Five Fatal Flaws that are killing local Internet plays

Posted on 03. Jan, 2009 by in Uncategorized

From Dave Chase

One of my observations from attending the New Business Models for News conference was that virtually all of the new business model discussion was about ways to lower production costs or new ways to fund journalism. While those items help, I’m convinced the only path to long-term economic viability is to directly address the revenue problem. The level of innovation happening on the production and funding side of the equation needs to be matched by innovation on the revenue side. I hope this post contributes towards that objective.

In my “lightning round” talk at the New Business Models for News, I spoke about some of the successes and lessons learned that we are having with the local sites (NewWest.Net & SunValleyOnline.com) in our new venture (NextNewsNet). Since a core purpose of NextNewsNet is to help other publishers succeed, it has given us the opportunity to talk with many other local publishers. Unfortunately, I have observed 5 fatal flaws that will lead local Internet plays to fail as many before them have. These are entirely avoidable but most are falling into these traps. Laid out below are the flaws and a high level summary of how to avoid those fatal flaws.

1. Farming Hunters.
I have blogged previously about Farming Hunters and Hunting Farmers which is a common mistake present in sales organizations. That is, people who are skilled at managing an existing customer base is a far different talent than “hunters” who know how to find new business. We strongly believe in having clear role definitions throughout the sales process with accompanying job descriptions and compensation models. We define 4 main types of reps — Lead Qualification, Acquisition, Development and Retention. In our experience, many of the newspaper organizations we’ve worked with only have “farmers” that have managed a book of business for a long-time. They not only are ignoring 80-90% of the advertising market that has been out of the reach of newspapers but they simply have a different skillset than those with skills to develop new business.

2. Expensive sales people and processes for low dollar advertisers
It’s a mistake to think that an advertiser still relatively new to online advertising will spend at the same level as an advertiser that has been in the newspaper the last 20 years. The aforementioned 80-90% of the local advertising market that didn’t advertise regularly in the paper is generally going to spend less per year. Nonetheless, traditional and expensive shoe-leather sales models are the rule rather than the exception. In my consulting business, I have seen technology and media companies closing business into the low six figures via phone-based sales models. With the dramatically lower cost of sale of a telesales organization, one can service a segment of advertiser previously out of reach of most local media organizations. Unfortunately, most media organizations have little experience building and managing a telesales organization which is fundamentally different than a field-based sales organization.  I’m convinced that building or buying this competence is absolutely vital and should start tomorrow.

3. Inability to quantify the value of your audience and articulate a return-on-investment to a prospect.

For most local advertisers that are relatively small businesses, Internet-based advertising is still quite new. They have a hard time understanding online advertising. Consequently, they don’t know what to make of the numbers thrown at them by a typical sales reps. [Some reps further confuse the issue by not knowing the difference between "hits" and "pageviews" or "unique visits" and "unique visitors".] They might ask themselves “is a million pageviews good or bad?” or “if they have millions of pageviews, should I expect hundreds of thousands of visitors from them when I advertise?” A successful online seller needs to not only know the basics of their site (e.g., quantity of visitors, demographic summaries, etc.), but they also need to have data specific to a typical advertiser’s business and be able to calibrate expectations of what they should expect out of an online campaign (hint: it’s probably closer to dozens of customers vs. hundreds of new customers). Taking this information and enabling the advertiser do a basic return on investment calculation is vital.

4. Cluttered sites with postage stamp sized ads
I’m not the first one to write about this but it is still the norm for most local media websites. They are extremely cluttered with tons of ads per page. One of experiences from my last role at Microsoft was being on the Executive Board of the IAB following the dotcom bust. I was integrally involved in forming the Universal Ad Package ad standard. In order to arrive at that standard, we did a boatload of ad effectiveness research about ad sizes, placement and quantity. The short version of the findings is that fewer, bigger ads not only perform better but also sell better.

5. Rate card as after thought vs. a strategic selling tool
The typical way an online seller deals with a rate card is just lobbing the rate card across the transom without explanation. To make it a strategic selling tool, there are two elements that are critical. First, it is important to recognize that a drawback to online advertising is you can’t tell the advertise to look at page A6 or watch the News between 5:30 & 6:00. Unless it’s a permanent sponsorship slot, it is likely that Murphy’s Law will rear its head and the advertiser will never be able to see their ad when they go to the site. One way to combat this is to sell your site at a more granular level than most sites. This increases the odds of the advertiser seeing their ads as well as gives your site a range of ad prices depending on the advertiser’s appetite. Second, creating scarcity by only allowing a certain number of advertisers in a particular section creates a sense of urgency that is often absent with online. The deadline of print creates urgency whereas online is viewed as having no deadline. Done right, this can also set the stage for improved advertiser retention as you should be able to overdeliver against the impression levels that the advertiser originally bought their campaign under.

14 Responses to “Five Fatal Flaws that are killing local Internet plays”

  1. Mark Morgan

    04. Jan, 2009

    This is one of the first cogent posts I’ve seen on how we can better monetize our sites. Do you have a way of getting ahold of the author of this post?

    Reply to this comment
  2. Alan Jacobson

    04. Jan, 2009

    Great stuff, Dave.

    Here are my ideas on boosting revenue by increasing page views (and additional ads served) by boosting stickiness:

    http://brasstacksdesign.com/sticky_web_sites.htm

    Reply to this comment
  3. Bob

    05. Jan, 2009

    What he said.

    Reply to this comment
  4. Dave Chase

    06. Jan, 2009

    Alan – Great stuff. Very thought provoking. Thanks for the link.

    Mark – You can reach me at dave [at] sunvalleyonline -dot- (com)

    Thanks again to David Cohn and Jeff Jarvis for catalyzing these discussions.

    Reply to this comment
  5. Steve Groves

    07. Jan, 2009

    With respect to point #1, I once had a mentor who classified all of his account reps as one of ‘finders’, ‘minders’ or ‘grinders’. Each had a distinct role in the agency and a compensation plan that acknowledged their unique function in servicing their customers. It rewarded excellence in differing disciplines.

    The newspaper business could take a lead from such thinking and create commission systems that reflect the distinctive nature of ‘finding’ versus ‘minding’ sales reps.

    @SteveatLFPress

    Reply to this comment
  6. Dave Chase

    07. Jan, 2009

    I love it. Finders, minders and grinders. I get the finders and minders. Can you expand on “grinders” and what their role was?

    I always like borrowing ideas from other industries to solve issues. My favorite is Southwest Airlines studying NASCAR pit crews to improve their gate turnaround time. Southwest realized they had somewhat similar challenges — quick turnaround while ensure safety is paramount.

    Reply to this comment
  7. Dave Chase

    22. Jan, 2009

    I received several emails and a couple calls about this post essentially asking “what do you recommend?” In short, I told them that people first need to understand their biggest gaps in revenue readiness. I’m a part of a consulting group that works with all kinds of tech companies (SaaS, enterprise software, social networking, etc.). We developed what we call a Revenue Readiness Scorecard that helps our clients with that process. I have adapted it for local media and posted it at http://www.revenuereadiness.com.

    Reply to this comment
  8. fred wilson

    22. Feb, 2009

    dave – this is so spot on. i’ve been noticing that traditional media is doing a great job reinventing product but a terrible job reinventing sales

    Reply to this comment

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