Jim Spanfeller the outgoing CEO of Forbes.com has an interesting take on the troubles facing the publishing inventory (Hat tip Felix Salmon). He contends that online advertising rates are so low because the publishers are fundamentally underpricing for the product that they offer. Money quote
What they should not do is allow some sort of invisible hand (or should I say hands) to price their inventory against a backdrop of objectives that can and often does change at a moment’s notice. This practice has fundamentally driven pricing down across the web and, perhaps more importantly, changed the success metrics from ones based on “demand creation” to ones driven by “demand fulfillment.”
There are two parts to this argument. One is that online medium is very good at demand fulfillment, think Google Ads, contextual advertising, and that business is essentially a race to the bottom as far as pricing goes. My previous comment on the Craigslist story, is at the heart of it about destruction of a business model. This is not the first time it has happened also, Microsoft did it to the encyclopedia business with Encarta, Online directories did it to the Yellow Pages and lest one think this is only about the online world, Japanese car makers did it to American ones and currently even though not many people are aware of it, Huawei from China is doing it to the telecom equipment vendors like Cisco, Motorola and Nokia-Siemens. These businesses are fulfilling demand at a cheaper price with sometimes better quality. Infact the British did it to Indian weavers 250 years ago. Nothing new under the sun here, destruction of business models and changing of the dominant players is a normal part of ongoing innovation.
The other part of the argument which is more relevant and has not had much thought behind is what happens to the core function of advertising which is demand creation. In all the brouhaha of Permission Marketing, CTRs and Web Analytics, one important aspect of business is forgotten, which is demand creation. It is not enough to get customers to buy what they need, but also what could make their lives genuinely better and for most products if customers don’t know how their life could be better they would not buy it. Apple is the quintessential example of this. They build products which consumers are not really searching for but once they have it cannot live without. Another company which actually does this fairly regularly, even though it worships at the alter of data is Google. Demand creation is an severely under-represented aspect of marketing. The fetishisation of measurement has led us to a road where demand creation is outsourced to spammers and SEO sleaze.
Demand Creation is a much harder nut to crack, especially online. One of the ways is obviously viral marketing, but not all products are amenable to a viral approach. Creating a demand for a product, is a subtle art and trusted online properties can definitely play a role, by being a gate-keeper. NYT or New Yorker are trusted sources, so are local papers and they should charge for creating that trust. Paradoxically the route may be by creating a scarcity and charging exorbitant rates. It signals to the customer that the business is serious enough to spend that money to get in front of them. Not by buying cheap inventory from an ad network.