'Marching To Our Doom' And Other History Lessons

by David Payne, Oct 29, 2008, 7:00 AM

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When Ted Turner was presented with a lucrative plan to move the Atlanta Hawks to the Atlanta suburbs 12 years ago, he famously elected to keep the new arena downtown against the strong advice of his financial advisors, because he believed it was the right thing to do to keep the downtown area healthy and vibrant despite the worse economics for the team. One of the team executives turned to me after that decision and said, "David, we're marching to our doom."

History has proven Ted right ... and history has a funny way of repeating itself. I can't help thinking now that -- unless online publishers stand up and start to do the right thing for the long term instead of taking the easy cash now -- we are, indeed, marching to our doom. And this time, no one will be proven wrong.

Much has been made about the disproportionate share of online advertising inventory from major online publishers that is finding its way to remnant ad networks. This inventory is sold on the cheap to direct response advertisers who blanket premium sites with dancing girls and strobe lights in an annoying PPC attempt to make a user click. The truth is, in an attempt to secure some value for their bulk unsold inventory, large sites are slowly destroying their own value propositions.

One of the clear causes of this paradigm is the fact that there is too much inventory. Sites are growing page views and users at a fanatical rate, but not taking the time to cull the number of ads or reduce the clutter. Increasing page views should be banned as a rewarded practice in favor of increasing yield on users and pages. The focus on page views as a key performance metric for an ad driven business is misplaced and more emphasis needs to happen on the supply side of the equation. Premium publishers need only look in the mirror to see who created the environment that has attracted the parasites eating away at their valuable offerings.

So, what to do? History has many examples of industries actively managing their supply and demand. Until the late nineteenth century, only a few pounds of diamonds were being harvested in the remote areas of India and Brazil. Diamond prices were astronomical due to the rare nature of this gem. When huge diamond troves were discovered in South Africa in 1870, prices dropped dramatically, and the separate groups that financed the mines had to align their interests to ensure that production was minimized to keep prices up. A more contemporary example lies in the management of airline ticket inventory. Fuel prices are crippling the airlines, and in order to protect their margins, airlines are canceling even sold flights to reduce supply.

As an industry, online publishers should be monitoring the growth of ad spend against total ad impression growth. If impression growth exceeds revenue growth, everyone will be facing downward pricing pressure. For those of us that are not in the "Big 4," we need to be working together to create strategies to keep our valuable audiences ... valuable. In short, we need to create diamonds; not more commodities.

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