no matter what content they are looking at. This can work particularly well if you can get users during the registration process to tell you their areas of interest.

Even sites that don't require user registration should be offering targeted advertising, says Gilbert. Systems can be created that track users across a site's pages, recording interest data on a user and serving up specific ads based on what pages the user typically visits. Users can be tracked across multiple sessions by recognizing them via cookie technology.

For example, let's say an area of your site serves senior citizens. A user on those pages is a mother of a young child. (Perhaps she also has an elderly parent to care for.) Instead of exclusively serving ads for senior products, the smart Web site can present ads for diapers to users it knows have young children -- even when they're consuming content that has nothing to do with children.

Borrell's advice: newspapers should hire people with database marketing skills, to lead efforts in this type of online advertising, and invest in the technology systems to perform this sort of targeted marketing. This focus can attract new business. Put less energy into up-sells to existing advertisers, Borrell says.

Gilbert says the opportunity for direct Internet marketing is potentially huge. Indeed, it's the capacity for the Internet to deliver "rich-media" advertising, demographically targeted, that makes the Net unique as a communications medium. Unfortunately, most newspaper executives behave as though they don't realize that.

Despite the online industry's continued malaise, there is still much opportunity. To take advantage, focus on the new customer, not the old. Deploy database technology to do direct marketing to online users. And don't let convergence get in the way.

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Letters to the Editor

Google is for Americans

I just read your article about Google News, and kept seeing the world 'global' in your article. Google News is, of course, a very local service, for Americans.

Here in Europe (I'm English, living in the Netherlands), everyone I know who has checked out the new service wouldn't dream of using it for news. The Dutch people will continue to use Dutch language news and I'll just look at the BBC and my local Dutch newspaper on the Web, as usual.

Chris Smith
Technical Director
The Rosetta Stone Consultancy
Amsterdam

Stylish content doesn't reach subscribers

Great article (I'm Sick and Tired of Spam (Filters)!). If you have any geek types around, they can set up a local SpamAssassin so that you can test your messages first and see what rules they hit.

However, I also think there is an onus on the publisher. For example, I get a newsletter from Cooper.com. SpamAssassin tagged it with a score of 10.9 (the default spam threshold is 5, and I have mine set to 8).

But many of the things it tagged are just bad practice:

* Lines longer than 199 characters
*HTML with no plain text alternative
* Font sizes greater than 2
*The from field only being an e-mail address, and no name/description

They specialize in usability, and I e-mailed them about it. They responded and said they would look into it. A month later, the next newsletter had an even higher score. I stopped reading their newsletter as a result.

Other communications are far worse. The Hilton HHonors program sends out e-mail that violates even more presentation rules (background colors, so much text, links, over 70% of mail being mark-up, etc.).

But this is all a symptom of a greater problem. Anyone trying to publish stuff, emphasizing style over content is going to get increasingly indistinguishable from spam (both to humans and to programs like SpamAssassin). Anyone treating their readers as eyeballs is not going to find out that their readers aren't getting stuff, and will usually resort to more style instead of content to remedy.

The ClueTrain Manifesto expresses this in a far more eloquent way.

Roger Binns
Business Development Manager
Tarantella

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Other recent columns

Google News Could Change Online News Industry, Wednesday, Sept. 25
Don't Hide Your Multimedia Content, Wednesday, Sept. 11
See the News Of the Future At Starbucks, Wednesday, Aug. 28
Examing Paid Content's Future, Wednesday, Aug. 14
I'm Sick and Tired Of Spam (Filters), Wednesday, July 31
Knight Ridder Digital Cedes Some Control, Wednesday, July 17
Previous columns

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