• by Gavin O'Malley , Staff Writer @mp_gavin, July 23, 2008

FM Publishing's fearless leader on the exchange conflict

John Battelle, one of the founders of Wired magazine and The Industry Standard, went on to start Federated Media Publishing. He's also the author of the best-seller The Search: How Google and Its Rivals Rewrote the Rules of Business and Transformed Our Culture. And he knows a thing or two about vertical ad networks. Here, he takes no prisoners.

You've said the only reason vertical ad networks are so popular is because people don't understand them.

Battelle: The part that people don't yet fully understand is that "vertical ad networks," at the end of the day, are still ad networks. Ad networks are a vital part of the online media ecosystem. They provide publishers additional revenue on inventory that isn't otherwise fulfilling higher CPM sponsorship programs, and they provide direct-response marketers additional reach at cost-efficient rates. Vertical ad networks offer a bit better targeting because they focus on a smaller set of sites.

While vertical ad networks may improve efficiency for direct-response advertisers, who determine success based on some variation of cost-per-click, they aren't solving the needs of brand advertisers. Ultimately, vertical ad networks serve advertisers and will compete with everyone else who serves DR advertisers, from Google to the other ad networks. The excitement over "vertical" ad networks will erode as CPMs on those networks chase the DR metrics.

What do mean when you say ad networks have become the problem in online media?

Battelle: It's not that ad networks are a problem, it's that they are only a small part of the solution. DR-driven ad networks play an important part in the digital media ecosystem. But they have discouraged advertisers from focusing on the real issue facing the online world, that of brand engagement in digital media.

What do you make of ESPN's decision to cut its ties with several ad networks on the grounds they diminished the value of the company's brand and content?

Battelle: I disagree that ad networks tarnish media brands. Beneath the headlines, I'm guessing ESPN and its ad network partners were struggling unsuccessfully against channel conflicts in the market that diminished CPMs, not the brands. Also, I think they most likely did the math and hoped that making such a claim would increase high-value, high-CPM clientele at a rate higher than the loss of lower value ad networks.

If not ad networks, what's the next step in marketing brands online?

Battelle: The next step is to move past banners designed to drive clicks and other DR metrics. We are in the early days of brand marketing online. Some of the stuff we and others refer to as "conversational marketing" - marketing that invites consumers to engage with relevant content from the brand, its content partners and other customers - is a move in the right direction. The key in conversational marketing is to create engagement and to add value to consumers' lives in ways that build brand equity.

A controversial rival of yours, Glam Media, owns an increasing number of publishers within its network, and you recently hinted that Federated Media might be heading in the same direction. Is ownership of the distribution chain a natural next step for ad networks?

Battelle: Not necessarily. Brand marketers pay a premium to be associated with premium content. They want partners who will help build ad experiences that express their brands in premium content environments; they don't necessarily care who owns those environments. With that said, FM remains open to other models. It pays to not be "religious" when you're in a market like digital media, which is in a constant state of evolution.

What do you say to a publisher within the FM network who's being courted by a major media company, like, say, Condé Nast?

Battelle: FM is author-driven. What's best for our partners is best for us.