Not only have Google and Facebook perfected a system in which they use third-party content to bring in advertising revenue, they’ve also mastered monetizing their user base — something traditional publishers continually struggle to do. Take Time Inc., for example. During Q4 of 2017, the same quarter that Meredith acquired the company, Time reported that 20% of their revenues came from digital advertising. Compare that to Facebook, which generates 98% of their revenue from digital advertising, and Google, which reports about 90%.
Why is this difference so stark? Simply put, Facebook and Google are much better than publishers at extracting economic value from their users through advertising. In our Q1 2018 Global Facebook Benchmark Report, Nanigans had the average Facebook CPMs (cost per 1,000 impressions) at $9.08, a 50% year-over-year increase. In their 2018 Digital Ad Pricing Stack, eMarketer had most mobile web CPMs between $0.95 and $1.31, depending on the ad unit size, which actually represented a YoY decrease.
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So not only do advertisers pay on average 800% more to Facebook than they do to most publishers, Facebook also retains all of those revenues. Meanwhile, publishers pay an ad tech tax that sees middlemen such as DSPs, SSPs and ad exchanges eating up 40–60% of media spend from the advertisers.
However, publishers can take cues from Facebook and Google and implement strategies to boost their ad revenues, including cutting out intermediaries, joining forces with other publishers, and making a long-term commitment to develop technology that performs for advertisers.
The benefits of working with other publishers
One major method that publishers are using to retain revenue is paid subscriptions. A 2018 Reuters Institute survey showed that 44% of publishing executives viewed subscriptions as a “very important” source of revenue. But despite some high-profile examples of success (The New York Times and The Washington Post have both done well with subscriptions), another Reuters Institute survey showed that 79% of readers said it was “somewhat or very unlikely” that they’d pay for online news in the future. Paywalls may help some publishers catch up, but they’re not a solution for most.
Join forces for better data
For better or worse, that means that most publishers will have to make advertising work. Despite Google and Facebook’s sway, publishers can learn a lot from them. The duopoly have three advantages over publishers: scale, identity data, and incredible ad tech.
“If publishers truly come together under a joint banner, they’ll create high-performing campaigns that advertisers will pay more for, all the while cutting out their reliance on ad tech middlemen. That’s a much better strategy than waiting for legislators to save them from the duopoly.”
For publishers to level the playing field, they’ll need to join forces. No publisher on its own will be able to stop these two giants from pulling further away. A few publishers are already starting to pair up. Condé Nast and Hearst, for instance, pooled their resources for PubWorX, and the Pangaea Alliance provides ad sales for The Guardian, CNN, Inc. magazine and others. PopSugar, Rolling Stone and New York Media recently announced they were joining Vox Media’s Concert marketplace.
Join forces for better technology
When you pool resources, you get better identity and purchase data. However, that isn’t enough. Google and Facebook have thousands of engineers focused just on advertising. Creating a better dataset is a good start; the next step is to have the combined talent and resources to use that dataset to create a shared, sophisticated advertising solution that brands can leverage.
One example of this is machine learning. Oath, Meredith or Hearst surely do not have large teams of engineers creating conversion optimization, look-alike targeting and personalized ads the way that Facebook and Google do. Further, publishers need to create self-service portals so that SMBs can purchase inventory from them directly and easily. It’s ironic that the only option most SMBs have to purchase ads on CNN’s website is through Google’s AdWords and Facebook’s Ads Manager platforms.
Overall, a lot must be done, but publishers need to act now. If publishers truly come together under a joint banner, they’ll finally gain back control of their own destinies. In the process they’ll create high-performing campaigns that advertisers will pay more for, all the while cutting out their reliance on ad tech middlemen. That’s a much better strategy than waiting for legislators to save them from the duopoly.