One of the latest trends in online media is for large publishers to add content recommendation widgets to their Web sites. The goal is to introduce another revenue source by working with a third party and hopefully making a better experience for content-hungry site visitors.
Although these widgets seem innocent at first, they can slowly drain a site of all revenue without the publisher noticing until the very end.
There are a few big issues with this practice in its present form, but they’re easily preventable. One of the first courses of action is to protect your current revenue streams. Internal sales teams work hard to drive revenue at the big publishers, but content recommendation tools can quickly undo their efforts. The way these tools are currently set up, advertisers have access to inventory on a publisher’s pages in a slightly different format and a drastically reduced cost. This can be as much as 95% off of the direct-sale price.
Why would an advertiser pay a $10 CPM to get an effective $5 cost per click, when they can buy the same amount of traffic on the same site from a content recommendation engine and get a $0.07 CPC?
Basic economics says the advertiser would go with the less-expensive option, which puts money in the third-party’s pocket instead of the publisher. Publishers need to be mindful of this and protect their internal team’s efforts.
Additionally, publishers need to consider the potentially damaging affect these engines can have on their traffic. Content recommendation units are very effective at driving click rates, but they’re so effective that they create huge traffic holes on a site. Clicks that take users to other sites basically pull clicks away from other higher-paying ad units on the same page.
Consider the math we did above. It’s safe to say a publisher would use both kinds of units (display and content recommendation) running on the same page, so each page presents options for a consumer. Clicks are hard enough to come by these days, and the chances are slim to none that a consumer will click away from a page, then surf back and click a second ad unit.
If they decide to click over to content on another site, that’s fewer clicks or interactions with the premium inventory on the page. As conversion rates plummet for those premium units, the value goes down as well. Suddenly, publishers are forced to charge lower rates for their most-prized inventory.
There is value in content recommendation, provided publishers keep consumers within their site. Internal recommendation increases page views and content discovery within a site, while ensuring consumers see more of the premium ad placements sold by the direct sales team.
Most of the models today require everyone in the network to buy in. While Publisher X puts links to Publishers Y and Z on its pages, Publishers Y and Z are also linking back to X, theoretically spreading the traffic around. That looks good on paper, but the long-term affects can be catastrophic for publishers, which are constantly in fear of commoditizing their valuable inventory.
Recommendation engines that send traffic to other sites have their place, but they should only be used in cases where the advertiser pays a premium for that traffic. Publishers can’t allow outside parties access to their audience for $0.07 per click, even if there’s a chance they’ll get some traffic themselves down the line.